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INVESTORS’ CORNER: Familiarity breeds contempt

 

A bold, categorical statement, some would say. No, not all tenants are created equal, just as all landlords are not. This article is addressed to landlords who rent property to individuals or families that live paycheck to paycheck, exactly as some landlords (normally beginning landlords, real estate has an insidious way of bloating your net worth and cashflow if held long enough) do.

There is no discrimination in this statement, and a very simple “acid test”. When your tenant filled out his or her rental application (one per individual over the age of 18 living in the property, I sincerely hope, lest you fall prey to the trick of “George here, who has trashed the last 5 properties he rented, is only staying here for a few weeks), did their bank account balance (which your application surely asks for) equal at minimum several months of their total living expenses? If not, I’m talking to you.

Landlord or tenant, young our old, we all share a common denominator: life happens. Cars break down. Job loss occurs. Financial hardships hit us all, the difference lies only in the degree to which we have prepared for the onset of these inevitable “storms”.

I’ve been a tenant myself. I’ve rented to a good number. My friends have rented to literally thousands. Please accept the following as a law of human nature no more flexible than the law of gravity:

When money is short, tenants will almost always decide which bills to pay in order of descending negative consequences for nonpayment.

Allow me to elaborate: Tommy Tenant’s car breaks down, saddling him with an unexpected repair bill of, let’s say, $800. Tommy’s family budget has approximately $400 of discretionary income after all necessities are paid each month (and you’d be appalled to know what the less financially astute, landlords and tenants alike, consider “necessities”).

It is now time for some “real talk” in the Tenant Family household. Who’s getting paid, and who isn’t? This is where the law comes in. No civilized person would go a full month without a cell phone, would they? Besides, the cell phone companies are SO inflexible. Plead how you may, they will cut off service if payment is not received. Ditto the cable company, car insurance, etc. . . . And you’ve gotta eat, right?             Continued next issue.

Lou Gimbutis is director of education at the Metrolina Real Estate Investors Association, which provides education, mentoring, and networking for real estate investing in the Charlotte region. He can be contacted at lou@MetrolinaREIA.org. For more information, visit www.MetrolinaREIA.org.

 

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