Post COVID-19: 10 Lessons for Real Property Investors

Landlords and property managers are busier than ever. The so-called “COVID Effect” has increased the demand for housing in hot markets. A portfolio close to 100% occupied is the goal – higher occupancy equals higher revenue. However, there have been some negative ripple effects from COVID-19 for investors.

You may be in a similar situation some seasoned investors are in – eviction moratoriums and job loss have translated to rapidly losing revenue; a daunting thought for any landlord, no matter how long they’ve been investing. ?

Maintenance problems, unexpected expenses, drama with neighbors, and HOA violations aren’t going away; they’re on top of significant dips in revenue and changing statutes. If there is one thing COVID-19 has clarified it is there is no such thing as being too prepared. Here are 10 lessons designed to help you withstand anything threatening to challenge your bottom line.

1.??????Check your emotions.

Buying real estate is investing in real estate and comparable to investing in the stock or commodity markets. Sometimes there are gains and sometimes losses. Any property investor – whether you have one house or 500 – has to have the right stomach for this investment vehicle. Recognize your emotions and then replace them with logic at decision-making time. If you can’t, consider selling your houses and investing your money in a real estate investment trust – all the investment benefits without the emotional roller coaster.

2.??????Diversify, diversify, diversify.

Adding more houses to your portfolio is an easy way to diversify your risk. If you own one house and your tenant does not pay rent, your revenue is down 100 percent. If you own five houses and one tenant does not pay rent, your revenue is down 20 percent – you get the idea.

3.??????Forget local, go global.

Don’t let geography bind you to a particular area. As a landlord, you may commonly invest within a 40-mile radius of where you live. The area you live in could possibly have the worst yield due to things like major maintenance issues and low demand. Use today’s acquisition technology to open up the possibility of buying in other areas. You can even consider making an international purchase!

4.??????Do your homework.

Eagerness to sign a lease can cause you to miss an important step – a formal screening process for your prospective tenant.

It is important to know the laws of your state when it comes to screening. Some states require step screening. For example, background checks first, then credit checks, then rental verification.

Fear of being uninformed on screening laws and processes as well as fear of requesting prospect information can be a screening roadblock. There are plenty of products on the market that allow landlords to screen prospects safely and securely. For example, Landlord Express from RealPage, Rentivity.com , and even credit bureaus Transunion and Experian will screen tenants on your behalf. Most of these sites allow the prospective tenant to fill out their personal info securely and then send the report directly to the landlord, making the process easy and safe for both parties.

The more legwork you do on the front-end screening tenants means you are more likely to get a better-qualified tenant.

5.??????Digitize success.

If you haven’t digitized your workflow, start now. Your competition is likely already doing it. Begin by digitizing showings -- making sure your listings are online and utilizing self-showing technology.

Next, make sure tenants have a way to pay digitally. Millennials are renting lots of houses and aren’t interested in writing a check and mailing it.

Lastly, digitize communications. Have a system for keeping all of your communication – texts, emails, and notes from phone calls – in one place. Digitizing your workflow will streamline your business and remove some of the manual tasks you do. ??

6.??????Know property management accounting.

As a landlord, you should have three accounts – an escrow account for security deposits, an operating account, and a cash reserve account for unforeseen business expenses.

Recording your generated revenue is straightforward. For example, renting 10 houses at $1,000 a month yields $10,000 per month. Categorizing expenses can be tricky. There are two types of expenses, capital expenditures and maintenance expenses. Capital expenditure is an item that extends the life of the house – for example, a new roof. A maintenance expense is a cost of making general wear and tear repairs on a house such as fixing a faulty outlet or replacing a deck board. From an IRS perspective, it is important to label the expenses correctly when taxes are due. To clearly understand these concepts, seek the advice of a certified public accountant (CPA).

7.??????Cash is king.

Never over-leverage yourself. Three to six months of expenses in a cash reserve account is optimal and can help you through most economic hardships. If you do get a mortgage (with today’s low rates it is easier), ensure you always have positive cash flow.

8.??????No Taj Mahal-Esque upgrades. ?

Improvements to your houses should be in line with the realistic standards of the properties in the area. If you improve a house up to $1,500/month rent price in an area with an average $1,000/month rent price, you’ll have a tough time finding the right tenant. When considering changes, make sure the house is safe, clean, and functional but skip the trendy upgrades that won’t yield a rent increase.

9.??????Inspect your investment.

Imagine this scenario: you find the perfect tenants to put in one of your houses. Your tenants pay for two years and never call about anything, so you enjoy the revenue stream. Then, you get a frantic call one day about the tenant’s child being sick due to possible mold. Worried, you head to the house and inspect under the kitchen sink which is packed with cleaning supplies, vases, candles, and old sponges. Once all the junk is pulled out, there it is – organic growth. You know it didn’t grow overnight, and now there’s a large remediation bill looming. An inspection would have identified the leaky faucet that led to organic growth and saved you a big headache. Make sure your houses are inspected by a qualified person at least once a year.

10.??Circle of trust.

The tips outlined are accomplished more efficiently if you have the right team watching your back. You should build a circle of trust including the right attorney, CPA, insurance partner, and mortgage broker. Most importantly, hire a property management professional.

Although there is a cost to having these people on your team, the circle of trust is essential. It will help you stay out of legal trouble, avoid 2 a.m. tenant calls, find the right products and services, and process tenant evictions accurately. A good partner in the circle of trust is a benefit to you and will lead to significant savings of time and money.

COVID-19 has proven being nimble is important when investing in real estate. Consider these tips to save you time, stress, and most importantly, money. You can’t afford not to.

By: Inaas Arabi and Tara Marshall