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PRYME Homes
July 17, 2019

#1 Problem Most Landlords Face And How To Solve It- AIJ030

In Episode 30 of An Investors Journey, we go over #1 Problem Most Landlords Face And How To Solve It!

We across so many investors that face the same issue when buying rentals. This issue is the reason we have been able to pick up so many deals. Before we get to the issue let me cover the misconceptions people have about why they invest rental properties, to begin with.

  1. Hands-off- nothing in real estate is "hands-off". I'm sorry to burst your bubble. Houses need to be watched and managed regularly and you should always know where your investment sits in the current market cycle.
  2. Property Manager- while we completely agree you should have a property manager managing all of your properties this DOES NOT mean they actually manage the property. Their job is actually to manage the tenant. It's your responsibility to manage the property.
  3. Bought it Cheap- cheap doesn't mean a good deal. Cheap houses usually cash flow very well but get very little to no appreciation. This can be a big issue if you ever need to sell fast.
  4. Appreciation- we know of so many people especially Austin investors that are negative cash flow simply because they're betting on the massive appreciation. Appreciation is not guaranteed!
  5. Cash Flow- you also have the other end where they focus more on cash flow and have ZERO equity or potential for appreciation.
  6. No Major Rehab- many think that you just buy a house and just rent it because tenants are not as picky especially in a hot market. This actually ties into the #1 Problem Most Landlords Face.

#1 Problem Most Landlords Face is DEFERRED MAINTENANCE

Deferred maintenance happens because of all the problems listed above. Most people buy a house and think it's going to be hands-off so they never visit the home to make sure everything is fine. They'll put a property manager in place and think, "it's good". Nope! The property manager needs to keep the tenant in place and that sometimes means patching things instead of doing the right repair. Enough of these little repairs a property manager needs to handle and it can literally wipe away all of your cash flow for the year.

Deferred maintenance can also affect your appreciation and cash flow. If you don't do any of the required work to your property because it will rent "just fine" now, then you will see your profits drop as the years go by and you can no longer increase your rents. Or it comes time to sell and you have to sell to an investor because it's no longer move-in ready.

The Solution

Buy it right! I know you're thinking, "DUH!" but, it's not that simple when it's been months and you haven't found a great deal. You tend to become a motivated buyer and start thinking about how you can "just make a deal work". That state of mind is the beginning of your downfall.

Even if you don't want to update the property now, you MUST buy it with all the necessary updates needed accounted for.

What We Do

We usually by highly distressed homes so we can go ahead and update absolutely everything. This helps us virtually eliminate any tenant issues while at the same time capturing as much rent and price appreciation as possible.

We have recently bought a property where we don't need to do much to get it rented but of course, it will not sell in its current conditions for max ARV. So, because we know the area very well and see great appreciation over the next couple of years, we went ahead and did the bare minimum repairs to get it rented. BUT... we also bought it at the price we needed to do a FULL update. So the money is still there but we're just not touching it right now.

What To Watch Out For

  • Foundation issues- if not addressed accordingly you will have issues as time goes by like plumbing, doors not opening, windows not opening, and much more.
  • Scope out the sewer lines- especially if you have a big tree anywhere near where any of the sewer lines might be. You don't want to send a plumber over at 2 am because the bathrooms are backing up!
  • Plumbing- checking to see if all the shut-off valves are working. Switching your showers to a single value, this saves on costs and limits the chances of something breaking.
  • Electrical- making sure all plugs and switches work properly and all GFCI are where they need to be.
  • HVAC- get it serviced and set an auto AC filter drop-off every month with Amazon. This is crucial so you don't have to depend on your tenant not changing it.
  • Roof- if it has any leaks of may be too damaged from time and weather factor in a new roof at some point.
  • Gutters- it's very important in Texas to have gutters because or grown is so dry and we get massive amounts of rain in a very short time period. This rain if not controlled with mess with your foundation.

Balanced Portfolio

The way we see a balanced portfolio of SFR is first starting off with properties that offer a little of both cash flow and appreciation potential. These are not always homerun deals but they will always make you money. A good rule of thumb would 60(cashflow)/40(appreciation). This means that you want there to be a little more cash flow than the potential for appreciation.

Once you have acquired 15-20 properties this way, now you can start picking up strictly appreciation plays which may mean very little to zero cash flow or strickly cash flow plays which will mean very little to zero appreciation.

If you have any questions feel free to reach out to [email protected]

Hope you enjoy this episode and please share.

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