Epic Real Estate Investing - 7 Steps to Dealing with Bad Tenants | 874

Episode Date: December 22, 2019

If you fail to deal with bad tenants correctly, they are going to crush your dreams of financial freedom that real estate has promised you. Therefore, stay tuned as we provide 7 steps to successfully deal with them! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit R-E-I-A's.com.

Here's Matt. Oh, real estate. It's so risky. The bubble's about to burst. Those interest rates are going to destroy everything. What's Trump going to do next? When he gets out of office, oh, my God, it's going to crash. You better prepare.

And real estate, it's just, I had real estate once, and I just, it was a terrible experience. I'll never do that again. And the hen it just trashed my place and blah, blah, blah, blah. I mean, you hear that kind of stuff frequently, but it just was kind of magnified for some reason around me. And perhaps you experience the same thing. particularly you hear that though from people that don't invest in real estate or maybe they tried it once you know and if that's the case i can understand how they might feel that way it's unfortunate after one or two bad experiences or having someone close to them have a bad experience that they

walk away with the wrong lesson and they just miss out on all the wealth creating capability that real estate has so i get it but it's unfortunate i'm sad for them but for those of us who do invest, we know it to be the lowest risk, highest return investment on the planet. Right? We know that's what it is. That's why we're here.

That's why we continue to make it work. We don't have another choice. We know it's the final frontier for the average person to create some epic wealth for themselves. Earth. It's the greatest investment on Earth. Buy as much as you can. They're not making it anymore.

Buy as much as you can. And that's where I know to be true. but so many people still, they lose their shirt in real estate. You know, right? They just fail miserably. They lose their shirt. I mean, I lost a few shirts myself. But is it the real estate that's risky?

Or could it be something else? Yeah, I see it as real estate is safe. Real estate is so safe. It's the people that are risky. You know, we've talked about a lot here about property managers and contractors and about building your team and just specifically those two members of your team, they represent a ton of risk. You know, perhaps more risk than anything else, any other two things, single factors inside

of real estate. I think property managers and contractors. I mean, the property managers is what caused the properties to perform. The contractors is what you use to increase the value or stabilize the property's condition. And then the amount of time that it takes for them can be costly if they go overtime or or if they just bail and walk and they don't finish at all. I've had a couple of those in my life for sure.

And that gets really costly. But in the property managers, like if the tenants aren't working right or they're constantly doing repairs and they're creating repairs and they're just doing all kinds of bad stuff. And, you know, if it's an income property and it doesn't produce income, yeah, it gets expensive. I mean, if you get those two rolls down on your team, it's pretty difficult to lose in real estate. That eliminates a lot. That eliminates most of what people complain about. are those two things right there. I mean, they got a TV show to catch a contractor.

They have no shortage of people to go after every single week. So that's what we call a clue. So you get those two people right on your team. It's really tough to lose. But there's another area where people can lose. And it's the investor operators themselves. Yeah, you. I mean, you can frequently be a risk to yourself.

You know, by either exercising a strategy of hope. That's a big one. The strategy of hope that people get tangled up in. Hey, I hope I'll be able to sell this property for more than I purchased it for. It's great value. It's so cute. It's in a great neighborhood. It's got a nice and nice school. What do they call that? It's got a great school system there. Amazon is moving down the street. I hope I can get this. That's a strategy of hope. Or I know the market. It's on its way up and it's growing and it's growing. And hopefully it'll catch up to where I can make a real profit and cash. out on this later. Right? So that's that strategy of hope. Or the other way that people can mess up is

the math, right? They mess up with the math. They get the starting price wrong and they end up with, uh-oh, the market is just validated that your price, you bought too high, and now you're stuck with it, right? And you can lose that way. Or here's another way that people can get in their way, investors themselves is confusing the phrase passive income that real estate promises for uninvolved income. You know, they think it's a turn it and forget it type thing and they wait for the passive income to come flow to them. It doesn't.

And they put their head in the sand or they get busy and do other things and have their attention elsewhere. And that thing can unravel really, really quickly by just being uninvolved in the investment. And it's kind of like, I was thinking about this as I was driving into the office, it's kind of like Tesla's self-driving cars, right? I mean, they're so sweet. I mean, just think about what technology is, what's coming of technology. I mean, it's such an amazing time to be living. But these self-driving cars, I mean, they will indeed drive themselves.

But you do, you kind of need a driver to tell the program in the car what to do still, right? You still need that to happen. And really, the driver need be ready or somebody need be ready. to take the wheel if something unexpected happens. I mean, we've all seen the headlines, right, of self-driving cars crashing, even some fatalities. And we've all heard the horror stories in real estate around bad tenants too, right?

I heard a bunch this weekend. So in this metaphor, I'm working on this metaphor, maybe it's not going to come out perfect, but I'm going to give it a shot. So the car is kind of like the house, right? The driver is kind of like the landlord or the owner, the investor, right? and the program is kind of like the tenant.

I mean, that's a little bit of an impersonal metaphor, kind of dehumanizes the tenant, but you get the picture because here's what I mean. I mean, what do you do if you get a bad program? You know, that car doesn't run correctly, or even worse, it crashes. Or in our case, what do you do when you get a bad tenant? Right?

The property doesn't perform. Like the program makes the car run for you, the tenant makes the property run for you. And really, I mean, bad tenants are, they can be a nightmare. And for a lot of landlords, there's so much of a nightmare that it runs them right out of the business. But deciding how to handle them ahead of time can save you loads of time, loads of stress, and loads of money. Because if you fail to deal with bad tenants correctly, they're going to crush your dreams of financial freedom that real estate has promised you.

And, I mean, your property is going to gain a bad reputation. in the neighborhood, your job is going to become incredibly difficult between managing evictions and tenant arguments and damages and repairs and missed rent payments and everything else that comes along with a bad tenant. The turnover? Oh my God, the turnover. Where did tenants read this that when they leave a house, they got to tear it up? Where did that come from? Whose playbook is that? And I can't even imagine. I would never even imagine that people would do that, not until I was a landlord. But fortunately, you can avoid most of this if you prepare yourself a half. ahead of time.

All parties will be clear on what the consequences for negative actions are and when they will be served. Tenant retention will increase as their complaints and demands decrease. And ultimately, your job will become easier and easier as your tenants improve and your property's condition and reputation stay intact. And everything that real estate has promised you will be yours if you get this right. So I'm going to give you seven steps to help you get this right. Seven steps to help you deal with bad tenants.

Okay. Step number one. Be intentional about your first impression. So to be a successful landlord, you must be both friendly and firm. I mean, if you aren't friendly, people will be reluctant to sign an agreement in the first place. And if you aren't firm, you might find yourself being walked all over when the rent is due or when repairs are required. Your actions must reflect how you'd like to be treated. in the future.

Okay? So be intentional about your first impression. Number two, perfect your screening process. Yes, perfect it. You need to get this down. See, with a solid and consistent screening process, many bad tenants can be avoided altogether. Just right there.

So conduct a thorough background screening check to check on your tenant's rental histories, their past employment, their credit. Speak with their previous landlords, if you have any concerns. Look into the car. that they drove up in. If their car is a disaster,

likely that's what your house is going to look like as well. And when a potential tenant tour is a unit, this is your chance to interview them and make your best judgment about their character. And don't abandon your intuition there. If it doesn't feel right, it probably ain't right. And then finally, request that they complete

their application at the showing. Avoid letting them take it home to finish, as this allows enough time for them to fabricate answers. or create false references. Okay, so that's number two. You've got to get your screening process down. Number three, protect and prepare yourself.

Set yourself up for success. First, take photos and videos of how the property looks before getting a contract signed. Make sure that those pictures have time stamps. This is going to help you avoid disputes when it comes time to return their security deposit. Second, get everything in writing from the very, very beginning.

Make sure that the lease. agreement is accurate and customized to what was agreed upon with the tenant. And then third, use certified mail for all important notices. You'll never have to hear another tenant claim they didn't receive a crucial document. And lastly, familiarize yourself with the renter's protection laws. They're a little bit different in every state. And have a qualified attorney picked out ahead of time so you don't have to go Google for a random one at the last minute. Had a situation where I had to make a hasty decision in picking up an attorney. And it's, I don't know, it hasn't been the best experience.

And so get your attorney ahead of time. All right. So that's number three. You want to protect and prepare yourself. Number four, handle damage appropriately. Handle damage appropriately. So by taking photos and videos of the units before signing contracts, you've already given yourself really a huge head start there.

Now, when a tenant moves out, All you need to do is take an after set of photos and videos and the damage caused by tenants. It should be very, very clear. Also, make sure that you have a property insurance policy designed specifically for landlords. And it's a really good idea to require renter's insurance from your tenants as well. And finally, keep up on your end of damages too. So replace broken appliances and repair weak and leaky roofs between tenants. Because broken down apartments, they can lead to high.

high tenant turnover. And it can build resentment. And you can by trying to save a few pennies and not fix everything, you know, that could build some resentment with your tenant and then it can kind of snowball and get out of control really quickly there. So step four, handle damage appropriately. Step five, handle noise appropriately. This mostly applies to multifamily properties, but not exclusively.

You know, tenant arguments over noise and other disturbances are best settled by the tenants themselves. That's what you want. So protect yourself ahead of time by including a clause in the lease stating that tenants must make every effort to settle arguments before involving the management. And if mediation becomes necessary, make it known to the tenants that all consequences will be served to one or both of them, not the management. Okay. So that's a five. You want to handle noise appropriately. That can be an issue in something as small as a duplex. Or if you got a couple, like I've got some single families that are right next door to each other. And every once in a while or, I don't know, maybe once or twice then in my memory,

that's been an issue with them as well. So something a lot of people don't think about, just handle noise appropriate. That's number five. Step six. Handle missed payments appropriately. Meaning when a new tenant signs a contract, make sure all payments are spelled out in the lease and explained verbally to the tenant. I mean, go ultra, ultra clear with this.

Do this right up front. because if a tenant is still unable to afford rent, there's no confusion there, right? But if that becomes the case, consider structuring payment options. You might be able to retain them that way and make things easier for them. Because if they understand it up front and they're unable to fulfill, there might be something else going on that's not necessarily has something to do with their character. So consider structuring payment options because nobody wants a vacant property. And you could also help them into a lower cost arrangement,

such as maybe having a roommate or moving into a smaller unit that you may have. So consider those types of things. But if you're really clear upfront with what those payments are and what the expectations are and how they're supposed to pay and something happens, then you might not have a bad tenant. You might just have a tenant that hit some hard times. So handle those missed payments appropriately. Number seven, this kind of is connected to missed payments because if it does, their missed payments does happen to be connected to a bad character trait or something else going on that's not going to be something that's unsurmountable. resist the temptation to let bad tenants stay. I mean, bad things happen to good tenants,

but sometimes tenants are just flat out bad. And although evictions can be inconvenient and sometimes it can be costly, it's going to cost you much more in the long run to keep tenants around who continuously miss payments or violate rules. You've got to have a valid reason to evict a tenant, so make sure to know your state's laws ahead of time. And to avoid endless negotiating,

establish a three strikes rule in the lease. We've just started putting those in ours. And that way, everyone is clear on when an eviction is called for, including the tenant. All righty, so let's review. Be friendly but firm to your tenants right up front. Set up a thorough screening process and make sure everyone understands the lease perfectly. Take photos of the unit to handle damages with ease and let tenants work out noise complaints on their own.

Help tenants appropriately with missed rent payments, but don't hesitate to evict when necessary. And if you notice something that's going on right here, most of this work is performed upfront. I mean, if you've got good tenants and you don't have this stuff in place, then you got lucky. You got, you're fortunate. If you didn't do this stuff up front and you're having issues with tenants, it might be time to go reestablish yourself, maybe reset the lease or make sure that you go through this process when then it's time to sign the next lease. Because if you do all this work up front, or at least participate in this work with your property manager and tell them how you'd like this to be run, income property is going to be so much easier and so much more profitable

for you. So go that extra mile. Don't be the uninvolved investor. It's passive income, but it's not uninvolved income. But the more you're involved right up front, right from the beginning, the more passive your income is going to be. Now, it's like you never hear about the driverless car that safely made it to its destination, right? And, you know, tens of thousands of those cars, they make it safely to their destination every day. You never hear about the tenant that maintains their property and pays rent on time, do you? Uh-uh. You do, however, hear about the ones that fail to pay and trash the place on the way out.

No shortage of those stories. Just like every time a driverless car crashes, it makes headlines, doesn't it? And allow me to put that into perspective for you. Because I looked it up as of the recording of this show. only 11 driverless cars have crashed since being allowed on public highways. Of the tens of thousands that are driving the highways, only 11 of them have crashed. And that's what makes the headlines. It seems like they're crashing everywhere all day, every day,

and they're the most dangerous things you could possibly get into. So be careful of the stories. Everybody loves the horror stories. Everybody wants to share their horror stories and they want to have their pity party and they want to play the victim, and there's just a weird way of which people operate. But don't let that scare you. Don't let that derail you from your focus.

So it's something to consider, because the real estate, that's the safe part. It's the people that are risky. But if you do your work up time, or you do your work up front, you can eliminate a lot of that risk. You can mitigate it significantly.

So if you want to do deals, if you want to build wealth, stay tuned here each and every week. We hold nothing back. We give everything away for free. And if you want to go fast, go to R-E-I-Aase.com. God bless to your success. I'm Matt Terrio.

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