Profiting From Mismanaged Properties – Part 2

Let’s pick up the potential profit from Part 1.

Lack of routine maintenance

Lack of response to tenant requests of routine maintenance is the number one reason for turnover and vacancy. This obviously results in negative cash flow which contributes to underperformance.

This issue is very easy and inexpensive to correct. Hiring a caretaker instead of a property manager who has handyman skills allows payment of an hourly wage instead of an overall percentage rate and “padded” repair costs.

A caretaker can show units, perform tenant interviews, enforce leases, collect rents, deal with tenant issues and repairs as well as oversee more significant repairs to ensure they are done satisfactorily in terms of budget, schedule and quality workmanship, especially if you are an absentee owner.

I also make sure my tenants get a repair request sheet which forces the tenant to document each repair and creates a paper trail. This helps avoid any hearsay if an issue arises and gives the landlord incentive to get the repairs done within a reasonable amount of time. This goes a long way in creating long-term tenants, which in turn creates an efficient property.

Letting properties become rundown by neglecting routine maintenance

The properties being referred to are neighbourhood eyesores. Common characteristics are unkempt landscaping, clearly visible overdue repairs to even a makeshift car (or appliance) repair/storage facility on the driveway (or front lawn).

Not only does the incompetent investor have an undesirable looking property but probably thousands of dollars of renovations. These properties ultimately attract the type of tenant that nobody desires.

The good news is they can often be purchased for great deals and turned around into highly functioning properties with good tenants and great cash flow. To understand if it is worthwhile to get involved in such a project, it is important to ask yourself the following questions:

1. Is this an ugly property in a good area?
2. Are the repairs required cosmetic?
3. How much will the repairs cost?
4. If I do repair the property, will I be able to raise the rents enough to offset the costs?
5. At the proposed new rental amount, how long will it take to retrieve my capital expenditure?
6. If I do the repairs and raise the rents accordingly, will this property attract the type of tenant who will want to live in the neighbourhood and afford the “new” rental amount?

Not taking initiative in your eviction process

An incompetent owner who allows delinquent rent to perpetuate for months or is not familiar with the landlord/ tenant guidelines can create an inefficient property producing negative cash flow and tenants who often take over the property.

These owners can be very accommodating when it comes to negotiation for purchase as they are often looking to get out fast. Properties do not have to be in a bad area to get to this state, they simply have an inexperienced or neglectful landlord.

By demanding vacant possession, doing the necessary repairs and creating a new tenant base, these properties can be turned into gems.

Look for Part 3 of ‘Profiting From Mismanaged Properties’

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