Managing your investment rental property is a very distinctive and different experience for many property investors.

We were all taught as kids to help other people out whenever the opportunity presented itself.

Walking an old lady across the street or visiting someone in the hospital, these random acts of kindness were highly encouraged.

And this is still very good advice – for your personal life.  But when becoming an effective property investor and landlord, they should be avoided at all costs.

Allow me to explain.

Landlords Who Do Favors For Their Tenants Don’t Get Very Much Sleep

Keep your rent collection policy simple.  And enforce it relentlessly.  Everybody pays on time (and in full) or they’re out.  Rent is due on the first and late on the fifth.  If someone decides not to pay, you or your property manager must have a simple yet swift response.  File for eviction on the 11th of the month – no matter the story.

When those papers are tacked on the front door, it makes a statement.  A tenant should be given the opportunity to bring their delinquent account current and many times they do.  But as a serious real estate investor, you have to let them know you mean business when it comes to the rent.

Never, Ever Waive Late Fees

Property managers who don’t enforce late fees are not treating their tenants fairly.  You may be thinking, “what is he talking about?”  Well, you see if you don’t enforce late fees, why should anybody pay you on time?  If there are no late fees, there are no incentive to be responsible here.  Whenever  a tenant chooses to pay the rent late, there must be a financial consequence waiting there for them.  Also by consistently enforcing late fees for your business, you can create a new profit center.

Fee income is great because you get to charge for something that costs zero dollars to produce.  Very powerful idea here.

Landlords Who Accept Excuses End Up Walking Around With Empty Pockets

As soon as a property manager begins to listen to a tenant’s excuse for not paying the rent, the flood gates will open.  I made this same mistake when first started out buying investment property.  As soon as I accepted the first excuse for being late, guess what we discussed the next month?  You guessed it.  Why the tenant was going to be late AGAIN!

I know this sounds a little inhumane but trust me here.  Don’t do it.

Be polite and always remain respectful.  But as soon as the tenant attempts to pull out an excuse, withdraw immediately.  In fact, effective property managers know never to discuss why the rent is going to be late.

The only discussion a property manager should have about this subject is determining when will the rent be paid and if it’s late, calculating the total amount in late fees.

There’s more than one way to skin a cat.  And there’s more than one way to buy investment property.

Experienced property investors realized a long time ago that in order to grow their businesses, they had to develop multiple lead sources.

Apartment Building Investing Is Very Powerful

Don’t limit yourself to “fixer-uppers” single family houses.  These investments are great, but the competition is usually very fierce.  Have you ever thought of investing in smaller apartment buildings?

For example, a four-plex or four unit apartment building is a great way to get started as a property investor.  All of your maintenance and repair activity is limited to one location.

These investment properties have been known to generate some great monthly cash flow – provided you do your homework and buy the property right.  Targeting MLS listings and “driving for dollars” are two solid lead generation techniques for locating these properties.

Vacant Apartment Buildings

If you locate a vacant or distressed apartment building, there are several steps you can take when pursuing the property.  A local property search (at the courthouse) will usually tell you who the “owner of record” is of the apartment building.

Once you have this information, you can telephone the owner and strike up a friendly conversation with him or her.  Let the owner know that you’re a serious property investor in the area and you’re interested in purchasing his/her apartment building.  Tell him you can have an attractive offer ready in a week if he’s interested.

If the owner indicates he’s not interested, thank him politely.  And always follow up by sending out a hand written letter and your business card.  Many property investors have bought from owners that eventually changed  their minds.

Have Your Investment Property Paperwork Ready To Go

Always have a confidentiality agreement ready before you meet with any potential seller.  Having your paperwork in order makes you look professional and let’s the owner know you’re a serious buyer.  If the seller agrees, hand deliver the agreement to him.

This is a great opportunity to introduce yourself and develop some rapport.  A confidentiality agreement is usually required before you can see the property’s financial statements anyway.

Most sellers don’t want you disturbing the tenants, so the interior inspection may have to wait until you have an accepted offer in place.  Of course if the property is vacant, this would not apply.  Just make your offer contingent upon an acceptable property inspection.

The Real Estate Road Less Traveled

If you do what other property investors do, you’ll end up having what they have.  And from what I understand, about 95% don’t have a pot to “you know what” in.  Or something like that anyway.

We’ve all heard this little tidbit of property investment advice at some time or another.  If you consider yourself a real estate investor and spend your time studying the real estate classifieds or riding around looking at listed properties, you’re working too hard.  You see, since everyone in your market has access to this same information on a potential lead, the competition will be fierce.

Buying Properties That Aren’t For Sale

So how can you buy investment property at steep discounts and virtually eliminate the competition?  One alternative approach is to focus your efforts on buy investment properties that aren’t yet for sale.

This is an insider secret that seasoned investors have used to purchase a ton of  residential investment property.  These leads are typically neglected and run down houses and small apartment buildings.  When you focus your efforts on investment properties that aren’t currently listed for sale, you virtually eliminate the competition.

We Buy Ugly Houses

Some property investors place an ad in the local paper advertising for ugly houses.  Owners who are ready to get rid of unwanted property will call off the ad.  People who respond to these ads are motivated.

Some examples, may be:

• Out of town owners
• Overworked landlords
• People who have inherited rental property and are not interested in managing the real estate.

When you can help these sellers solve their real estate problems – you get paid handsomely for doing so.  Just remember you’re looking for problems to solve and not houses to buy.

Good hunting.

Real estate investing offers so many benefits to the small investor, they couldn’t all be listed on paper.

From generating monthly cash flow to the numerous tax advantages, real estate investing is simply awesome.

However, there is one potentially uncomfortable part of the business that everyone wants to complain about.

Yep, you guessed it.

Evicting those nasty tenants, there I said it.  There are several eviction scenarios that experienced property investors have come to expect.  The key to managing these situations is for you to become both educated and experienced in this part of your business.

Remember, these situations are very manageable and predictible, if you have the right systems in place to handle them.  Let’s go through a few of them shall we?

Reason #1: Evicting a Tenant for Non-payment of Rent

This will be the reason you evict a tenant 99% of the time.  You should always be prepared to file the eviction when the rent has not been paid.  The biggest mistake I see struggling real estate investors make is not filing the eviction soon enough.

The tenant will call in and give you a sob story.  You wait for the rent to come in and it never arrives.

We always file for eviction on the 11th of the month, no matter the excuse or story.  The tenant should be given the opportunity to bring the delinquent account current.  But by filing the eviction you send out a clear message that everybody must honor their rental agreement.

Reason #2: Lease Violation

Grown adults should know how to behave themselves.  In many landlord/tenant situations, they do not.  That’s why we have leases.

In most cases, the lease violation involves disruptive conduct, disturbing the other neighbors or causing extensive damage to the property.  When a violation occurs, the landlord must provide a written warning and give the problematic tenant  an opportunity to remedy the problem.  The judge will usually rule in favor of the landlord if it is established the tenant ignored a prior notice and the deadline.

Reason #3: Bankruptcy

In the event a tenant files for bankruptcy, an automatic stay prevents a landlord from continuing with the eviction proceedings until the bankruptcy is resolved, or the bankruptcy court permits eviction proceedings to continue by lifting the stay.  This may require a motion to be brought before the bankruptcy court, asking for the stay to be lifted.  This is a worse case scenario for many property investors.

This third scenario is a rare occurance – I have never had a tenant file bankruptcy.  And I hope I never do.

Why would any sane real estate investor buy something before he saw it?

The majority would think that buying investment property before you see it is too risky.

What if I told you there was more to real estate investing than meets the eye?

When you think about it, real estate investing is really just a numbers game.

Why Would Any Sane Person Do This?

There will be times where a deal comes along that looks really good on paper.  Say you run across a small apartment building lead in the MLS or on the Internet and the preliminary numbers look attractive.  You may want to tie up this property in a way that will allow you to evaluate the investment while keeping other hungry real estate investors away.

I learned this technique from an older real estate investor friend of mine.  This guy used to send out offers on a hundred MLS listings at a time, offering 50% – 65% of the asking price on each property.  Occasionally a few sellers would accept his offers.

My investor friend never had to look at these properties beforehand.  By including an “inspection and approval” clause in the offer meant he could always back out of the deal later if he saw something he didn’t like.  Meanwhile, he was able to find a truly motivated seller with very little effort.

This true story demonstrates that with a good clause or two in the purchase agreement, you don’t have to worry about visually inspecting a property before making an offer.

Time Is Money

The main reason an experienced property investor may skip looking at a property before making an offer is time.  This is certainly true if the property is several hours away or located in another part of the country.  Of course there will come a time to physically inspect a property, but looking at the numbers is how you really invest.

Just To Clarify Something Here

Buying investment property “sight unseen” is only one technique that should be used under certain situations where an investor is under a time constraint.  If you’re just starting out in real estate investing, I highly recommend that you go out to each investment property and inspect it.

Buying “sight unseen” is a more advanced technique with a built-in escape clause.

When you take the time to write something down, you never forget it.  Writing down your real estate investment criteria means writing down your needs and wants on paper.

It means outlining what has to be in place in order for you to pull the trigger on your next residential investment property.

Having a written list of criteria can help you grow as an investor and can make it easier for you to land those really huge deals.  If you to join the ranks of real estate investors, you might want to have formal written investment criteria set out for yourself.

Write Your Investment Criteria Down

Documenting your investment criteria allows you to see (in an instant) whether an investment opportunity fits into your future  acquisition plan.  This allows a property investor to quickly sort through potential opportunities and to pinpoint the right ones.  If you haven’t yet outlined exactly what your criteria are for selecting an investment property, now’s the time to put pen to paper.

When developing your written criteria, you also need to consider what you DON”T want.

Have You Ever Considered…

Outline on paper the best real estate deal you’ve ever put together.  What were the steps you took in order to acquire the asset?  What were the major obstacles you had to overcome?

Were you prepared for the surprises?  Or did you get blindsided?

Follow The Formula

What if you applied these same formula steps to every real estate deal you made?  What kind of real estate investor would you become?  You want to outline exactly what you do when you’re at your best, and add this to your written criteria.

Write Down Your Own Standards

Finally, and maybe most importantly, outline the standards by which you wish to live by as a real estate investor and entrepreneur.  What are the ethical boundaries you’re not willing to cross?  What do you want to stand for as a real estate investor and what sort of business do you want to have as an entrepreneur?

This may seem like abstract thinking at first, but this will help you in continuing to outline exactly the sort of investment opportunities you want to capitalize on in the future.  The best real estate investors have a code of conduct, you should too.

Purchasing a small apartment building is a fantastic way to watch a very powerful asset generate thousands, even hundreds of thousands of dollars in a very short amount of time for your business!

A popular investment strategy, especially for new property investors, is to target a more run down, mismanaged apartment building at a higher cap rate.

What Is The Cap Rate?

The cap rate, or capitalization rate, is found by dividing the net operating income by the purchase price.  Poorly performing apartment buildings often sell at higher cap rates because of the perceived risk associated with them.  Most of the problems with these investment properties are easy for an experienced investor to solve.

What Information Do You Need To Know About The Investment Property?

Before purchasing a small apartment building (or complex), experienced property investors need to do their due diligence.  When it comes to investing in properties, you have to become a fact finder.  And in the end, the property investor lays all the facts out on the table and makes an investment decision.

Obviously, an experienced property investor will want copies of all the financial statements, especially the income statement for the last three years.  Rent rolls for the last three years should be collected and reviewed at this point in the due diligence process as well.

The Income Statement

By reviewing a property’s income statement, you’ll be able to analyze the gross rents, net operating income, and all the of the small apartment building’s operating expenses.  Experienced property investors know that every line item expense needs to be verified.

Don’t take the seller’s word for it.  As a property investor, you must be 100% certain that all the numbers are accurate.

The quality of your investment decision is based on the accuracy of the numbers being used in the analysis.

The Unit Mix And Condition

You must know how many units are in the complex, and what condition they are in.   Some investors accomplish this task by only checking a certain percentage of the total units and assuming that most are in that condition.  However, it is always better to check all the units so you know exactly what condition the apartments are in.

Effective property investors always take the extra time to walk and inspect every unit.  The more problems you can identify, the more leverage you can bring to the table when negotiating a final price for the building.

The Vacancy Factor

When an apartment building has a higher vacancy factor (20% or higher),  you can safely assume the property manager has not done a good job of managing the asset.  However, if you plan on renovating the property, then the larger vacancy factor offer more opportunity to build a stronger monthly profit stream.  When the new property owner can fill these vacancies (or solve these problems), the return on investment dramatically increases.

And so does the property’s monthly cash flow.

Review The Current Leases

Make sure to review all current leases provided by the seller.

A seller may attempt to manipulate their vacancy factor by falsifying leases, just to make the property more appealing on paper.

Don’t fall for this – make sure you verify all of the rental income at this stage in the process.

There are many other factors to evaluate when purchasing a small apartment building, hopefully these will give you a good head start.

When you do end up purchasing a small apartment building, please let us know about your investment experience by posting a comment here.

Thanks

The experienced property investor knows that there are many different approaches to finding investment property lead sources.

Dominant real estate investors make sure they have multiple lead sources at work every day of the week.

Simply put, great property investors increase their odds of success by finding more deals.  So who is more likely to bag that 20 unit apartment building?  An investor who looks through the MLS listings and calls it a day, or the one that has multiple lead sources?

Here are ten other ways to find investment property leads:

1. Word Of Mouth Advertising

Let people know you are looking and sometimes the properties will come to you.  There are a lot of owners out there who want to sell, but haven’t yet listed their property.

2. Use The Internet

Go to a search engine like Google and enter the type of real estate you are looking for, along with the city you want to invest in.  You never know what you might find.

3. Drive Around And Target “For Sale By Owner” Signs.

Owners often don’t want to pay to keep the ad in the paper every week, so you won’t see all properties there.

4. Find Abandoned Properties.

That’s a pretty clear sign that the owner doesn’t want to deal with the property.  He might might just want to get rid of it.

5. Find Old “For Rent” Ads

Call if they are a few weeks old.  Landlords are often ready to sell, especially if they haven’t yet rented the units out.

6. Talk To Bankers

You might get a foreclosed-on investment property cheaper if you buy it before they list it with a real estate agent.

7. Offer A Finder’s Fee.

There are people that always seem to hear about the good deals.  Have such people coming to you.

8. Eviction Notices.

If your local papers publish eviction notices, or if you can get the information at the courthouse, it can be useful.  A landlord who just went through the procees of evicting a problem tenant is a possible lead.

9. Old FSBO Ads

If you call on two-month-old “For sale By Owner” ads, and they haven’t sold, they may be ready to deal.  Many property owners get frustrated with the process,  but still would love to sell. Help them out!

10. Place An Ad In The Paper

“Looking for investment properties to buy,” might be sufficient to generate a few calls.

There are several key “buy signals” that experienced property investors look for when acquiring new investment property.

Mostly we look for signs of neglect that cause the physical condition of the property to deteriorate.

One of the  biggest problems that can arise is the presence of mold in a potential investment.

Now let me say that there’s a huge difference between ordinary mold and BLACK MOLD.  Most of the mold property investors find in residential investment property is not black mold.  Just remember that black mold is the bad stuff.

Black Gold

There are thousands of different types of mold that we know of, but only a few can cause the kinds of problems you hear about all the time.  Mold is difficult to find as it grows exclusively in dark and moist areas that are usually hidden somewhere in the structural areas of the property.

By the time mold shows up in the actual living areas, chances are that it’s spread throughout the house or apartment building.  Mold has to have water in order to live.

So experienced property investors look for any source of water that may be leading into the house or property.  Leaky plumbing and basement crawlspaces are breeding grounds for this stuff.

Cut Off The Water

The key to removing or remediating mold is to eliminate its water supply.  After the water source is removed, you can simply spray the mold with bleach to kill it.  If you’re just getting started in the real estate investing business, you may want to hire a qualified environmental consultant to help you with the problem.

So one man’s blessing is another man’s curse.  In most cases, mold is an easy problem to solve.  Experienced property investors already know this.

One of the most common issues that many property investors must deal with when they have investment rental property is loud music.

It is not uncommon for many renters to either play music quite loud or play an instrument.

This can be disturbing to neighbors and as a result you may receive phone calls of complaint.

How you handle these issues is quite important because it involves a fine balance of maintaining happy renters and yet ensuring that neighbors surrounding your investment property are not disturbed.  In the event that you own a multi-family property this can be even more of an important issue as other tenants in the building may not appreciate being disturbed by loud music.

When you are facing this type or problem there are actually several different ways that you can handle the issue.  First, it is imperative that you make sure you have discussed your property rules with tenants before they actually move in.  This type of action can help to prevent problems before they even begin.

Ensure that you have included terms within your lease stating when exactly music may be played.  You should also include in your lease statements indicating specific times when music may not be played so loudly that it can be heard outside the individual unit.

For example, you might state that music may not be played before 8am and after 10pm.  You should also make sure that these terms include not only music but also actual musical instruments as well as televisions.  In addition, make sure you check on your property periodically to ensure that your tenants are not playing loud music at night or early in the morning.

If you find that they are breaking this rule, do not hesitate to let them know that they are violating the terms of their lease.  Sometimes, checking on a property early in the morning or late at night is not feasible; especially if you live a good distance away.  In this case, consider asking your neighbors to advise you if your tenants disturb them with loud music or noise.

Remember that it is always best for neighbors in the area to advise you about the problem so that you will have an opportunity to correct it before they contact the city or the police with their complaints.

This will also assure neighbors that you are concerned about the neighborhood and maintaining a peaceful atmosphere for everyone.  Once you have contacted your tenant verbally regarding the matter, make sure you follow-up with a reminder in writing.

This should help your tenant(s) to understand the severity of the situation and will also provide you with the documentation you need in the event the behavior continues and you must consider evicting them because of it.  Ideally, the best way to handle this type of situation is to prevent it before it ever begins.  Explain to your tenants when they move in that you regard the issue as serious and that you will check up on the investment property from time to time.

If you decide to rent to students, this is especially important.  By making sure that you have established a cordial relationship with your tenants early on they will be far more likely to respect your rules and understand where the line is drawn so they will not cross it.  Properly managing a rental property means not only providing a pleasant living environment for your tenants but also ensuring that your rental property does not disturb others in the neighborhood.