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Author: SoftSimp Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: Re: A Strategy for Retiring Early Date: 8/8/2003 9:59 AM
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1. RE prices in my area are out of whack with what rents can cover. If its not in my area, I can't manage it myself and there go the profits.

2. If you have a deadbeat tenant, getting them out is a nightmare. I could carry the building for a while, but it would really kill the returns.


You've hit on the two biggest obstacles to making money as a landlord.

First, you can NOT pay too much for a property. Like stock, if you buy too high you really cut into your returns. You have to be willing to search long and hard for a seller who is willing to work with you. They're few and far between, but there ARE good deals out there, even now. Some people are into pre-foreclosure sales and the like, but I'm not knowledgeable enough to be able to do this without considerable risk. And I've heard that the after-forclosure deals really aren't all that great.

Second, you have to screen your tenants thoroughly. I think that this is really THE most important thing you can do. Generally, someone who has been a deadbeat in the past is likely to be so again in the future. It's not so much about earning power as it is about attitude - some people just aren't bothered by having bad credit or judgments against them.

Someone with an attitude like that is also not likely to take good care of your property, thereby reducing the value of your investment (in addition to costing you money in terms of lost rent and eviction proceedings).

I protect myself by running tenant credit checks, checking references, etc. I also have a 7 page lease. When I rent a unit, I sit down with the tenant and go over the lease item by item to make sure that not only do they know what the "rules" are, but that they understand them.

Two things I stress are: if there's something wrong, I need to know immediately (like a leaky roof or pipe), and I expect the rent on or before the due date. I explain that I use the rent to pay the mortgage - if they don't pay the rent on time, then I can't pay the mortgage on time, in which case we'll BOTH lose the house. Explaining it in this fashion really seems to make it sink in.

In the years that I've been a landlord (since 1999), only one tenant has ever been late. She was only late one time, she called me a week in advance to let me know she would be late and why (her boyfriend had been killed in a boating accident). She paid $500 of her $600 rent on time and the other $100 within a week. I did NOT charge her a late fee nor do I count that as a late payment (in case she ever needs me as a reference). I think that under the circumstances she handled it very well - and this is a tenant who didn't have stellar credit (I originally rented the place to her boyfriend because her credit was bad), but she thoroughly understood that I need the rent to pay the mortgage. Her rent has never been late since.

You may want to take a look at the "Real Estate Investing" board (http://boards.fool.com/messages.asp?mid=19352652&bid=113590). If you view the board in Rec order, you'll see a bunch of posts by Jiml8. He's quite knowledgeable and worth reading.

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