If you want to build wealth, diversify your financial portfolio, and move closer towards being financially independent, real estate is a great investment. Done well, it can yield hefty returns and evolve into a fairly passive source of recurring income. But rental property investments don’t become passive without some level of purpose and intentional planning. And if you aren’t careful, they can actually become a major source of stress.
5 Stress Reduction Tips
From the outside looking in, the role of a landlord looks easy and breezy. Tenants assume that you’re just some wealthy “big wig” who collects a fat rent check once a month and spends the rest of the time playing golf at the country club.
However, as you know, reality is much different. Owning a rental property is time-consuming and, at times, quite stressful. And playing golf at the country club is an exception – not the rule. Most landlords are hard-working individuals who are trying to be smart with their financial resources. How you deal with this stress will determine your longevity and success.
The easiest (and recommended) solution for reducing stress is to hire a property management company to streamline all of the time-consuming aspects of managing your property (or properties). This is a cost-effective way to offload responsibilities and keep your properties profitable for years to come.
But if you aren’t interested in going this route, there are plenty of other small actions you can take to reduce stress and enjoy greater peace of mind with your investment real estate. Let’s take a look:
Implement Meticulous Tenant Screening
Good tenants will make your life so much easier. And though there are never any guarantees when it comes to signing a lease agreement with a new tenant, thorough screening can greatly increase your chances of finding the right person.
As you screen tenants, be smart about what information you prioritize. In particular, you should:
- Speak with current and past employers to get the lowdown on an applicant’s history with the company.
- Run a credit report and look at the payment history to see what sort of debt an applicant has to their name.
- Run a background check to see if the individual has any history of criminal activity.
- Talk to at least two current or past landlords to see what sort of tenant they are.
“If you catch an applicant lying about anything, however small, shred their application,” landlord G. Brian Davis suggests. “If they lie about one thing, their entire application is suspect. Lies are an indicator of other lies, and people who lie on their application have already proven they are willing to deceive in order to get what they want.”
No tenant is perfect, but a meticulous vetting process will make you aware of what shortcomings exist.
Get Everything in Writing
While a verbal agreement may be legally binding in your state, it’s still not a good idea to rely on a handshake deal with a tenant. In disagreements, it becomes your word versus their word. And even if you’re in the right, things can get very sticky very quickly.
The best rule of thumb is to get everything in writing and to save a physical and digital copy of every correspondence, contract, or agreement.
Automate Rent Collection
Nothing is more frustrating to a landlord than late payments and rent excuses. The easiest way to circumvent these problems (aside from smart tenant screening) is to automate the rent collection process using some sort of web portal or direct deposit.
Maintain a Fully Stocked Emergency Fund
If 2020 has shown us anything, it’s that unforeseen circumstances will happen. And it’s for this reason that you should have a fully stocked emergency fund for every rental property you own. This is a cash account that’s reserved for things like extended vacancies, major repairs, or surprise tax bills. You should have enough cash in the account to cover at least three months of expenses (including the mortgage).
Outsource All Maintenance
No matter how handy you are or how much you want to save money, it’s a good idea to outsource all maintenance projects to a licensed professional. Not only will you get better quality work, but it’ll save you an enormous amount of time and stress.
Kiss Stress Goodbye
Owning rental properties is a great way to generate income and maximize financial leverage. However, it also comes with a lot of friction. How you manage these elements will ultimately determine how long you’re able to last in this industry. Using the tips and techniques outlined in this article, you should be able to tackle some of the issues head-on and get more out of your role as a landlord!