5 Challenges When Buying And Managing Rentals

5 Challenges When Buying And Managing Rentals

5 Challenges When Buying And Managing Rentals

As much as people love talking about buying and selling rental property, one conversation that gets overlooked is this: Passive income CAN be a myth.  Here’s what I mean. Buying real estate (especially rental property) is a great, risk-adjusted way to slowly build wealth. But too often, real estate is sold as a simple game of “mailbox” money. And even more common than that, new investors overlook the challenges and difficulties that can come with building a successful portfolio. For any successful investor, it takes a lot to get to whatever level of passive income they had in mind when they started. It takes a lot of failing, building effective processes and systems, and overcoming difficulties. So what are the main difficulties we see investors having when buying and managing rental properties? In this article, you’ll learn the top five difficulties we see investors come across and how you can better prepare yourself for each along the way. 

5 Challenges When Buying and Managing Rental Property

Here’s our top 5:

1. Finding great deals 

For anyone going 0 to 1, finding deals and defining what a good deal is, is the first hurdle to overcome. It’s a fact of real estate investing that what might be a good deal to you, might not be to someone else. That’s because every investor may have totally different goals. This is why you must know your criteria. 

  • What are you looking to accomplish? 
  • Are you trying to replace your W-2 income? 
  • Are you simply playing the ‘appreciate over time’ game? 

It’s important to be able to answer these questions for yourself, and move forward from there. A great way to go about this is to talk with other investors. You won’t find a community of professionals as willing to help you succeed as you will in real estate. So simply network with others who are where you want to be, and ask for their perspective on your goals. Based on their feedback, is this deal best for your goals, AND realistic for your market? If you want to find great deals you have to actually get out, and meet people who are active in the market you’re looking to buy.

2️. Managing a rehab crew 

When you’re buying a vacant house, unless it’s just been rehabbed, it will need some work (especially if you want to maximize rents). This inevitably leads you to the second biggest challenge we see for investors: managing a rehab crew. There are the two main struggles investors have dealing with vendors and contractors:

  1. They aren’t local so they don’t have local connections to the market.
  2. They find underqualified (and not insured often enough) contractors in places like Craigslist, etc. as a default.

This is can be a big challenge for investors, especially if you're out of state. Here are three key things to keep in mind BEFORE you take on the risk of managing rehabs and contractors: 

  1. Be prepared to take on the risk of managing contractors.
  2. Build trust with your vendors and contractors.
  3. Get on-site, early, and often.

There are always tradeoffs to buying a house that needs some TLC and a house that is brand new. With the first, you have to deal with the risk of managing the project; and the second you potentially lose out on better returns because you’re paying market value (or higher in today’s market). This is why it’s important to know your goals and set your expectations on the front end. If you decided to buy a property that needs some love, BUT you've never managed a rehab, start small. Be careful taking on a $50k rehab on your first project. Rather start with a $5k project and build up over time. Suggested Reading: What You Need to Know About Repair and Maintenance

3️. Showing Properties

Where you live and where your rental property is is most likely not across the street. Especially if you’re out of state (no duh).This is why showing your property or doing one-off property showings is a very difficult thing for investors and landlords. Before you know it, you can quickly find yourself lowering your criteria or starting to cater to anyone wanting to see your house. Realize that if you're leasing yourself, it will always be an inconvenience. Here are three tips if you are going to be leasing yourself: 

  1. Make sure your property is priced correctly. If you need a good resource on rental rates for your area, our team at Evernest can send you a FREE rental report on your property. In it, you’ll find local comps, benchmarks for your area, rental rates, confidence scores, and more. Grab your FREE rental report today. >>
  2. Make sure before you show your property that it is 100% ready to be shown. Potential residents will NOT fill out your application if things are out of place, it’s a mess, have broken appliances, etc. 
  3. Schedule an open house or group showing and make sure your house is 100% rent ready. 

We’re clearly a little biased, being property managers and all, but… If you’re sick and tired of managing properties yourself and want a local partner to handle everything from maintenance to finding quality residents, and day-to-day management of your property—Evernest is the partner for you. You can learn more about doing so with Evernest today. >>

4️. Managing resident expectations 

If there are collection issues—you’ll be the person to follow up. If there are maintenance issues—you’ll get a call and need to manage them. If there are issues amongst different residents—guess who will need to handle these situations? You. Regardless of the issues, know that if you're self-managing, all of those fall on you. Unfortunately for you, not all residents are the same either. Actually, everyone is very different. Some are needier than others. Here are a few pieces of advice if you are self-managing and on how to set expectations with your residents:

  1. Run your rental like a business. Set up separate email and phone numbers for resident issues, maintenance requests, etc.
  2. You DON’T want to get in the middle of drama with your residents. However, if you don’t have a property manager, you eventually will need to if things get escalated. 
  3. It's critical to have conversations on the front end with your residents about how things will go while they live at your property. There will be things that come up. Things like early termination notices; how are you going to handle that? Or something like roommate swaps; what’s the process for residents going about that? It’s best to communicate any rules and expectations BEFORE they move in.
  4. Tenants are notorious for neglecting the day-to-day maintenance of units. If you want to avoid major repairs when they move out, we suggest you communicate things like when HVAC filters need to be replaced, keeping up with lawn care, etc. These seem like small things (they are in the mind of your resident), but if you stay on top of them early and often, you’ll likely avoid stress down the road. 

Pro Tip Create your own version of a “Top 10 Things to Know About This Property”. At Evernest, we have a similar checklist printed and available in every property we manage. In it is laid out the top 10 things that every resident should know and be doing while living on the property. Suggested Reading: How to Keep a Resident for 20 Years

5️. Maintenance

This is the big one, and potentially the most frustrating for landlords: maintenance. Nobody likes dealing with maintenance. Unless you have a brand new build, expect things to break. Here are a few things to better manage maintenance when (not if) it comes up at your property:

  1. Not being prepared for fixes financially is a stress that you don’t need and CAN avoid. Make sure in your underwriting to set aside money in a separate account so you can be prepared for unexpected repairs. 
  2. Think through on the front-end where your residents are going for maintenance requests. Do you have a portal? It’s important you have a plan in place and that your residents know where to go when maintenance is required. 
  3. Compile a list of vendors who can handle particular fixes. A general handyman can’t fix HVAC issues. 
  4. These issues tend to happen at the most inconvenient times. Be prepared for this to happen to you. It’s simply the name of the game.

In the 15+ years we’ve been managing rentals, one thing we’ve learned to be true is:If you set proper expectations with your residents, maintenance issues will be handled in a timely manner rather than when it’s a much bigger issue. Realize that as a landlord, things like maintenance may not be a big issue for your residents. The best way to mitigate that is to communicate often and be ready when those calls inevitably come. Suggested Reading: A Landlord’s Guide to Managing Single-Family Rentals

Success in Real Estate Takes Overcoming Challenges

There you have it. The top five challenges we see investors having when buying and managing their rentals. You can listen to the full episode here—we go into more detail on each point above.At the end of the day, we’re all here because we’re committed to building wealth and financial independence…BUT don’t overlook that investing and building wealth comes with its fair share of risks, challenges, and headaches. You must manage your own expectations, build effective processes, and overcome challenges (like the five above) to succeed in rental investing. Need a partner who can help you navigate the risks, challenges, and headaches of buying, managing, and owning rental property in today's market? You can learn more about buying, selling, or managing with Evernest here. >>