Three Essential, But Often Overlooked, Tips When Buying A Rental Property

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We always say there is no perfect time to buy another investment property.

In some ways it’s like having kids. Life will never line up perfectly to have everything just right, for the exact moment when the child arrives.

As much as you try to get all your ducks in a row, chances are there will be a few curve balls thrown your way.

Acquiring another property is similar. Sometimes it is a last minute request from the bank, or a trip across the city for a signature only to drive back a few hours later to pick up keys.

Whatever it may be there are usually many moving parts in the days leading up to the closing date and immediately after taking possession.

However, to make adding a property to your portfolio a bit easier here are a few very simple, but extremely effective strategies you can use.

1 Choose a Closing Date A Few Days Into The Month

Whenever you buy a property there is a Statement of Adjustments, which the lawyer puts together.

For the purchase of a rental with tenants, it will contain a line item regarding the rent.

If you close on the third of If you close on the third of the month, for example, you will receive a credit for almost the entire month’s rent (the full month minus two days).

This benefits you in a number of ways.

  • The seller is responsible for collecting rent that month. Any potential issues are not yours to figure out.

  • The credit allows you to keep more money in your pocket or put an immediate cash balance in the management fund for the property.

  • If you set up your mortgage payment date to be the first of every month this gives you weeks until it is due. Better yet, the first payment is most often interest only so it will be for a reduced amount allowing you to build even more of a cash reserve quickly.

If you were to close on the first of the month, the same things wouldn’t apply.

It would be your responsibility to collect the rent, there would be no credit to you on closing, and the mortgage payment schedule won’t be as beneficial.

It’s amazing the difference a couple of days can make.

 

2 Have Tenants Sign An Acknowledgement

Usually, an investor will review any leases in place on a property.

However, there are many cases where long-term tenants no longer have a lease in place and are in a month-to-month situation.

This isn’t necessarily a bad thing, but depending on the previous manager, it could leave some details open to interpretation.

Maybe there were some verbal agreements made in the past, or even miscommunications that could lead to future confusions you would have to deal with.

To protect against this, you can have an Acknowledgement of Declaration signed by any current tenants to ensure everyone is on the same page.

Things like, who owns what appliances, parking arrangements, rent renewal dates, etc.

You’re trying to get any potential minor issues out in the open so you have a written record of the current understanding of all parties.

This way if there is a disagreement about something minor in the future, you have written details to revert back to.

 

3 Use Your Time Wisely, and Profitably

If you use strategies #1 and #2, you shouldn’t have to reach out to your tenants for the first few weeks.

Rent and any property details should all be covered.

But this doesn’t mean it’s time to sit back and do nothing until the first of next month.

To ease the property transition, it’s a perfect opportunity to make a couple of trips to the property just to show your face, check things out, or handle some small insignificant things. This allows you to be seen and start building relationships with your tenants.

To take it a step further you can knock on their door just to introduce yourself and have a quick chat. You don’t have to become friends with them, but this is a business after all, and it is valuable to have a relationship with your customers.

This way, if you need to speak about rent issues in a few weeks, or a management concern, the first time you’ve spoken to them is not for something negative.

From a management perspective, this small tip can go a long way.

Using these three strategies for the next occupied rental you buy won’t guarantee there are no last minute fire drills on closing, a slight curve ball is almost inevitable.

But it will make it much smoother overall and lead to an immediate lump of cash in your pocket, and as an investor that’s never a bad thing!

                  

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