SMALL RENTAL PROPERTIES BECOME MISMANAGED
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From my experiences with small residential rental properties,
I’ve found that incompetent ownership is the main reason why many small
rental properties end up being mismanaged. This incompetence has a snowball
effect and is the direct result of the owner’s:
1. Lack of knowledge about the local residential rental housing market
that results in rental units being rented at below market rental
rates that only produce a breakeven cash flow that’s barely sufficient to
properly maintain the property and grounds and pay the mortgage debt when
there’s a hundred percent occupancy.
2. Lack of knowledge and professional property management skills
necessary to screen and select only qualified tenant applicants as customers
that results in tenants who won’t or can’t pay their rent on time and
creates a negative cash flow that the owner must subsidize from personal funds
in order to keep the mortgage payments current.
3. Failure to respond to routine maintenance requests in a timely manner
that causes tenant turnover and vacancies which increases the negative cash flow
and the owner’s subsidy needed to maintain the property and grounds and pay
the mortgage debt.
4. Failure to perform routine maintenance that results in a neglected,
run-down looking rental property with thousands of dollars worth of deferred
maintenance that only appeals to a class of tenants universally known as
“tenants from hell,” who don’t pay their rent and are malicious vandals!
5. Failure to initiate eviction lawsuits against the nonpaying
vandals that results in the property being taken over by the “ tenants from
hell” which usually ends with the lender foreclosing on the mortgage loan
because the owner is broke from subsidizing the negative cash flow, and has
filed a bankruptcy petition.
Four Types Of Property Mismanagement That Effect Small Rental Properties
The four types of property mismanagement that effect many small residential
rental properties are:
1. Tenant mismanagement: This occurs when there are no tenant
qualification standards, screening requirements or eviction procedures in place.
Tenants are selected strictly on a “first come; first served basis,” and
there’s no sense of urgency when it comes to evicting tenants for nonpayment
2. Financial mismanagement: This happens when units are rented at below
market rental rates, and there’s no organized effort to collect rental
payments in arrears, and there’s no formal records being maintained for income
3. Maintenance mismanagement: This is the result of tenant
maintenance requests being deferred, or botched by hapless “handymen”
masquerading as professional repairmen, and no preventive maintenance program in
4. Records mismanagement: This happens when there are no formal property,
tenant, employee and tax records being maintained for the property.
Six Telltale Signs Of A Grossly Mismanaged Residential Rental Property
You don’t need to be a Mensa candidate in order to be able to quickly
identify a small residential rental property that’s suffering from gross
mismanagement, just look for the following six telltale signs:
Sign #1: Property and grounds are suffering from an obvious lack of
routine maintenance, and are in a neglected, run-down condition.
Sign #2: Tenant turnover and vacancy rates are abnormally high.
Sign #3: Unregistered and non-operable vehicles are conspicuously parked
on the grounds.
Sign #4: Uncollected rental payments are more than thirty days in
Sign #5: Rental units are damaged as a result of tenant negligence and
Sign #6: Property, tenant, income and expense, and tax records are either
nonexistent or in total disarray.
Thomas J. Lucier is the President and CEO of Home Equities Corp, a
privately held Florida Corporation established in 1995, that specializes in the
purchase, fast-turnaround and resale of small residential rental properties in
the Tampa Bay Area. Tom’s new 92 page special report, How
To Find, Buy And Turnaround Small, Mismanaged Rental Properties For Maximum
Profit, $29.95, is available for purchase at the Landlord.com e-Store.