HOW 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 of rent.
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 and expenses.
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 place.
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 arrears.
Sign #5: Rental units are damaged as a result of tenant negligence and vandalism.
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.

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