The Unexpected Costs Of Being A Landlord
Owning rental property is the dream of millions of people and not planning for unexpected costs is one of the fastest ways to destroy that dream.
Investing in real estate is one of the best ways to build your wealth.
The model is simple. Purchase homes that you can fix up and then rent to families needing a place to live. These ideal tenants take perfect care of your investment, pay rent on time every month and stay for years. And you, as the landlord, have a stable source of income each and every month.Investing in real estate is one of the best ways to build your wealth. Click To Tweet
This can and does happen with most tenants every single year. These people help build the passive income of the landlords they rent from.
What Happens When Unexpected Costs Occur?
But, things don’t always go as planned. Sometimes, it seems like everything goes wrong all at once. Unexpected costs can be a nightmare. Instead of making money every month, you are spending money hand over fist. It seems like nothing you do stops the money from flowing out of your bank account. With no money is flowing in, panic can start to set in.
Unexpected Vacancies Can And Do Occur
There is nothing worse than thinking you have found a great tenant only to find that something has happened and the tenant is moving. Three of the most common excuses that lead to unexpected costs are listed below.
- Loss Of Job
- Don’t Feel Safe
- Family Situation
There is no way to predict a job loss. The tenant seems to be stable but for some reason, loses his job. Unless a new job that pays well can be found quickly, the tenant will not be able to pay rent and will need to move.
Crime In The Area
Another common cause of unexpected vacancies is that the tenant doesn’t feel safe. Crime can happen in any area. Whether there has been a shooting in the area or the tenant’s house was broken into, a tenant that feels unsafe will move. There is really no way to stop this from happening.
If the home has been broken into, you should consider upgrading the security in the home. Install security doors, bars on the windows and / or a security system to make the next tenant feel safer.The unexpected costs of being a landlord can be very stressful. Click To Tweet
One of the most common family situations that results in the tenant moving is a death in the family. I have had a number of tenants move because a family member is very ill or has died. Typically, the family member doesn’t live in the area and the tenant has to move back home.
Lease Breaking Is The Result Of All Three Issues
In all three of the above situation, the tenant will be breaking the lease and costing you money. You need to try to mitigate your losses the best you can. Remind the tenant that he is responsible for paying the rent until you get the home rented to someone else. The best way to do that is if he leaves the house immaculate. The longer it takes you to get the house ready to rent again, the more it will cost him.
Go ahead and list the house for rent, even if the tenant is still there.
If the tenant isn’t moving right now, get permission to show the house to prospective tenants.
Do a pre move out inspection and see if there are any damages. Negotiate with the tenant to get him to fix minor problems.
If there are repairs to be done, schedule them while the tenant is still in the home. The goal is to have the home ready to rent the day the tenant moves out.
Other Scenarios That Lead To Unexpected Costs
Tenants love it when the landlord supplies appliances but I have found that they rarely take care of them. A common problem is that tenants have a tendency to pack up the appliances when they move out.
One way to combat this is to schedule a pre-move out inspection. I try to schedule this inspection about 30 days before the tenant moves out assuming there is time. If not, do it at least a few days before the scheduled move out. At this time, I remind the tenant that the appliances remain! I also remind them to patch holes, take all of their belongings and throw away the trash!
It isn’t a fail safe method but it has cut down on the incidents of the appliances leaving with the tenants. Sometimes they just forget but other times they can’t afford new appliances and the new place doesn’t provide them.
Tenants that up and move out are a huge unexpected cost! One of the worse case scenarios is to not get the rent for the month. Then you drive by the house, only to find it vacant and destroyed. There is no rent money coming in, the home requires hundreds, if not thousands of dollars in repairs and the tenant is no where to be found. This can be enough to put many small landlords in a terrible financial state.All landlords need a rainy day fund for those times when your tenant does not pay the rent. Click To Tweet
What Can You Do To Protect Yourself
The goal of every landlord is to find the best tenant possible. Screen every applicant thoroughly! Do not just pick the first applicant that applies just because you can’t “afford” the vacancy! I see this happen time and time again. A bad tenant will cost you a lot more than a month’s rent!
Even tenants that were once great can have a change in circumstance. Bad things happen to the best of people. You, as a landlord, must plan for these unexpected costs. There may be years where everything is great. Tenants come and stay for years. Rents come in every single month, mostly on time. Your rental homes are well taken care of and you are not spending much money on them.
Rainy Day Funds Help Defray Unexpected Costs
Responsible landlords plan for these bad times and save money. Put at least a portion of the monthly rent in an account that you save for a rainy day. No matter how great your tenants are, there will still be something that needs to be repaired. It is much less painful to pull the money out of a rainy day fund that out of your personal bank account!
This rainy day fund will also help cover costs if you have a costly turn over. Having this fund may be the difference in you surviving the vacancy and losing your investment to the bank!