Are you a Warlord or a Landlord?

by Tim Herriage

Are you a Warlord or a Landlord?

by Tim Herriage

by Tim Herriage

warlord“Warlord” is an attitude some landlords have to adopt to manage a problem rental property. “Going warlord” to manage your rental indicates one or all three undesirable elements to owning a rental property have occurred. It follows the same predictable path as an un-airworthy airplane in the hands of a careless pilot. When one thing goes wrong, the likelihood of a second problem compounds into a cascade effect of subsequent problems and an emergency. It is never one thing that turns a landlord into a warlord, but the best strategy is not to be faced with this.
Realistic analyses matter to avoid this. Begin by buying right, then managing right and renting right. This is “easy said, hard done” but not hard to predict if you start off on the wrong foot. Remember good management can seldom make a bad investment work, but a following the steps to a sound investment and good management will keep you from going from landlord to warlord.
BUY RIGHT
The road to “warlording” begins by buying a rental based on optimism rather than reality. Beware optimistic numbers from a vendor about the returns on an inexpensive property predicting few vacancies and reliable rent payments.
Spreadsheet justification for buying inexpensive properties often show income and yields that look good on paper but inevitably correlate to higher risk. These properties are almost never cheap as they bring high vacancies that were not reflected in optimistic sales pitches. Beware voodoo math and spreadsheet lies.
“SPREADSHEET THEORY MEET PEOPLE REALITY!”  
Vacancies and less rent than planned is the first issue of a “triple whammy” accompanying these properties. Second, they do not appreciate like middle or luxury markets as there are few sales to real investors and homeowners. Because there are few market comparables, these properties cannot be accurately valued at retail sale prices. If sold, a property like this is normally sold at wholesale to another investor looking for an even deeper discount. Beware bogus market valuations or “market comps” created by a turnkey vendor who buys and sells properties in the market so as to manufacturer apparent activity and comp values. The third whammy is because there are few people that will buy this property you will be stuck with an underperforming property for an extended period of time. We have not discussed the higher wear and tear or maintenance requirement that normally accompanies ownership of older and less expensive homes in these stressed neighborhoods.
URBAN PIONEERING EXCEPTION
Because of a lack of affordable housing and there is a chance of potential gentrification for some run down urban areas, but don’t be first. Young and optimistic homebuyers are willing to be urban pioneers but this only works after . These urban pioneers are prepared to buy, renovate and deal with the downside as a market is recovered. If you have an under-performing rental, pray for this to happen in your neighborhood.
If a professional real estate agent or turnkey company has “tipped you” into a crummy neighborhood and rental, there may be other issues at play. There is a recurring theme in rental real estate and that is cheap houses are seldom inexpensive, and especially so if you are NOT a full time investment business.
MANAGE RIGHT
If you look at your investment property or properties as a business, is landlording your highest and best use? Is your property (or properties) fully rented? If fully rented is a constant state fulfilling your landlord duties may not be that demanding. Are you happy with the job you do? The workload, responsibility and risk changes however when you have to find, screen, qualify and lease-up to your next tenant. There are even ways to make the management load less onerous.
RENT RIGHT
Whether you lease your property yourself, hire a web based leasing agent or local company providing in-person rental leasing services, understand this aspect of the business has become significantly more complex. Fair Housing rules, activist tenants, compliance testing companies, compliant credit, criminal and Patriot Act screening issues all can apply to your rental. Our argument is that paying a professional property manager to take this responsibility, knowing they carry professional errors and omissions insurance, have a real estate lawyer on call for evictions and other issues, is cheaper than the first than the first check you will cut to a lawyer to answer a complaint request from a city, county, state or Federal agency.
Professional landlords understand when they need to “get out their warlord” when a tenant goes “off the ranch,” and their landlord client should be screened from this.
IT ALL BEGINS WITH THE BUY
There are a number of reasonably priced web-based tools available like Altisource-RentRange, HouseCanary and RentFax that give a landlord rent and risk numbers by collecting market rent data and quantifying the risks that can lead to higher vacancies, less reliable tenants, delinquencies and evictions. Remember published rental averages tend to lean toward the optimistic.
The “almost silver bullet” to avoiding becoming a warlord and not a landlord, is buying right and buying with the help of a licensed professional with “skin in the game” and the desire for you to be successful. They want to ensure they present you rental investments that have a high chance of success so they can sell you more performing properties into the future. This is the model you will find with Investable Realty a member of the 2020 REI Group of Companies.

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