The following is an excerpt from my upcoming E-Book "Busted! 20 Real Estate Investment Myths"
This misconception is one of the top reasons I have heard potential investors talk themselves out of investing in a rental property. They are afraid to get involved in real estate because of the headaches. They don’t want to deal with the day-to-day tenant phone calls. They have money. They want to invest and they see the value in real estate. However, they don’t want to deal with the perceived endless phone calls from tenants all day and night.
A number of the investors that come to me do so because they had no luck with mutual funds and the stock market and they are curious about investing in real estate. Their dream real estate investment would be like a mutual fund where they don’t have to paint a wall or change a toilet and things like that.
There are a number of real estate entrepreneurs that will team up with an investor that wants to make money on a property, but do not want to risk the headache of managing rental properties. It is the perfect match. The entrepreneur finds the property, sets up the deal, and then the other investor puts up some or all of the money for the down payment. They share in the profits, but only one of them has to deal with the management of the particular property.
The reality of being harassed by tenants is a bit overblown. In my 15 years of experience, I’ve only been called once in the middle of the night. Not only can you partner with a joint venture partner to buy a property, but you can also hire a management company to take care of all of the daily rental property tasks of maintenance and rent collection.
Each management company is slightly different in what they charge. Some charge a percentage of the gross yearly rent or a certain number per unit, such as $100 a door. It’s negotiable. On average, 4% to 5% of your gross rent would definitely be a good estimate. I personally manage my own. I do know that it’s advantageous for many people to have a manager, especially if they have 9 to 5 jobs and… If you do decide to manage the property yourself, you can reduce any possible headaches upfront by putting some provisions in the lease of whom they should contact in certain types of emergencies.
People always assume it’s going to be worse than it is. Obviously, there’s a possibility, but the reality of it happening is much different. One of the ways you can prevent issues is to choose the right tenants. If you have a tenant that cares about where they live, they will feel comfortable contacting you about the day-to-day issues and they keep the house in good order.
If your day to day is being maintained properly and the tenants feel comfortable to call you and let you know that they have a problem, during normal hours, such as a slight leak, then you can you fix it in a decent amount of time at a decent hour. When you have the right kind of tenant, they will make phone calls only when it is essential.
Rent to own situations are ideal, because of the tenants’ commitment to manage the upkeep of the unit. Their plan is to own the unit in a short amount of time, so they are really maintaining their own future property. There is a greater sense of ownership that comes with this type of tenant. Most rent to own contracts state that the tenant is responsible for all repairs and in some contracts the tenants are responsible for anything under a certain dollar amount. In many cases it would be repairs $500 or less, is the tenant’s responsibility. All big maintenance things like a new roof, the owner would be responsible for taking care of until the tenant purchased the unit. Most contracts I deal with however, the tenant is responsible for all repairs and maintenance.