I have been doing real estate investing for a while now and there are things I look back on and think “why did I do that that way?”. Hindsight is 20/20, right? I wanted to share with fellow real estate investors the hacks and tricks I have learned with leases over the last few years of investing.
One of my first tips is to get a property manager–especially if you have multiple properties. There are some things the property manager can do for you, which will make your life so much easier. If you already have a property manager, awesome!
What I Did
In the beginning, what my wife and I did was buy houses to live in, work on them, and then turn them into a rental. This is a great way to get cheaper loans and start getting some cashflow. But when we went out and started buying places that had tenants or were rent ready, I didn’t know what I was doing.
- One of the biggest things you need to know is how closing time goes.
- I have an anecdote for you!
- We bought a duplex and had a 30 day close on it. The listing agent writes up the deal and I agreed to everything. The contract is fully executed when the last person signs it and then you have the closing time. If you make sure the seller signs first before you get the deal and have to sign it, it means you can choose when your 30-day timer starts.
- Here is where I ran into some issues. If you buy a property with tenants, you will get a pro-rated rent. If I close on the 28th of October, I am going to get 4 days of rent. If I close on the 1st of November, I get the whole month’s worth of rent and the seller has to collect it and give it to me at closing. Even if a tenant is behind on rent, the seller will give you their rent because they don’t want the deal to die.
- You need to make sure that you have enough time to introduce yourself as the new owner and make contact with the tenant before the next rent is due. If you close on the 28th, that only gives you a few days to speak with tenants and get everything in order before the next rent is technically due. When you close a deal is extremely important!! You can ask for an extension at the very least and offer to help with their tax exposure.
- I have an anecdote for you!
- Make sure that the leases are assigned to you. No matter if its a property management company or whoever, the rights to the leases need to be assigned to you. It gives you the ability to enforce and collect the rent payments. Each state can be different, but make sure the leases are yours. Otherwise, you might not be able to go after the tenant on your own property to collect their late rent.
- Figure out the best lease timing.
- If your tenant is moving out towards the beginning of holiday season, leasing up the next tenant should be either a 6 month or 18-month lease. Finding people who want to move to a new apartment in winter or in one of the busiest seasons of the year (Thanksgiving to post New Years) is going to be hard because they will either not meet all your criteria and you’re desperate and will let them in or you keep your standards and the property is vacant for months. The good tenants are going to be out and looking for places from April to September. Try to make sure that your lease contract ends sometime in that time period to avoid having a vacant property.
Some of these issues are things you run into when you are just beginning your real estate investing journey. Leases can be a hassle and might make you want to shy away from the cash flowing opportunity that is there. Remember: timing is everything in real estate investing. Closing contracts and lease contract timings can kill you. This business is a people business and people are unpredictable. Preparing a little for these things can help you out in the long run!
If you love the returns of real estate investing, but don’t want to deal with any people, you have the option to be the bank. You can be part of a trust or a fund. Right now, I have a fund set up for accredited investors with over $5 million in assets. The fund has preferred interest and 70% profit sharing. Visit me at investwithdrmatt.com to find out if you have the opportunity to invest with us.
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