Being a landlord is sometimes like being a gambler. You’re betting on your judge of character and ability to accurately screen problem tenants from ever gaining access to your property and since you’re “the house” in this case, odds are in your favour.
Significantly in your favour if you take your screening seriously, but every now and then, that pair of aces you are holding just don’t pan out. It’s really just a matter of time actually, because eventually something out of your control can cause you some sleepless nights.
Over my history as a landlord I’ve had tenants get divorced, become unemployed due to downsizing or layoffs, end up in the hospital unable to work and even deaths in the family. Any of these unfortunate situations can cause an issue to a tenant’s personal finances, and occasionally the landlord ends up in a tough situation as well.
Unfortunately there are a certain amount of people out there unprepared for any of the previously mentioned situations and with reduced or zero incoming wages during these and other instances, certain bills end up not getting paid, rent being one of them. Now I’m not trying to belittle the seriousness of these circumstances that have befallen the tenants, they can truly be traumatic, but a landlord also has to make sure they are prepared.
Understandably being a landlord is a business, but sometimes you need to make the call and once again as “the house”, decide to extend a little credit to a tenant for a month or two as they get over their situation. If your tenant has been exemplary up to this point, it also goes a long way towards how much leeway you can extend and alternatively, if it’s been one thing after another, other choices may need to be made
So what can you do to prepare for such circumstances? While it can be stressful when there isn’t rental income coming in to pay the mortgage, there are certain techniques that many landlords can implement to help cover unexpected issues such as these that could potentially keep them up at night.
Building up a reserve can take a huge amount of pressure off your mind and one of the easiest ways to do this is to allow the first year’s rental income to remain in the bank and to refrain from withdrawing any cash flow. Depending on the properties current cash flow, this could build up to be a sizeable reserve.
Another way to accomplish this is to start with a reserve. When we purchased new rental properties, we would often allocate $5,000 as a starting reserve that we would have in place from day one. Sometimes this would be applied to carrying the property until it was filled, but it was still a considerable first step to reducing stress.
By utilizing a couple tactics like this with your rental properties, you will be amazed at how much easier it can be to sleep at night. Just knowing you are covered in case of everything from tenant problems or unexpected major repairs makes being a landlord that much easier.