What a week! If there is one thing I can't stress enough, it's to make sure you allow the right people to rent from you.
One of the easiest ways to make sure you get good people to live and rent your property is to buy in a good area, and have a good/nice property.
Now, although there are still no guarantees when you do this, you minimize issues because the people renting these places can afford to rent there, and have more respect for paying their rent as they know and realize how grateful they are to have a place to call home.
When you don't invest in good/nice areas, the risk of having tenants not pay there rent in my experience increases.
With the turn of 2019, I've got 2 tenants at 2 of my properties, both multi-unit properties, having not paid their rent for now the 2nd month.
With the one, we have filed to have them evicted, however, the Ontario Landlord & Tenant Board is so backed up, my court date isn't until Feb 21st, almost 2 months from when I filed.
That means, another month, possibly 2, maybe 3 months by the time I re-rent the unit, without rent from this tenant, on top of the 2 until the court date, on top of the 2 months they haven't paid.
THAT'S 7 MONTHS OF LOST RENT, INCOME I NEED TO PUT FOOD ON MY TABLE.
This property I picked up in a C area, meaning it's not the best, and it is a larger multi-unit property, which doesn't attract the best people, case in point. I bought it at the time because it was a good deal, and fully rented it would cash flow amazingly.
However, I've learned my lesson over the years about buying deals for amazing cash flow, and don't buy these types of properties anymore, as you can see.
Saying that, I had bought this one when I was just beginning my real estate investing career, so I didn't know this at the time, and I've learned a thing or two since then.
If I had to do it over again, I wouldn't have purchased it, I'd stick to my smaller multi-unit properties, like my favourite, the duplex.
As a real estate investor, non paying tenants and vacancies, are the biggest headache and cost. You might think a property will cash flow amazingly (when your analyzing it to purchase), when it's fully rented, but just remember to factor in a vacancy cost when you run your numbers, as you will have them.
I heard an investor the other day say he never has vacancies, a 97% occupancy rate. Mainly because he is building his multi-unit properties, which are brand new and very nice.
Most of us don't have that luxury, especially when you are just beginning to invest in real estate.
You're going to buy the cheaper, older property, that needs work, that will have vacancies, that will attract not so good tenants sometimes.
So, be sure to use a 1 month, even 2 month vacancy rate in your analysis to make sure the property you're buying will still produce a good return with that cost factored in.
On top of that, make sure you also calculate a reserve fund in your analysis, I like to use 2 months expenses as my reserve fund, to determine if the return is still good on the property I'm looking to purchase, based on including this extra capital I'll need.
Below is an example of how it will all breakdown when you include the vacancy costs, and the extra capital.
Also, be sure to actually have the cash on hand so you can still carry the property, if and when you run into non paying tenants and vacancies.
Don't just include it in your analysis!
If you want to learn how to reduce these types of risks when investing in real estate, follow these next steps.
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