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Manage your properties to sleep better at night

November 19, 2011

I guess I am very conservative when it comes to investment properties. I call it my “Sleep better at night factor”. I do several things to help me sleep better:

Maintain a cash cushion. I keep several thousand dollars on the sidelines available for an unexpected vacancy or catastrophic maintenance issue. This emergency fund is not earning much interest, but I like having it available. In reality, with my lines of credit – I probably don’t need to hold the cash. But once again, I just sleep better knowing that is “in the bank”.

Keep rents below market. This is done to avoid vacancies. Vacant properties do not allow me to sleep better at night. Between the lost rent and cleaning up the mess – vacancies are expensive.

Put more down and pay off quick. We typically pay more down for properties to insure they are cash flow rich. Using maximum leverage provides the best ROIs, but we prefer to cash flow several hundred dollars a month. Owning our properties free and clear properties is our ultimate goal. The couple of investment properties that we have financed are old primary homes and those are on recently refinanced low rate 15 year mortgages.

Carry plenty of Insurance. Get your LLC and/or PLUP set up to protect yourself. This is a whole topic that I am sure we are all aware of and I won’t start the debate on how best to do this here.

Check on my properties. This can be as simple as a drive by when I happen to be in the neighborhood. I usually drive by the front of the house and through the alley.

Stay in touch with my tenants.  I personally pick up my rent on most of my properties. On occasion, we get a really good tenant and we can set up an auto-pay program. Stopping by at least once a month just keeps the line of communication open and ideally eliminates the “surprise vacancy”.  

Respond to maintenance issues promptly. When a tenant calls about a maintenance issue, I jump on it right away. This should help you to maintain longer term tenants and it’s just good business practice.

Preventive Maintenance.  Spending a few bucks wrapping pipes, checking smoke detectors or replacing air filters is something that I think makes sense and ends up paying off in the long run.

Lay down the law when they move in. I have gotten better at this with each tenant. As they are signing the lease you should really let them know what you expect. My emphasis is on paying the rent on-time and providing adequate notice at move out.

You can do all of these things and there will still be those nights where sleep will not come easy. Tenants do stupid things that lead to surprises that no amount of preparations could eliminate.

 

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From → Landlord

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