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Rental Real Estate InvestingRental Real Estate Investing has several "secret" requirements for being successful: 1. Never have vacancies 2. Get your rent on time every time 3. Defer or delegate repairs to tenants Now you know everything you need to be successful!!!! Okay, so how do you accomplish these "secrets" to rental real estate investing? Well, one easy way to never have vacancies is to always make sure that the rent you charge is less than the going rate. However, a better suggestion is to institute some strategic rent payment techniques.
Number One:
One rental real estate investing technique is an early payment program. The way it works is to first establish in your rental agreement what the rent is. It should be in line with whatever you think is a fair rental amount for the area. Let's say you decide on $800/month. Next, you tell the tenant that the rent is $800/month and it is due on the first of every month and late on the second. This is clearly spelled out in your rental agreement which the tenant has signed and has a copy of. Then you explain to your tenant that you want to offer them an "Early Rent Payment Program"It works like this: if the tenant pays you BEFORE the first of the month then they receive a $50 credit off the rent. This means that if the rent is received any time before the first of each month, they can pay $750 instead of $800.This rental real estate investing technique accomplishes number one and number two above. Tenants will love the fact that they are saving the extra money each month. It is a motivating factor for them to make sure they pay you each month on time.
Number Two:
Another rental real estate investing technique is to institute a serious late payment penalty in conjunction with the early rent program. In essence you are giving them the carrot for paying early and the stick for paying late. Here's how the late payment penalty works. If you do not receive rent on the first of the month, on the second of the month, they receive a "You are Late" notice. This is a phone call and a written notice. The phone call explains the obvious that you didn't receive the rent yesterday. They now owe you a late fee of $50. Then, you proceed to explain that starting today (the second) and for each additional day that the late rent is not in your hand, they will be charged $5. The written notice is a
"3-Day Pay or Quit"notice. The tenant is now clear that you want your money within 3 days and if not received you will start the eviction process.You must follow through with all aspects of this rental real estate investing technique if you want it to work. Plus, it establishes a precedent. If it ever happens, then the first time should be the last time. No one wants to be hit with such a heavy penalty: the $800 rent, plus a $50 late fee, plus a $5 per day accruing penalty. Tenants won't want to pay rent plus a late fee on top of a continually increasing penalty, plus face eviction when they could have easily saved $50 in the first place. Both techniques together offer a huge incentive for tenants to pay their rent on time every time.
Number Three:
Another rental real estate investing technique is to have rent automatically deducted from the tenants bank account each month. Schedule a withdrawal date and time of 6pm on the first of each month. If for some reason the automatic deposit does not occur because the money is not in their account then again you need to proceed with the phone call and notice. You have to train your tenants to pay rent on time. These techniques combined will go a long way to accomplish this. Finally, the rental real estate investing technique that will help you defer or delegate repairs is to write into your rental agreement that the tenant will pay for all repairs under $100. You also write into your rental agreement that for any major repairs, the tenant will pay for the first $100 of all repairs.Given this understanding they know that they should not be calling you for little things. They also know that either way it goes, they are going to have to come out of pocket $100. This may help to minimize the issues or late night or weekend phone calls about something being broken.What I find amazing about tenants is that they will wait until it is either the weekend or past 5pm to call with a complaint that something is not working. One tenant actually called me on a Friday afternoon to say that her air conditioner was out and that it had not been working for the last two weeks. Can you believe that? The last two weeks! This means that if I had called someone, I would have had to pay evening and or weekend hour rates for the problem to be fixed. I communicated to the tenant that I would take care of the problem ASAP. And indeed I took care of the problem in a reasonable time frame. I figured that if she had had this problem for two weeks prior, then chances are it was not really an emergency.
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