For 2 1/2 years I worked for a property management company. Going into it, I thought it was a great job. You see, I love real estate as an investment. I had this plan to climb the property ladder and build a portfolio of rental properties.
When the opportunity came up to work for a property management company I thought it would be a great way to my hands dirty learning the ins and outs of managing rental property without the risk of actually owning the property.
I ran the whole show – everything from advertising to tenant screening to rent collection to evictions. It was good way to learn. I had my hands in every part of the process. The downside is, I had to deal with the headaches that came with every part of the proces.
One of the biggest headaches was dealing with evictions and property damage. Those two usually went hand in hand. It’s rare that a tenant that pays their bills damages your property.
I don’t know if they caused damage because they didn’t care or if they were vindictive because we were trying to collect rent.
The worst case was a house we managed in a not-so-nice part of town. The investor bought it for a whole $27,000 and I think he may have overpaid for it…The house was a dump.
There was a tenant in the property when he purchased it, but they only made one rent payment to us. After that it was a 3 month process of chasing them down and finally evicting them.
When I got into the house…holy cow…
It was disgusting.
I think it would have been better if they burned the house down before they left.
I took a step in the door and the carpet started crawling. Roaches literally covered the entire floor. There was a half-eaten, moldy birthday cake on the kitchen table. Animals had been kept in the house and apparently were never let outside.
It took an exterminator 7 trips to get rid of all of the roaches. All of the carpet had to be replaced. There were several places in the sub-floor that had to be replaced because of the urine. The entire house had to be sealed and painted to cover the smell.
At the end of the day, the investor spent nearly $10,000 rehabing the house – more than 1/3 of his initial investment.
That scared me away from real estate for a long time. It seemed like there wasn’t a good way for an investor to protect themselves.
I’ve come to learn that’s completely wrong. There are a number of ways to protect yourself. A situation like that should never have happened.
First, do your due diligence before buying an occupied property. If he would have personally inspected the property, he would have noticed that the interior needed a significant amount of work.
Second, don’t buy a property on the wrong side of town unless you’re willing to be a slum lord. I don’t know about you, but I don’t like fearing for my safety when I visit the property.
Third, consider landlord’s insurance. It’s an insurance policy that covers both accidental and malicious damage caused by tenants.
Having insurance allows you to even out your cash flow. You have a small payment each month, but you won’t have the risk of a large expense due to damage that could kill your profit for the entire year or longer.
Real estate can be a huge risk and a huge headache if not done right; however, if you do your due diligence and offset risk using insurance, it can be a great investment.