5 “What If” Questions to Consider With Your St. Louis Rental Property
One of the building blocks for long-term wealth is owning St. Louis rental properties. If you manage everything right, you can collect rent payments and build equity for as long as you own the property. This sounds great – and it is – but you also need to consider what might happen with unexpected and unfortunate events. It’s always easiest to brace yourself for anything that comes your way is to be as prepared as you possibly can. If you own a St. Louis rental property, you need to frequently ask yourself the following five questions.
What if I Have a Vacancy?
A vacancy can completely cripple your business depending on the number of units in your property. When you own a single-family St. Louis rental property, a vacancy stops 100 percent of your income, and even if you have multiple units, any non-revenue producing unit will have an impact on your business. There are two basic types of vacancies: One when you know the end of the lease is coming and you are unable to find a tenant and the other where your tenant unexpectedly leaves in the middle of a lease. While the second situation is less likely, it can – and does – happen from time to time. Regardless of the reason your St. Louis rental property is vacant, you need to have a contingency plan in place that means having multiple months of your loan payment in reserves. Reserves allow you to soften the blow and find a new tenant without having to compromise your standards. Without reserves, you will fall behind on your loan and in a few months, you could be facing a foreclosure.
What if I Have to Pay a Major Expense?
Not every St. Louis rental property is a fully updated, turnkey property. In fact, it is much more likely that the property is in average conditions at best, which means that older appliances, an aging furnace and a shorter lifespan on the roof amid other costly items are something you have to deal with. You need to have a plan in place if a major repair is required. Even with the nicest, most understanding tenants, if the furnace stops working in the middle of the winter, they are going to demand it be fixed and by not having an emergency expense fund, you set yourself up for numerous issues. First, you could be facing litigation by your tenant for negligence if the issue is completely ignored. Next, you may find yourself so desperate for capital that you will entertain above market interest rates to put a band-aid on the property. Higher interest rates mean higher monthly payments, and that results in a reduced cash flow. Be prepared and always have a contingency fund in place.
What if my Tenant Damages the Property?
Many landlords rush their tenants into a new lease – they have them fill out an application and that’s it. Before a tenant signs your lease, it’s important to get their full name, social security number, current employer, email address and phone number. Asking your tenant for their social security number or work information may feel odd, but it’s one of the only ways you can protect yourself if the unexpected happens. You can also protect yourself by collecting as much security deposit as your state will allow. No matter how sweet a tenant may seem, you can’t let them live in the property without a security deposit. If you do, you have very little recourse if they cause damage or leave at a moment’s notice.
What if There is a Weather Issue?
Many locations across the country face seasons of extreme weather, and there is always some kind of weather issue that you need to deal with. From summer wind and lightning to winter snow and frozen pipes, handling weather issues can be a nightmare, and the odds that you will face one or more of these are high. It can help to constantly look at your lease and your insurance coverage. Always max out your replacement coverage, even if that results in higher monthly premiums. You also want to run your lease by an attorney to make sure that you are covered in the event of a worst-case scenario. Using strict lease language may cause you to lose an occasional tenant, but it’s far preferable to losing your property in the event something happens.
What if I Need to Lower the Rent?
Rental markets fluctuate just like any other market does and the demand you had for your St. Louis rental property on the previous lease isn’t necessarily indicative of what will happen with your next one. It’s important that you have a backup plan for your rent price as you near the end of the lease, and if you need to make a reduction, you need to know how low you can go while still being comfortable. If you are not active with a price reduction, you may miss your opportunity to find your next tenant, so at a certain designated date on your calendar you should be ready to act or face living with a bad lease for the next year.
The way you react to issues with your St. Louis rental property is the biggest part of being a landlord. You may have 350 glorious days, but it is the other 15 days that determine just how profitable your rental property is. Keep these questions in mind and ask them frequently to make sure you are prepared for those unplanned issues.