This week’s Steve-ism is:
“You bank dollars, not good intentions.”
The property market doesn’t like you, nor does it hate you. It doesn’t owe you any favours, and it doesn’t care whether or not you’re nice to your mother-in-law.
Sometimes investors make the mistake of being nice instead of taking care of necessities. For example, they put up with tenants not paying the rent on time. They stay loyal to their lender when they could save money by refinancing. Or, they don’t put up the rent for fear of upsetting the tenant.
I once heard a story of a tenant contacting a landlord to complain that they couldn’t pay the rent on time because their cat was sick and they had to repair their car. His response… “Let’s not add homelessness to your list of woes.”
If you want to know more about the impact of charging below market rent then watch the video below:
If you want to offer charity, then do so on your terms, not on terms dictated to you. For instance, put up the rent but then give some of it back in the form of property upgrades that also add value.
“You bank dollars, not good intentions” means that you’re investing for gain, so don’t be ashamed of pursuing a profit outcome. What you do with the money you make is up to you.
A friend of mine says “no good deed goes unpunished”, which means that what starts off as a good intention can easily turn right around and bite you on the bum.
Has this ever happened to you? Share what happened below.
Until next time, remember that success comes from doing things differently.
– Steve McKnight
We bought a property for my mother in law to live in paying nominal rent on a pension, thinking it would long term be an investment. Years of bleeding money on the property via negative gearing after bad financial advice was terrible enough. When the time came that the health service recommended it was no longer safe or appropriate for her to live alone, and we moved her into a beautiful assisted living apartment,, she slapped a caveat on the place claiming a life interest in it, causing us months of stress and legal bills to be able to sell it. You’re right – no good deed goes unpunished. NEVER rent to family or friends.
oh wow, that’s very unfortunate to have that occur with family, well family-in-law. Pity you can’t sell the mother-in-law too ;o) Financial stress, with the added weight of family dramas is not something anyone needs. I hope you’ve sold the property, and that you’re not too financially in the red.
Steve, great message in this video, and good tip of that offer to invest back into the property, rather then offering a discounted rent.
We had a tenant that complained because the house was ‘mouldy’ in the winter. It turns out the room was quite cool with no heat. So we added heating to the room. No fix for the problem…they did not use the heater to help dry the air and keep room warm. They made a claim to the Rental Tribunal (NZ), so to remedy we installed a warm air circulation system in the house for value of >$5000.00.
After 3 warnings over 2 years not to tamper with the system (they turn it off despite it being ‘tamper-proof’ causing thousands of dollars in system repairs) we are evicting them. We do our best to support our tenants, their health and safety, and the property they live in. When we get them out of the house it will require a complete interior repaint. All done… the client will cost us >$10,000 for their tenancy. $100 per week on average.
Agree the works needed to be done for the long term investment on the property and associated ROI. Question is why now after 30 years of the house being there…and why do the ‘right thing’, when it is easy to replace a problem tenant who does not respect and care for a property? It is because at the end of the day we are victims of “no good deed goes unpunished”. So as Steve suggests, choose how you loose your money… or who you donate it to.
Thanks Steve, nice lesson!!
It worked out in the end fortunately as she had no claim legally and after all the stress and legals, we managed to sell with a decent capital gain that we ploughed into our own mortgage reduction. The rest of our porfolio is positively geared so all is well these days. :)
You are so right Steve.
For years, I have followed a principle of charging a bit less than a market and not lifting up rent until tenants change. I had a look at how much cash has been generated by a property with a bit lower rent but a stable tenant vs. a property with higher rent but change of tenants and it works out that a property with a stable tenant paying a bit less than the market and not making too many claims for repairs is generating more cash that a property with higher rent and less stable tenants.
Saying that, it is so true what Steve is saying – tenants won’t thank you for all of your hard work when you eventually put up rent. At the same time, you have to strive for a balance – having a decent tenant who you have good relationships with goes a long way. At the end of the day, in AU, you make money from capital gain so getting a bit less rent but having zero issues goes a long way towards building a successful portfolio. Just think about it in the following way – you charge above market rates and always have issues with tenants. What sort of nerves do you need to have to keep investing and buying more properties? I can tell you that if you have 4-5 properties and all of them turn “feral” you are not going to be getting much sleep. So please do follow Steve’s advice but overlay it with your own judgement. If tenant is always late with rent – kick them out. If they are on time, stable and do not ask for much in term of repairs then treat them the same way – trust me, you will make more money this way.
This is a sound comment
Thanks, Steve, for,posting about these “soft” psychology type skills that have such an impact on investment and emotional well being. So true.
Tenants don’t understand the business of investing, they don’t see it from the landlord’s point of view at all – that we put in far more money than they do, and that their behaviour costs us money. I get fed up with people whinging about “greedy” landlords – we are not making a good ROI from rent.
I had tenants who fought hard to not pay $100 for a repair, when their dramage would cost me over $1000 to fix – my property manager dropped the ball. Oh well, it could have been worse.
Wow. That’s a super great tip. I never looked at it this way. It makes total sense. My parents will probably be renting out their apartment next year and this tip will help us do the right thing. Thanks for sharing Steve. :)
That was a very good advice Steve; I always love to listen to your thoughts. Thanks for sharing
It would seem that the reasonable solution to the ‘problem’ of rental increases is simply to tie them to the CPI, as is done with commercial real estate…this approach would qualify as ‘doing things differently’…
Interesting idea, but no, I don’t agree.
I think that approach just ‘preserves’ the value of the rent in ‘real’ terms, but it does not reflect that cost increases can exceed the official CPI data (which is sometimes manipulated). For instance, building labour and materials has far exceeded CPI in recent times.
You ought to allow for supply and demand to set price. Any time you ‘fix’ a price all that happens is a price distortion.
The fix to housing affordability is to remove the incentive for investors to lose money.
Good points Steve…and I don’t disagree…but why then does this happen in the commercial property market? The reasons that you give apply there too…no?
I believe negative gearing…which I assume you’re referring to above… was banned in the US in the 80’s under Ronald Regan…
Most commercial leases last >12 months whereas most residential leases are only 12 months (with rents renegotiated on renewal).
Given the multi-year nature of commercial tenancies there needs to be some sort of agreed rental escalation written in. This is normally at least CPI, but it is negotiable, and so a wide varitey of terms are seen in the real world.
I’m not sure about when the rules changed in the US, but negative gearing is still very much in play in Australia. I personally think those rules need to be adjusted as taxpayers should not be subsidising investor losses while also offering tax concessions on capital gains.