| I have been asked a number of times about the | | | | doing a credit and rental history check on applicants. |
| common traits of successful real estate investors, | | | | Just because somebody is vertical and ventilating does |
| owners and operators. So I've given it a little thought | | | | not mean you should rent to them. There are lots of |
| and stolen a catch phrase from Stephen Covey and | | | | firms that will do the research for you (for a small fee) |
| originated the following Seven Habits of Highly | | | | to tell you whether an applicant has a history of suing |
| Successful Real Estate Investors. Whether you're | | | | landlords, running on leases or not making payments. |
| investing for wealth development, income, tax shelter | | | | You cannot make good decisions without accurate |
| or asset growth, these habits will hold true for you. At | | | | information. Credit and rental checks give you the data |
| least give them a read and a thought or two. They | | | | you need. |
| can help and I hope they'll help you. | | | | 5. Reduce the risk of personal financial ruin by using a |
| From my experience I believe that the following seven | | | | properly formed and maintained legal entity to own the |
| principles are consistently understood and implemented | | | | real estate. The business value of using an LLC, |
| by successful investors. Let's review what they are | | | | Corporation or Partnership to own real estate is well |
| and why they're important. | | | | documented. While it may be easier to just "do it in |
| 1. Reduce the risk of negative cash flow by not | | | | your name", that would will allow any financial or legal |
| overleveraging. When you over borrow for a piece of | | | | problems to follow you home from work and invade |
| real estate the property must earn enough money to | | | | your personal assets, bank accounts and investments. |
| pay its traditional operating expenses and debt service. | | | | Chances are that you will sleep better being a |
| Unless you are able to buy the property at significantly | | | | stockholder or interest holder than you would as a sole |
| below its value, when you over-leverage you will put | | | | owner. |
| the property at a huge disadvantage that will typically | | | | 6. Reduce the risk of business failure by implementing |
| result in significant negative cash flow. I can't speak for | | | | an effective property management system. With a |
| all investors, but I don't like negative cash flow! | | | | few simple protocols and practices you can take the |
| 2. Reduce the risk of property/ casualty losses or | | | | headache out of property management. Simple timed |
| related law suits by purchasing adequate coverage | | | | activities will remarkably reduce the time, effort and |
| from a reputable insurance firm. Sometimes an owner | | | | frustration of being a property manager. Take the time |
| may think that insurance is an unnecessary expense, | | | | to establish your program early on or you'll be investing |
| after all, they never plan to use it. So they get the | | | | tons more time than you need to in the future. |
| cheapest coverage they can find. The biggest reason | | | | 7. Reduce the risk of tax problems by keeping |
| some policies are cheap is because they don't cover | | | | accurate books and records and using a CPA at tax |
| much. This looks good until the disaster occurs and | | | | time. You cannot manage what you cannot measure. |
| then you are financially crippled. Better to get adequate | | | | You cannot measure what you cannot monitor. You |
| coverage and not worry about it. It says in the Good | | | | need accurate books and records if you expect to be |
| Book that if you are prepared you shall not fear. | | | | successful long term. Without good financial records |
| Proper insurance makes for proper preparation. | | | | you will never be able to maximize your yield. Get |
| 3. Reduce the risk of financial devastation caused by | | | | them started and keep them up to date. |
| major repairs or upgrades by initiating an inexpensive | | | | There they are, seven habits that are simple, sweet, |
| preventative maintenance program. By keeping a | | | | straight to the point and sure to work. While virtually |
| property in decent operating condition, all components | | | | every property owner you will ever meet will agree |
| will last longer, upkeep will be minimal and revenue | | | | with these principles, yet only a few will actually live by |
| sustained. If you let a property deteriorate, you will | | | | them. It will be easy to recognize the difference. Those |
| have major capital expenses, loss of revenue from | | | | that put these principles into play will smile a lot and visit |
| down rooms, apartments or units and a drop in value. | | | | the bank to make deposits. Those that don't will frown |
| Better to spend a little now than lose a boat-load | | | | more and need to visit the bank to get extensions or |
| tomorrow. | | | | new loans. I know which one I'd rather be. Keep smiling. |
| 4. Reduce the risk of tenant problems by actually | | | | If we can help we'd be glad to. |