That was easy. Just stay away from the tenants. OK, so it's not that easy since you can't stay away from a tenant if you own a rental property...they are the "necessary evil" part of the package. You can make it less painful if you learn how to control them. There are a couple of ways of doing this.
First Method: Control the Rent Payment
The rent payment seems to be the biggest issue of control in any tenant/landlord relationship. Collecting that monthly check is probably a bigger headache than the plugged toilet call...unless your tenant, well, let's not go there. Maintenance issues are here and there issues, the rent is a regular monthly occurrence, you hope. A great tenant is probably late with their check maybe one a year...and then they leave to either a different/bigger house or location, or buy...and you cry, because you end up having to replace them with the "not so great tenant". This tenant is late with their rent for those 11 months the good tenant is on time. You end up chasing the rent down, dealing with bad checks or any number of reasons why the check is either late or short...with the promise of "next time...". So, how do you control the rent payment? Take the controls out of your tenant's hands.
Digital Payments
Have your tenants sign up for (free to them) a system that automatically transfers the rent from their account to yours...every month, on time. Think about this. If someone is automatically taking money out of your account, you are going to make sure it is there...right? Especially if there is a fee attached to it not being there. Why would the tenant sign up for this? For one, it makes it easier for them than to have to write out the check and mail it every month. Also, the company will submit positive reports to the 3 major credit agencies on their behalf. Not a bad thing to have happen in this age of credit problems...and, did I mention it was free for the tenant to enroll and use.
There is a monthly fee (very cheap) for the landlord for each tenant and the monthly fee is only around $2 from the second tenant and beyond...now that's cheap! The tenant and the landlord is notified about 10 days prior to the transfer and once the transfer takes place both parties are notified again. Just that easy. For me, this automatic rent payment program, is on of the best things I've found yet. I said one of, because you can eliminate having to deal with the tenant at all, and have guaranteed payments coming in, with easy cash flow too.
Second Method: Triple Net SF Rentals
Have someone else handle your tenants and their problems. You just receive the cash flow and pay only the debt service out of it. Your partner/manager takes care of the tenant and the rest of the expenses. You still own the property so you retain ALL of the deductions...and your 9.1 CAP income is guaranteed by the manager. When you buy the property the seller pays all of the closing costs and you get 3 months worth of security deposits too. For those familiar with the NNN commercial properties you can see the similarities. Actually, they work exactly the same way...you're just talking about SF homes instead of a commercial deal. This also means that you're not paying millions of dollars for the property. The average home only costs around $60,000. This is a great program for beginners as well as seasoned investors. I discussed this in more detail on a previous blog posting, but if you have any questions let me know.
Take this a step further and see how you can turn this into a guaranteed retirement plan by using a couple of other programs too. Buy a number of these homes, pay off the mortgage in a fraction of the time, refinance, repeat the steps using one house per year, and you have a system of getting tax free income
