Managing tenants for a rewarding real estate investment experience

——  August 18, 2018

Whilst wishing our dear readers a very happy New Year, we will start off our 2018 blog as usual with a quote,

Stop being afraid of what could go wrong, and start being excited about what could go right” – Tony Robbins

It would appear that when you speak with people who have invested in property, you will come in contact with quite a few that have some far from pleasant tales about tenants. Many of such people have rented out their houses to difficult tenants and in the process lost some of their expected returns from these real estate investments. In some cases, they have even had to go to court to regain possession of their property. These experiences can be quite depressing, especially in a clime like Nigeria where the

Tenement law appears to somewhat favor tenants. However, what should be borne in mind is that, every form of investment comes with its ups and downs, and Real Estate investment is no exception. Many potential Real Estate investors avoid getting involved in the Real Estate market simply because of the perceived headache associated with managing rental properties i. e the issue of proper use of the house by a tenant, which ties into preservation and growth in property worth, and the issue of delayed or non-remittance of rent which ties into the cash flow from the investment. One remembers receiving a call from a client who asked the question whether owning Real Estate for investment purpose (rental) was really worth it, after his tenant had failed to remit his rent on time at the first two anniversaries of the tenancy in the property, despite all the timely reminders sent to the tenant. Whilst developments such as these could be really discouraging, nevertheless when looked at especially from the point of being a store of value, the conclusion of many Investment managers is that; all things being equal, there is no better investment than landed property.

A real estate investor can get the best from his investment by considering the following;

Hire a competent Property Manager – Hiring a property manager will only cost you between 5% -10% of the annual rent but should protect you from a lot of potential headaches. Resolving the problem of delayed or non-remittance of rent, starts by getting a skilled Property Manager. Whilst this is not foolproof, it minimizes the possibility of this risk. A senior legal practitioner once stated that one of the best ways to guard against getting into this type of difficult situation, is by ensuring careful tenant selection. A competent property manager is not all about letting out your property in a rush, but would lay a lot of emphasis on getting in the right tenant. A competent property manager would ensure a good tenant selection process, manage tenant relations, and take effective charge of maintenance/repair works coordination, rent collection and other aspects of property management a typical property owner is not adept at.

Tenant screening

As part of the tenant selection process, we also encourage the old-fashioned one-on-one chat with prospective tenants looking to rent a property, either by having the prospect meet with the landlord directly or his attorney directly or the property manager does same as part of his duties. Either way, it should be ensured that this is a step in the tenant selection process that is not skipped for any reason. In our experience, there have been some cases of prospects that say they are too busy to meet up with the property owner, his attorney or his property manager for a chat and seek to just pay the rent and collect the keys to the apartment. However, as one legal practitioner advised, “any prospective tenant that is too busy to have a meeting with the home owner or his/her property manager should be ruled out immediately as this is a red flag that gives an indication of possible relations with such a tenant further down the line”. In this wise, it would appear better to lose a prospect at an early stage than to loss income from your real estate investment after the prospect has taken possession of the property.

Invest in Real Estate within a gated estate wherever possible – If you can, buying your property in a gated estate could be a very good decision. Whilst your property being in a gated estate does not prevent a tenant from owing rent, it provides some degree of comfort in the sense that a tenant cannot just opt and move out of the estate without you being aware. In well-organized gated estates, the landlord or his/her property manager will be contacted once the tenant informs them of plans to move out.

This gives the home owner the opportunity to take necessary steps to recover any funds owed by tenant. One must point out however that not all gated estate developments have this as part of their moving out processes, thus as mentioned in one of our earlier articles, it would be advisable to carry out a background check on the estate as well as the antecedents of the estate developer. One easy way to achieve this is by visiting their old developments or getting details from industry experts. 

In conclusion, we bring to mind the words of Benjamin Graham, “Successful investing is about managing risk, not avoiding it”. As a hedge against inflation, we have found over the years that Investing in Real Estate for whatever purpose is well worth the headache that could come with it.

For more on Real Estate investment, ensure you follow this space as we seek to enlighten you so as to help you make the right Real Estate decision.

Written by Babajide Aloba