Improving Economy Brightens Outlook For Commercial Real Estate

The strong rebound in economic growth during the second quarter and ongoing job creation are gradually improving the outlook for all of the major commercial real estate sectors, according to the National Association of Realtors® quarterly commercial real estate forecast.

Lawrence Yun, NAR chief economist, says after many false starts, the economy finally appears to be turning a corner to firmer ground. “The job market has been the bright spot of the economy this year as employers are feeling more confident about their growth prospects and adding to their payrolls,” he said. “This gradual turnaround from being overly cautious to more optimistic should slightly boost the demand for leasing and purchase activity as well as new construction projects in the upcoming year.”

Yun adds, “The economy can handle the inevitable rise in interest rates as long as commercial rents steadily rise to generate investor returns.” [Read more…]

RECESSION-PROOF YOUR PORTFOLIO WITH RENTAL PROPERTIES

Real estate is like the economy. The economy? It’s like the weather. We have warm seasons, we have cold ones. Some seasons are unseasonably hot and others: unseasonably cold. As we come out of the most recent downturn and start assessing what happened, what went wrong, what went right – one thing is for certain: rental properties survived the storms. For investors who want cash-flow, the recession has been a fine time to invest in real estate. Why? Some real bargains have come up. First time home buying rates went down. More people rented. Hipster’s bottom line? Buy and hold investing is a great way to recession-proof your portfolio.

RENTAL PROPERTIES ARE LIKE FINE ART: BUY & HOLD FOR TRUE APPRECIATION [Read more…]

How Percentage Rent Works in a Commercial Real Estate Lease

Retail tenants and commercial real estate professionals should be aware of a common provision in leases known as percentage rent. This article will explain how percentage rent and breakpoints work, with clear examples along the way.

Simply put, percentage rent is extra rent paid based on a percentage of gross sales. Percentage rent situations can be found in certain commercial spaces such as shopping malls and other multi-tenant retail spaces. The idea behind percentage rent is the shopping center is a natural draw for customers, who will tend to walk among the various shops. The owner also creates an advantage for all of the retailers by selecting what businesses are placed in the same space, e.g. having a coffee shop, dry cleaners, restaurant, and a general store all being neighbors. This advantage and ability to attract customers can enable the owner to negotiate a percentage of sales.

How Percentage Rent Works

Commercial leases with a percentage rent provision will have a minimum rent paid, which is just a basic rent provision typically based on a dollar amount per square foot of space. For example, a retailer may pay $10 per square foot with 4,500 sqft, and thus would pay $45,000 in rent or $3,750 per month.

The percentage rent would kick in after a certain amount of gross sales are met. The point at which percentage rent is paid is called a “breakpoint” and can either be a natural or artificial breakpoint. If the breakpoint is never met, the tenant is only obligated to pay the minimum rent.

An artificial breakpoint is simply a dollar amount of sales both parties agree on. For example, a landlord might negotiate that 5% of gross sales over $800,000 should be paid in percentage rent. If the gross sales are $1,000,000, then the renter pays 5% of $200,000, or $10,000 in extra rent.

To calculate the natural breakpoint, which is commonly used as well, you simply divide the base rent by the established percentage. In the above example, that would mean dividing $45,000 by 5%, which equals $900,000 in gross sales as the natural breakpoint. The logic behind the natural breakpoint is that a retailer should only pay the percentage rent on sales over and above what is required to pay the minimum rent. In other words, taking 5% of $900,000 in sales would equal the minimum rent payment of $45,000, so it makes sense that the percentage rent requirement would only kick in after this minimum rent breakpoint is achieved.

As you can imagine, the minimum rent amount and percentage rent can be negotiated. In some cases, a retailer may wish to have a higher minimum rent with a higher breakpoint, which allows them to profit at lower sales levels before percentage rent comes into effect. This could be the case for businesses that recently opened and are just launching their marketing.

When evaluating percentage rent situations, retailers should be aware of what types of revenue are included and excluded, as in most cases returned items and employee sales are not counted towards the total. Owners will also require tenants to allow audits of gross sales, require regular sales reports, not allow tenants to close shop during certain stretches, and ask that retailers not open additional locations within the same market area.

Percentage rent is a fairly straightforward concept, but can sometimes get tricky when it comes to breakpoints, inclusions and exclusions. As with all commercial real estate leases, the devil is in the details and as such leases should always be read thoroughly.

How to Invest In Real Estate When Your Tenants Are Retired Seniors

When It Comes To Retirement Living, Keep These In Mind:

Outdoor Space

Retirees may not want to deal with the headache of mowing a lawn and pruning back the crepe myrtles, but that doesn’t mean they want to be stuck without a way to enjoy the outdoors at their own home. Having a small, highly manageable yard is a huge plus for seniors (especially if yard maintenance is included in the rent) who want to enjoy being out in nature.  An apartment complex that has outdoor walking paths and outdoor community areas with tables and chairs for socializing is also a big selling point.

Close Proximity to Public Transportation

Keep in mind that your tenants may not drive as much as they used to, either by choice or by inability. A location with convenient access to buses, taxis and other public transportation means your tenants can get out on the town and enjoy all the amenities of your city.  They may want to live it up while they still can!

Smaller Spaces

When it comes to retired tenants, a smaller square footage is your friend. Just like a smaller yard, a downsize in floor space means less to clean and manage. This isn’t to say potential tenants want to be cramped in an apartment the size of a bread box, but they may not need or want the spaciousness of a nine room family home with three or four bedrooms. Think simple and stylish – go for the necessities but not too many extras.

Handicap Accessibility

Here’s an addendum. Smaller doesn’t mean cramped. Doorways need to be wide enough for the navigation of walkers, canes and wheelchairs. Having more limited mobility is already a pain when the corners are easy to navigate, so don’t make it harder for your seniors! Even if they are still independent it doesn’t mean they don’t have special mobility that should be taken into account. Pay attention to the needs of individuals – they might require walk-in/roll-in showers, the installation of grab bars, lever door handles and even chair-level peep holes in the front door. While it’s not necessary to make every unit in your complex handicap-accessible, having a few (near the roomy elevator that you also have, by the way) will come in handy. Remember, too, that under the Fair Housing Act,  landlords must allow modifications to meet the needs of a handicapped individual, even if that means requiring the tenant to return the unit to its original state before moving.

Ground Level

If your housing isn’t ground level, you need to have an elevator. Stairs aren’t great for seniors, whether or not they have walkers, canes or wheelchairs. They’re hard on the knees! Going up and down stairs can be hazardous, particularly for seniors. Don’t put them at risk.

Fitness Facilities

Throw your preconceptions out the window. Today’s seniors aren’t sitting around watching Jeopardy all day. This is 2013, the age of the active senior! Providing a well-equipped gym and walking area is a great way to get seniors socializing with neighbors, get out of their apartments and live a more active, healthy lifestyle.  In single-family housing, providing opportunities for seniors to be active is a huge plus and it may be advantageous to make deals with local gyms for your tenants to have memberships and roll it up into the rent.  I may not go so far as to include any exercise equipment in one of the bedrooms, but I am sure some smart landlord will give it a try and make it work.

Emergency and Security Services

Because single seniors are likely living alone unless they have roommates, extra security precautions are important. Make sure you (or your property manager) pay special attention to the safety of your senior tenants. If something happens, they need to be able to get in contact with someone who can help immediately. Don’t ever let your tenants feel unsafe in their home. Check on things regularly with their safety in mind. While plenty of independent seniors don’t want to be coddled or doted on, being attentive is part of being a good landlord.  This is another area where a monitored security system can be provided by the owner/management and the monthly cost simply rolled into the rent.

You’re (probably) not running a retirement community.

Don’t feel pressured to have dining services and healthcare or scheduled activities just because you’re looking to have senior residents. Retirement living doesn’t necessarily mean your complex has to turn into it’s own self-sustained, full-equipped community with room service. What’s important when it comes to seniors — as much as any potential tenant — is to listen and to respect their needs and desires in a property. Accommodate to the best of your ability and treat them like the valuable tenants that they are.

Obviously with single-family housing accommodated for senior living, you are not going to have meal services, but do not discount the value of making things easy.  Really smart entrepreneurs are going to figure out how to cost effectively offer delivered meal services (already happening), security systems (already happening), electric, water and cable services provided (already happening) and even therapeutic services on location (already happening).  When someone figures out how to roll these services into one well marketed package, the costs can be rolled into monthly rental payments and a premium can be charged.  Remember, these are the golden years for retirees and many do not want to sit around and be waited on  – nor do they want to sit around and wait!

They want to be active and they and their adult children helping provide for them will gladly pay for great service whether it is an apartment or a single-family home!

Tried and True Tips on Thriving in Commercial Real Estate Investing

The most beautiful property could be a part of the worst real estate investment you’ve ever made. Remember that commercial real estate investing is all about the deal, the terms, and the return on investment. Here are some tips for successful commercial real estate investing:

  • Be an investor instead of an accumulator of commercial properties. The whole idea of making investments is to produce an income or a profit. So, if you buy a property that produces no income or profit, you really just acquired a property (instead of making an investment).
  • Understand that every property has a lifetime. One of the biggest mistakes you can make as an investor is to ignore the fact that over time, you’ll have to spend money on the upkeep of the building. The building may need a new roof, and the electrical system may need to be updated. Every building goes through these phases; some more so than others. So make sure you have a long-term plan to handle such repairs.
  • Focus on one investment type at a time. Especially when you’re first starting out, you should focus on one type of investment: apartments, offices, retail, land, or whatever. Each deal needs and deserves your undivided attention. It’s better to be master of one than average over many. And who wants average-performing properties anyway?
  • Consider environmental problems. A huge potential concern when owning commercial property is hazardous waste problems. Property owners have the primary responsibility for fixing such problems, even if the current property owner didn’t cause them.If at some point you held an ownership interest in a property, you’re potentially responsible for paying for the cleanup of it. The costs for an environmental cleanup and disposal can run into the millions of dollars. Obtain an environmental report from environmental assessment companies as part of your due diligence if needed. The reports cost a bit, but it can save you even more.
  • Get a mentor so you can learn from his or her mistakes. Mentors can save you from making huge mistakes, identify when you’ve missed due diligence items, and connect you with resources that you otherwise wouldn’t have immediate access to.
  • Determine whether you and your assets are adequately protected. Unfortunately, as life happens, so do lawsuits. That means you need to do everything you can to protect yourself. Ask yourself the following questions to determine whether you’re protected:• What do you have at stake if you lose a lawsuit?

    • How is your property protected?

    • Is your personal property (for example, your home) protected?

    • Are your other investments totally separate from each other so that one lawsuit doesn’t affect the other investments?

    Don’t guess when it comes to the answers to these questions. Talk to a lawyer to ensure that you’re protected if you’re sued.

  • If you’re in a partnership deal, do your best to finance your deal with a non-recourse loan. Non-recourse means that you aren’t personally guaranteeing the loan. This gives you two distinct advantages: it allows you to be taken off the loan if the partnership goes sour and, if the property fails, it won’t be tied to you personally.

12 Expert Tips for Investing in Self-Storage Facilities

Experts advise would-be investors to follow these 12 steps for achieving success in the self-storage sector.

1. Consider geography. Pay attention to the self-storage market within a three- to five-mile radius of a facility.  Supply-and-demand fundamentals are dynamic by trade area and can vary significantly among trade areas, even in the same city.

2. Look at the location. Figure out where your competitors are and, if possible, where your competitors are planning to be. A facility that’s set back from the road and isn’t very visible could be performing well, but a rival could swoop in and build a better-positioned facility nearby, and all of a sudden your occupancy starts to drop.

3. Hire a specialist. Use a qualified real estate broker who’s knowledgeable about self-storage.

4. Be patient. Often, it can take four or five years for a facility to “stabilize” after it’s been purchased.

5. Ignore physical occupancy. A facility could have a physical occupancy rate of 95%, but the economic occupancy rate actually is 75% because rent for existing tenants hasn’t been raised in several years.

6. Realize what the investment really involves. When you’re buying a self-storage facility, you’re not just buying a piece of real estate. You’re buying a business that must grapple with issues like revenue management, SEO and lead generation.

7. Evaluate the staff. Do background checks on employees you plan to keep to make sure they’re “honest and forthright.” Also,visit with customers to gauge their impressions of the staff.

8. Scrutinize the manager. Unfortunately, it’s far too easy for a manager to be deceitful by pocketing cash from tenants or engaging in other misdeeds.

9. Review the records. This includes combing through the facility’s bank deposits and other financial documents so you can ensure the seller is “on the up and up.”

10. Examine the structure. Watch out for deferred-maintenance problems like leaky roofs or mold.

11. Separate yourself from the rest of the buyers. That’s especially true if you’re purchasing a facility in a primary or secondary market.

12. Concentrate on secondary and tertiary markets. The commanding presence of national and regional players makes it tough to compete in primary markets. One facility alone in a primary market could cost $4 million or more, while a facility in a secondary or tertiary market could go for $1 million to $2 million.

Look To Commercial Real Estate In 2013

For investors, Real Estate Investment Trusts (REITs) have been one of the best-performing market sectors since the end of the Great Recession. While the housing market continues to struggle, investors in office buildings, apartments and shopping malls continue to put up strong total returns. Recently the FTSE NAREIT All REITs Index bested the S&P 500 for the fourth year in a row.

For investors, the current environment of a slow-growing economy and low interest rates could make REITs the asset class du jour once again in 2013.

Expectations are High
For portfolios with commercial real estate holdings, 2012 was another banner year. The FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs such as Annaly Capital (NYSE:NLY), delivered an impressive 20.14% total return in 2012. Backing out the mortgage firms, the FTSE NAREIT All Equity REITs Index still managed to produce returns in excess of 19%. There are plenty of reasons to be excited in 2013 for REIT investors as well.

REITs continue to benefit from the low-interest-rate environment on two fronts. First, individual investors have been drawn to the sector’s high dividend yields. Due to their tax structures, REITs are required to pay out nearly all of their taxable income to shareholders. That typically results in significant dividend yields for the stocks. The FTSE NAREIT All REITs Index yield on the last day of 2012 was 4.38%. More importantly, those dividends have continued to grow as the economy has improved.

Second, the low interest rates benefit REITs by allowing lower costs to access capital. REITs currently own only 10% of all the real estate in the country. They are, however, using those low-capital costs to grow via acquisitions and add to their portfolios. That has helped boost those juicy dividends even more over time.

Finally, REITs continue to benefit from overall improving conditions and market data. Occupancies still remain high, rents are growing and general consumer confidence remains strong. These factors may help drive commercial real estate firm share prices much higher in the upcoming year.

A Solid Bet
For investors, the combination of high dividends plus share price appreciation should make REITs a good place to deploy capital in 2013. A great place to start is the iShares Dow Jones US Real Estate (ARCA:IYR). This ETF is one of the most liquid options for investors and tracks 90 different real estate firms. Top holdings include mall operator Simon Property Group (NYSE:SPG) and apartment owner Equity Residential (NYSE:EQR). IYR fund has performed well since its inception back in 2000 and produced 10.31% in annual returns. The fund currently yields roughly 3.7%. Other solid broad choices include the SPDR Dow Jones REIT (ARCA:RWR) and Vanguard REIT Index ETF (ARCA:VNQ).

Health care-related real estate finished 2012 with a 20.35% gain. Much of that growth was due to the large increase in senior housing. The average occupancy rate for the senior housing sector has risen consistently over the last 10 quarters. That prompted many firms like Health Care REIT (NYSE:HCN) and Ventas (NYSE:VTR) to make acquisitions in the sector. Both firms make an ideal play on health care real estate and its growth.

With consumers beginning to open their wallets, the owners of shopping plazas, strip malls and free-standing retail locations have finally bounced back. Firms such as CBL & Associates (NYSE:CBL) and Realty Income (NYSE:O) have seen their share prices and dividends grow over the last year. Investors can expect more of the same in 2013. CBL and O shares yield around 4% and 4.3%, respectively.

The Bottom Line
The commercial real estate sector continues to outperform the broad stock market. 2013 should bring more of the same. Benefiting from low interest rates, the hunt for income and improving economic conditions, REITs could be the go-to investment this year. For investors, the previous picks, along with the broad iShares Cohen & Steers Realty Majors (ARCA:ICF) make ideal selections to play the sector.

4 Ways To Value A Real Estate Rental Property

During the first half of the 2000s, investing in real estate became more common for average Americans. With easily available financing and minimal down payment requirements many Americans made handsome profits by flipping homes. Well, as we are all aware of, this couldn’t go on forever, and the real estate bubble popped in 2007, leading to The Great Recession. Notwithstanding this fundamental change, real estate investment is certainly not unprofitable. Some economic factors such as high unemployment and very strict lending standards by financial institutions have contributed to low vacancies for rentals across the United States. Perhaps real estate investors should look at rental investments as an alternative to a buy and sell approach. So, how does one go about valuing real estate rentals? Here we will introduce at a high level some ways to value rental property.

Sales Comparison Approach
The sales comparison approach (SCA) is one of the most recognizable forms of valuing residential real estate. This approach is simply a comparison of similar homes that have sold or rented over a given time period. Most investors will want to see an SCA over a significant time frame to glean any potentially emerging trends.

The SCA relies on attributes to assign a relative price value. Price per square foot is a common and easy to understand metric that all investors can use to determine where there property should be valued. If a 2,000 square foot townhome is renting for $1/square foot, investors can reasonably expect a similar rental income based upon similar rentals in the area. Keep in mind that SCA is somewhat generic; that is, every home has a uniqueness that isn’t always quantifiable. Buyers and sellers have unique tastes and differences. The SCA is meant to be a baseline or reasonable opinion and not a perfect predictor or valuation tool for real estate. It is also important for investors to use a certified appraiser or real estate agent when requesting a comparative market analysis. This mitigates risk of fraudulent appraisals, which became widespread during the 2007 real estate crisis.

Capital Asset Pricing Model
The capital asset pricing model (CAPM) is a more comprehensive valuation tool for real estate. The CAPM introduces the concepts of risk and opportunity cost as it applies to real estate investing. This model really looks at potential return on investment (ROI) derived from rental income and compares it to other investments that have no risk, such as United States Treasury bonds or alternative forms of real estate investments such as real estate investment trusts (REITs).

In a nutshell, if the expected return on a risk-free or guaranteed investment exceeds potential ROI from rental income, it simply doesn’t make financial sense to take the risk of rental property. With respect to risk, the CAPM considers the inherent risks to rent real property. For example, all rental properties are not the same. Location and age of property are key considerations. Renting older property will mean landlords will likely incur higher maintenance expenses. A property for rent in a high crime area will likely require more safety precautions than say a rental in a gated community. This model suggests building in these “risks” before considering your investment or when establishing a rental pricing structure. (CAPM helps you determine what return you deserve for putting your money at risk.)

Income Approach
The income approach focuses on what the potential income for rental property yields relative to initial investment. The income approach is used frequently for commercial real estate investing. The income approach relies on determining the annual capitalization rate for an investment. This rate is simply the projected annual income from the gross rent multiplier divided by the original cost or current value of the property. So if an office building costs $120,000 to purchase and the expected monthly income from rentals is $1,200, the expected annual capitalization rate is 12% (1200*12/120000).

This is a very simplified model with few assumptions. More than likely there are interest expenses on the mortgage. Also, future rental income may be less or more valuable five years from now than they are today. Many investors are familiar with the net present value of money. This concept applied to real estate is also known as a discounted cash flow. Dollars received in the future will be subject to inflationary as well as deflationary risk and are presented in discounted terms to account for this.

Cost Approach
The cost approach to valuing real estate states that property is really only worth what it can reasonably be used for. It is estimated by summing the land value and the depreciated value of any improvements. Appraisers from this school often espouse the “highest and best” use to summarize the cost approach to real property. It is frequently used as a basis to value vacant land. For example, if you are an apartment developer looking to purchase three acres of land in a barren area to convert into condominiums, the value of that land will be based upon the best use of that land. If the land is surrounded by oil fields and the nearest person lives 20 miles away, the best use and therefore the highest value of that property is not converting to apartments but possibly expanding drilling rights to find more oil.

Another best use argument has to do with property zoning. If the prospective property is not zoned “residential,” its value is reduced since the developer will incur significant costs to get rezoned. It is considered most reliable when used on newer structures, and less reliable for older properties. It is often the only reliable approach when looking at special use properties.

The Bottom Line
Real estate investing isn’t out of vogue by any stretch of the imagination. Since the last crash, however, the housing market has changed dramatically. Flipping homes financed with no money down is an artifact of the past and possibly gone forever. But real estate rentals can be a profitable endeavor if investors know how to value real property. Most serious investors will look at components from all of these valuation methods before making a rental decision. Learning these introductory valuation conce

Finding a Good Commercial Real Estate Deal

Ask any real estate professional about the benefits of investing in commercial property and you’ll likely trigger a monologue on how such properties are a better deal than residential real estate. Commercial property owners love the additional cash flow, the beneficial economies of scale, the relatively open playing field, the abundant market for good, affordable property managers and the bigger payoff from commercial real estate.

But how do you evaluate the best properties. And what separates the great deals from the duds?

Like most real estate properties, success starts with a good blueprint. Here’s one to help you evaluate a good commercial property deal.

  1. Learn What the Insiders Know
    To be a player in commercial real estate, learn to think like a professional. For example, know that commercial property is valued differently than residential property. Income on commercial real estate is directly related to its usable square footage. That’s not the case with individual homes. You’ll also see a bigger cash flow with commercial property. The math is simple: you’ll earn more income on multifamily dwellings, for instance, than on a single-family home. Know also that commercial property leases are longer than on single-family residences. That paves the way for greater cash flow. Lastly, if you’re in a tighter credit environment, make sure to come knocking with cash in hand. Commercial property lenders like to see at least 30% down before they’ll give a loan the green light.
  2. Map Out a Plan of Action
    Setting parameters is a top priority in a commercial real estate deal. How much can you afford to pay? How much do you expect to make on the deal? Who are the key players? How many tenants are already on board and paying rent? How much rental space do you need to fill?
  3. Learn to Recognize a Good Deal
    The top real estate pros know a good deal when they see one. What’s their secret? First, they have an exit strategy – the best deals are the ones where you know you can walk away from. It helps to have a sharp, landowner’s eye – always be looking for damage that requires repairs, know how to assess risk and make sure to break out the calculator to ensure that the property meets your financial goals.
  4. Get Familiar With Key Commercial Real Estate Metrics
    The common key metrics to use for when assessing real estate include:

    • Net Operating Income (NOI)
      The NOI of a commercial real estate property is calculated by valuating the property’s first year gross operating income and then subtracting the operating expenses for the first year. You want to have positive NOI.
    • Cap Rate
      A real estate property’s “cap” – or capitalization – rate, is used to calculate the value of income producing properties. For example, an apartment complex of five units or more, commercial office buildings, and smaller strip malls are all good candidates for a cap rate determination. Cap rates are used to estimate the net present value of future profits or cash flow; the process is also called capitalization of earnings.
    • Cash on Cash
      Commercial real estate investors who rely on financing to purchase their properties often adhere to the cash-on-cash formula to compare first-year performance of competing properties. Cash-on-cash takes the fact that the investor in question doesn’t require 100% cash to buy the property, but also accounts for the fact that the investor will not keep all of the NOI because he or she must use some of it to make mortgage payments. To uncover cash on cash, real estate investors must determine the amount required for their initial investment.
  5. Look for Motivated Sellers
    Like any business, customers drive real estate. Your job is to find them – specifically those who are ready and eager to sell below market value. The fact is that nothing happens – or even matters – in real estate until you find a deal, which is usually accompanied by a motivated seller. This is someone with a pressing reason to sell below market value. If your seller isn’t motivated, he or she won’t be as willing to negotiate.
  6. Discover the Fine Art of Neighborhood “Farming”
    A great way to evaluate a commercial property is to study the neighborhood it’s located in by going to open houses, talking to other neighborhood owners, and looking for vacancies.
  7. Use a “Three-Pronged” Approach to Evaluate Properties
    Be adaptable when searching for great deals. Use the internet, read the classified ads and hire bird dogs to find you the best properties. Real estate bird dogs can help you find valuable investment leads in exchange for a referral fee.

The Bottom Line
By and large, finding and evaluating commercial properties is not just about farming neighborhoods, getting a great price, or sending out smoke signals to bring sellers to you. At the heart of taking action is basic human communication. It’s about building relationships and rapport with property owners so they feel comfortable talking about the good deals – and doing business with you.

The Top 5 Reasons Landlords are Afraid to Evict

Many landlords are so afraid to evict a tenant that it costs them far more in the long run than it would to just bite the bullet and go through with a legal eviction.

Let’s face it. Evictions are not a pleasant part of the business. Collecting rent on time is. Having your rental property cared for by a tenant who pays the rent is essential to being a successful landlord. But what about when things don’t go so well? When tenants don’t abide by the agreements made in the lease?

I always say, “It is better to have NO tenant, than it is to have a BAD tenant.” I say this because I would rather have an empty rental property than one with a deadbeat loser who:

a.) doesn’t have the integrity or responsibility to honor his agreement,

b.) is stealing from me and my family for every day he gets away with not paying the rent,

c.) is costing me time and aggravation in managing a hopeless tenancy.

Most landlords can’t afford to be good Samaritans who provide free housing. The rent needs to be paid or they will lose the property they worked so hard to acquire in the first place.

So What Are The Top 5 Reasons Landlords are Afraid to Evict?

  1. Fear of the Unknown  I’ve noticed that landlords who have never experienced evicting a tenant in court before will do whatever it takes to avoid the eviction process, even at greater cost to themselves than an actual eviction would cost. I’ve also noticed that landlords who have evicted a tenant in the past are more willing to evict again when it needs to be done. Experienced landlords know that evictions should be started immediately, once the tenant can not cure his default on the agreement.
  2. No Attorney  “I don’t have an eviction attorney” and “an attorney is too expensive” are common excuses for not starting an eviction.  In reality an average attorney’s fee for an eviction is tiny compared to the huge rent losses many landlords take on because of the fear of eviction.
  3. Horror Stories  We have all heard horror stories about evictions and bad tenants.  It is part of the business.  Most of the horror stories I hear are stories filled with foolish mistakes made by inexperienced or unprofessional landlords.  Yes, an eviction can take many months or even years if the landlord is not willing to face the situation and handle it professionally.  Some landlords I know have lost their rental home(s), or quit the business because of the fear of retaking control of their property through legal channels when they could have easily handled things more logically and professionally and saved their properties.  Try not to take advice from people who have not learned from their failures in the rental business.  Listen to those who have done or are doing it successfully.
  4. Believe the Tenant  Are you a good guy like I am?  Do you like to give everyone the benefit of the doubt?  Have you ever been promised rent money that just never seemed to come through?  I have.  Over and over.  The stories were always so convincing.  One time, back when caller ID was new, a tenant who had been stringing me along for months called to say he was going to be delayed again with the rent and that he was out of town on a job.  His rental was in Fort Pierce.  Normally, I’d have believed him without question and naively would have expected some money coming.  The caller ID revealed he was calling from home in Fort Pierce. I went to visit him just to confirm and sure enough, he was home!Is it hard to believe that your tenant (a churchgoing person) would lie to you?  The eviction courts are FULL of them.
  5. Tenant Threats  Some tenants are mean nasty people.  Some are bullies.  Some just get nasty when they feel threatened themselves.  Whatever the reason, don’t let tenant threats bother you.  If you are threatened physically, report it to the police immediately.  If they threaten to damage the property, they have just shown their true colors and given you even more reason to do a swift eviction.  Whatever the tenant threatens to do, it is either a police matter or an eviction matter.  I know one landlord who had a tenant live free for 5 years because the tenant threatened that he would report the “illegal” basement apartment to the town zoning board.  This landlord was foreclosed on and the bank evicted both the owner and the tenant together.  Wouldn’t that landlord have been better off calling a lawyer the first month the tenant didn’t pay?