Rent Sense: Mistakes can void rental ownership benefits

May 4, 2012by melissad

There are fundamental investment mistakes made by rental owners that can unravel the potential return and negate the inherent safety of the investment. These mistakes are compounded by poor property management. This combination generally translates into a bad rental experience for the tenant(s) as well.

•    Most businesses fail due to owners’ lack of sufficient capital and experience. Rental ownership (no matter the size of the property) is a business that gets in trouble at purchase by obtaining maximum financing without sufficient down payment, inefficient attention to terms of the loan(s)m like future debt servicing requirements  (balloon payments, interest payment changes). Leverage is a powerful investment benefit but must be controlled to keep the LTV (loan to value) within safe equity parameter that allow for optimum ROI and tax code advantage while buffering against economic downturns.

•    Property improvements, preventative repairs and ongoing maintenance routines are necessary parts of the financial planning as well.

•    Mistakes on rent rates and lease terms create unnecessary vacancy and/or substantially reduce actual rent collected.

•    Insufficient and/or inadequate marketing during the lease up time (typical problem) increases the likelihood for bad tenant selection which can have negative effect on the property; financially and physically.

•    Inexperience managers hesitate to utilize aggressive rent collection, effective negotiation and/or timely eviction to maintain revenue and preserve the property.

•    Failure to respond with businesslike customer service in order to maximize resident retention can be costly as well.

•    An experienced acquisition adviser/property manager is need in the beginning. While we can have an impact at any point, we prefer to maximize the benefits of rental ownership for all the parties from the start.

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