My first rental property was a duplex in which I lived.
I occupied the lower unit and rented the upper unit. It was a great experience and one I will never forget. I was 18 years old at the time in 1980 and thought, “Wow, how cool is this! I get to live for free.”
I collected $350 for the rental of the upstairs unit and my mortgage payment was only $308. This left me $42, which paid for my electric bill. My housing cost was next to nothing—just a small fuel bill.
I knew I wanted more of this.
The hard lessons of property management
My next purchase of a four-unit building taught me a valuable property management lesson.
I learned that when the landlord does not live in the complex, the tenants behaved differently—a mentality of “when the cat is away, the mice must play.”
I also learned a fast and hard lesson about setting boundaries. Or, at least the lessons I learned should have been fast. The truth, as I reflect back, is that I may have been young and dumb. I think I actually let my tenants walk over me without me even realizing they were doing so at the time.
3 lessons that turned me into a great property manager
My growing challenges were:
No. 1 – Late rents
Larry’s first rental where he lived downstairs.
This appeared to become an increasing problem, but the tenants had good excuses for being late.
It took probably about a year for me to realize I could control these late expenses, but I needed to be a businessman and not the compassionate friend type of person I was trying to be.
First, I implemented a mandatory late fee. This did not fix the problem, but I convinced myself I was winning, as I was getting an extra $25 each month.
I then learned about something called an implied contract. Simply stated, if you allow a behavior to continue, it can be declared by the courts that you have an implied contract of accepting rents at any time. I was definitely not cool with this.
I knew I had to run my business more purposefully, so I immediately implemented a notice of three days intent to terminate the lease for nonpayment. Interestingly enough, things rapidly changed. Wow, setting boundaries really works in property management!
No. 2 – Many reoccurring repairs
The torn screens were almost a standing order.
Clogged drain pipes were a close second.
The common hallway fire extinguishers being played with and discharged were costing me time and money to replace.
Looking back now, I can see how easy a fix this would have been, but I believe the experience is what drives the point home. I needed to implement boundaries, and that is what I did.
Instead of just fixing the problems over and over again, I changed the leases to put responsibility for these repairs onto the tenant. When tenants moved in, they were provided all these things in great working order, and any repairs during their tenancy would be their responsibility to repair.
As for the fire extinguishers that were in the hallway always being discharged, I removed them and placed one in each rental unit ( now this is probably a mandate). The tenants could not play with these without my knowing which unit was responsible for the discharge, and wouldn’t you know—that was the last time they were played with.
No. 3 – Costly tenant turnover
Larry’s fourplex where he had the fire extinguisher problem in the hallway.
Every landlord knows that tenant turnover will be the most costly expense in property management.
While this particular fourplex property was a virtual ATM machine, as it made a great ROI, I was still spending too much time and money on tenant turnover.
I was excited when a tenant actually renewed his lease, but the norm was that most would move out each year, making me have to go through the costly release process every year. So here was another obstacle I had to overcome.
First I decided to make my leases for two years, and I was quickly able to sift through those tenants who were less committed and actually found better tenants in the process. I soon turned these two-year leases into three-year leases with a 5 percent escalator clause.
This simple change helped me find good-quality tenants who were actually very motivated to find a place to live where they could stay long-term. For the most part, the 5 percent escalator was more welcomed than I expected. In general, tenants are used to rent increases, and now they knew exactly how much the increase was going to be.
What I discovered was that tenants get very nervous during re-lease time, as they are concerned rents will have a sharp increase and they will have to move. With this going through their minds, they actually start looking for new rentals beforehand. It is interesting how different a situation looks through a tenant’s eyes than it does through a landlord’s eyes. We both have the same things on our minds (the re-lease); we are hoping they will sign it, and they are thinking their option is to move. By overcoming this up-front, we both win.
Indeed, I have learned over the years in property management that writing a great lease that imposes boundaries and makes everything very transparent up-front found me better tenants. I was much happier, as I spent less time managing tenants and fixing things and only had to focus on enforcing the terms of the lease.
Your success will come from writing a stellar and transparent lease. Then you simply enforce the lease, and your ROI will soar with minimal headaches.
Visit Larry’s website here.
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