Active Management or Inactive Loss
March 1, 2007
“I could just cry looking at the damage to my home,” wrote one landlord as she surveyed the damage done by a Agood@ tenant. “She never complained about anything,” and “always paid her rent on time.”
This landlord discovered that the tenant had inflicted $5,000 in damage to the property, including trying to steal fixtures and the central air unit, plus operating a meth lab upstairs.
Many landlords define a good tenant as one whose rent arrives like clockwork on the first of the month and who doesn’t bother the landlord. This landlord got both. That idea worked, huh.
As investing in the stock market becomes less attractive, real estate prices drop, and the renters we lost to homeownership come back to the rental market through foreclosure, investors are moving their money back into real estate. That shows good sense. Think about it. With real estate you pick the property you buy, you decide how much to spend on maintenance and repairs, you select the tenants. You decide all the management issues. If you buy in your hometown, you have a really good idea of where the best place to buy property is. You also, if you have done your homework, know what a bargain price is.
The down side is that investing in real estate isn’t like throwing your money at a stock and not just praying every night that the stock will go up, but that the CEO won’t drain the company=s assets into his private Cayman Islands bank account. With real estate you have to pay attention. Already too many landlords are afflicted with the disease of inattention to their investments. They let tenants manage the property themselves, not for compensation, mind you, but because the landlord doesn’t manage. And as stock-market investors turn to real estate, they will want to treat real estate management the same way they treated their stock investments.
You remember when you bought your first investment property. It starts out all fun and exciting. It’s fun to go out and look at property. Some people think it’s fun to pound nails and paint walls to get a property ready to get top dollar in rent. It gets really exciting when you run the first ad and get the phone calls from prospective tenants.
The awful truth soon hits home. After you’ve found it, bought it, fixed it up and rented it, the fun and excitement stops and the management begins. Remember, you’re in charge of your investment, not a bunch of company executives. You are the company executive. You make the decisions. You take responsibility.
To do it right, you need a management plan, just like the mega-corporation or the corner grocery store. You need to realize that you’re in business and treat your rental properties accordingly. What planning and following the plan do is put you in control–not the fates, not the phase of the moon, not the criminal activity of a tenant.
Where the landlord with the “good tenant” who paid the rent on time and didn’t complain, went wrong is that she was putting the tenant in a position to surprise her. And there are no good surprises in real estate.
Managing rental property profitably requires that you eliminate the possibility of surprises, such as the ones this landlord got, through regular inspections and maintenance planning. Had she inspected the property once every three or four months, no way this tenant would have been able to crank up a meth lab (pun intended) in the house. In addition, inspections would have allowed the landlord to get ahead of any maintenance problems, so they didn’t end up costing more money after plumbing broke or heating systems went out and caused damage in addition to the plumbing and heating repairs.
Investing in real estate is a solid, safe and sensible place to put your hard-earned money, but to be successful you have to stay in control of your investment. You have to actively manage it.
Protect your investments by active, attentive management. If you can’t do that, put your money in a mutual fund–it will be a lot safer.