Investing in Real Estate: Does it Pay to be Mr. Nice Guy?

2018-12-04T18:56:27+00:00

Many students at our South Jersey real estate licensing school tell us they are becoming a real estate agent because they want to invest in real estate. While Garden State Real Estate Academy’s primary focus is on helping our students pass the state licesning exam, our instructors–all very successful Realtors(r) themselves–also include a lot of “real world” career advice.

So whether for their own investment portfolio or for that of a future client, what advice can we offer to real estate investors?

Most of the time—provided you properly vet your prospective tenants before sending them a lease for your investment property—the landlord-tenant relationship is both positive and—for the landlord—profitable.

But then . . .

It usually starts with a late rent payment.

Sometimes that rent check does not arrive on the first of the month . . . or the 5th . . . and you begin to get an uneasy feeling in your gut that this tenant is going to be a problem.

I’m a nice guy! I want to be empathetic. When a tenant has had a sudden emergency, such as a hospitalization or job loss, I really do want to give them the benefit of the doubt. If that tenant has already had a long track record of paying the rent on time, I am far more likely to give them some leeway in this unexpected crisis. But even in those cases, it is important to extract from them firm promises as to when they will pay. “Can they pay half today, and the other half on the 10th?” for example. And then, once made, that new promise is inviolable.

But what about the other sort of tenant?

Oh, if only I knew then what I know now!

I had one tenant who had every excuse in the book, and I continued to swallow her excuses, hook, line, and sinker. The end result was that she skipped in the middle of the night, owing me two month’s rent and after causing more than $19,000 in damage to my property. I had another bad-pay tenant who cost me dozens of hours sitting in court in Camden and Somerdale, ultimately winning every claim against him—but was unable to collect, because he skipped town.

My biggest mistake was not that I bought his excuses for bad credit when he first applied, or even that I gave him too many “one more chances.” My biggest mistake was that I was trying to do it all myself instead of hiring a professional property manager. The money I lost on this one tenant would have paid—are you ready for this?—one hundred months of the property manager’s fee!

A good Property Manager is worth every penny.

I now let SureWay Property Management take care of my South Jersey investment properties. They take care of checking the prospective tenant’s credit and previous rental history. They take the calls at all hours of the day & night if the tenant has a maintenance issue. And they collect the rent each month and deposit it into my bank account automatically.

And what happens if they do not receive my tenant’s rent on time? SureWay Property Management begins sending overdue notices on the third day after it’s due. They immediately sent a Late Payment letter to the tenant. They call them. They go to the property. And if they cannot obtain payment within a couple of weeks, they begin eviction procedures. They even have attorneys who are experts on landlord-tenant law to take care of filing the correct paperwork expeditiously. And if they skip town, the attorneys have an amazing network of being able to track them down, wherever they are, and collect on the judgement!

As the owner of investment property, you have to consider the loss of income from the current tenant when they stop paying you. But you must also contemplate the damage the tenant could do if they are allowed to stay in the home for months—at this point, knowing that they will be removed—and then the lost cash flow during the time it takes you to repair and put it back on the market.

So to all of my clients who buy South Jersey investment property.

  1. Hire a property manager who can take care of the screening, rent collection, and, if necessary, eviction.
  2. Be empathetic—but set firm limits and policies, and stick to them.
  3. Act quickly. The longer a tenant goes after not paying their rent, the lower the chances of this having a happy ending!

Investing in real estate is still an excellent way of leveraging your cash and building a safe nest egg.

Buying and selling rental real estate can be a very valuable part of your investment portfolio—but until you have developed the expertise to do it yourself, you should find a real estate agent who specializes in that type of property. In my own real estate practice, we believe in the team approach. My partner Jim and I are very experienced in the real estate part, but we introduce our clients to an attorney, tax specialist, lender, and property manager who can provide the expertise in their special areas of knowledge.

David C. Forward is a licensed real estate broker and instructor and was first licensed as a Realtor(r) 30 years ago. He is School Director of Garden Real Estate Academy, has won numerous awards for real estate sales, is a much-requested public speaker who has addressed audiences on six continents and is the author of 13 books. David can be reached at David@gsreAcademy.com