How To Spend Money On Prevention Rather Than Solutions
By Paul Esajian on August 3, 2016
The real estate business is full of action. Most investors have mastered the art of handling five different tasks at once. However there are times when a seemingly simple task will slip through the cracks. It is these simple items that can end up being the most costly. Regardless of what type of investor you are it is always better, and less expensive, to prevent an issue rather than having to deal with one. Things may seem to happen out of the blue but are often caused by negligence or a lack of forward thinking. Whatever you have going on in your day to day business you need to take a step back sometimes and think about prevention. It could end up saving your hundreds, if not thousands, of dollars. Here are five areas of your business where you need to consider the cost of prevention rather than the cost of finding a solution.
- Due Diligence On Purchases. There are plenty of times when you are presented with deals that need a quick response. Regardless of the sense of urgency you can never skip out on due diligence. All it takes is one oversight on one deal to turn your business into a tailspin. Even if time is really of the essence you need to know exactly what you are buying. A seemingly good deal can turn south quickly if there is an issue with the foundation or a problem with the title. There are many investors who avoid or waive inspections all together because they feel they know the property. By spending a few hundred dollars on the inspection and waiting 24 hours you can be confident you are getting into a property you are comfortable with. Never rush into a deal where the risk outweighs the reward.
- Preventative Maintenance On Rehabs. Your rental property does not work on autopilot. Even if you have a solid property with great tenants there is still work to be done. Instead of trying to squeeze every last day out of your washing machine or dishwasher you should take action to ensure it. Preventative maintenance on all of your appliances, the furnace and the central air will not guarantee they will run smoothly but it sure does help. By spending a few hundred dollars a year for seasonal checkups you can feel confident that these items will get you through another season. Even if you have a reserve fund nobody likes getting caught off guard when the dishwasher goes. You may be surprised at just how efficient and effective these items last for simply by taking care of them. If they do happen to stop working in the winter you don’t want to have to scramble around trying to find a replacement in the freezing cold. By staying on top of your rental property you reduce the risk of maintenance which directly leads to happier tenants. Happier tenants have a way of paying their rent on time every month.
- Good Tenants. As a landlord the strength of your rental property is squarely based on the strength of your tenants. Even in times where you may be scrambling for tenants you need to do your homework. You can’t rent to the first tenant that shows an interest. There needs to be a system in place that you follow regardless of how close a vacancy may be. Ask any landlord that has gone through an eviction and they will tell you that is far worse than a short term vacancy. Not only should you give every prospective tenant an application but you need to actually follow up with the references. A simple phone call to an employer or a previous landlord can shed some light on exactly who you are renting to. Never rush a tenant into your property without feeling fully confident that they will take care of your property and pay their rent on time.
- Insurance/Lease. Nobody ever thinks something bad will happen to them. The fact of the matter is that no matter how cautious you are or how well you take care of your property things happen. Whatever it costs you need to be protected at all times. Without the proper insurance or language on your lease one accident can wipe your business out. With any rental property you own you need to have a professional attorney review every line. For a couple of hundred dollars this can be the best money you ever spend. The same is the case with your insurance. You need to know that if a weather issue or something unexpected happens that you will not lose everything. For a few extra bucks a month in coverage this is worth piece of mind. Don’t let one freak accident or incident wipe away years of hard work.
- Business Partners. There are times in almost every investor’s career when they entertain working with a partner. For some this is the best decision they make but for others it turns into a disaster. As great as the right partner is the wrong one can make your life awful. Not only will your day to day business be scrutinized the wrong partner will your reputation, or worse. A bad contractor can end up costing you thousands of dollars and add weeks to your project. A bad attorney can botch a closing or miss something on a contract that leaves you in a terrible spot. A bad hard money lender can drag their feet and cause you to miss out on a deal. A bad business partner can be a blow that is difficult to recover from.
It is always better to get out in front of a problem than try to deal with it. Remember this in every area of your business.