What rules for investors have you broken (and maybe routinely break) and how has it worked out for you?

Question

I have broken so many rules, some out of ignorance, many not.

For instance, I have paid contractors an up-front payment before work is done.  And I've been taken.  But I also have a very reliable contractor that requires an up-front portion.   If I am working with a new contractor I do a pretty good job vetting them and I keep any up-front payment to a small amount.  It is just so difficult to find reliable, reasonably priced contractors who don't require anything up-front.  It has worked out for me for the most part.

I've also worked with people who are chronically late paying rent.  This has been a mixed bag, but probably a bit more on the positive side, considering vacancies are expensive.  I generally have low-middle income tenants and I have never had a case were a tenant didn't _want_ to pay.  They have been unable to, and I have evicted, but they want to be able to pay their rent.

I've also fallen in love with a property.  One of my latest was a borderline deal.  I loved it because it needed almost nothing.  The biggest things I did were to power wash the house, put in new appliances, and turn the utilities on.  I bought it with the intention of renting it, even though it was going to be mediocre from a cash flow perspective.  I ended up getting and accepting a purchase offer on it.   I'll post about it in success stories when it is all done.

How about you?

Dawn Anastasi · Answer

I buy those $30k (and under) houses that there's so much debate on Bigger Pockets about.

I get some deals at the "2% rule" and sometimes higher that some people don't think actually exist (except in "warzones").

I buy some properties in cash and don't use the almighty "leverage" all the time.

I pretty much "know" if I'm going to accept a tenant or not when I first meet them.  (But I still run all the background checks anyway, because I don't feel like I ever want to break this rule!)

Thomas Williamson · Answer

I never have and never will charge late fees.  I let tenants split their rent, they don't have to have the first part of the rent to me until the 15th of the month.  I've got a handful that have been with me for over four years, and usually I don't see rent from some of them until two or three days into the next month.  But they always pay without fail.

It's not that I'm lazy, or don't keep close tabs on my properties, but I've learned over the years what keeps tenants happy and paying.  When I first started, I stressed all the time when the rent wasn't paid on the due date.  I finally realized for my own sanity I had to stop stressing over that all the time.  I also had to come to terms with, not everyone is like me and pays their bills well in advance of when they're actually due.

That being said, If someone has been with me less than a year and they start paying late, then I get them back on track to the agreed terms.  Once tenants have been with me over a year, and we're comfortable with each other, I give them a little more slack.

The reason I operate this way is because the tenants want to stay with me longer (years) because they know other landlords most likely aren't going to work with them like this.  I would much rather operate this way than to have constant turnover.....that's what I hate most is turnover.

Elizabeth Colegrove · Answer

I think I break most Rules that exist except the one that say, treat your rental as a business! I do that ;)

*I don't follow the 1%, 2% or 50% rule - I buy class a properties in appreciating areas that at .8%.

* I self manage from a distance- I don't use a property manager.

* I buy personal properties as rentals- as we move a lot we but personal properties that would make good rentals, so they rent out well when we leave. So for us our personal is an investment .

* own all the homes in our name- we own all the houses in our personal name with jut an umbrella as LLC's didn't work when we tried it.

* I leverage the houses as much as possible but than I don't refinance my returns out- we buy distressed property that a few cheap fixes adds considerable value. This allows us to have instance equity.

* buy for appreciation- we are in this for the long haul and want to make sure our appreciation exceed inflation. Therefore appreciation is kept in mind when we are buying.

*vacancy- we do move in and move outs with very little turn around. We to date have never lost a day of rent during  a turn over.

* we buy expensive houses with small margins- we buy class a properties so we have small margin on the other hand we work very hard to keep our expenses low

* we buy all over- we own in 3 different states in counting

I could keep going ;) the key is to know you area, create a business plan and do what works for you!

James Wise · Answer

Also done some deals on a handshake.

James Wise · Answer

I've bought houses on credit cards. I'm pretty sure there's a rule against that.

Marcia Maynard · Answer

We've done all of what @Larry T. and what @Jeff  S. have done. Same as @Dawn Anastasi we haven't done much leveraging, preferring to buy all cash or pay off mortgages, and agree with her about not breaking the rule of completing the application process and doing background checks even if we intuitively know we will be accepting a prospective tenant.

One time we accepted a prospective tenant's copy of their credit check, since it was recently done as part of the process of their getting a home improvement loan; they were renting from us during their 6 month remodel and he worked as an attorney and she as an administrator at a non-profit organization, so it was a good bet the document was legit. Stellar tenants.

Though we don't make it a habit (and state in the rental agreement to mail rent to our P.O. Box), we have on occasion accepted rent when it was handed to us while we were at the property, at church, at our own front door, or have picked it up at the tenant's home or place of work.

We try to be supportive of kids and are a good target for their school fund raising candy sales and have even gone to their basketball games.

A few of our tenants have also become our friends over time and we have shared holiday meals together. We even vacation together with one of our tenant-friends!

We also just rented one of our duplex apartments to a relative... my eldest brother. We'll see how that goes!

Jeff S. · Answer

Having tenants do work. It has worked well for me.

Damir Kamber · Answer

That is a great strategy Jay! Now instead of keeping the additional $800 at the end of the year, you give it right back to your tenants as a holiday gift. Now they will NEVER leave, well never say never but you know what I mean. I love that idea!!

I purchased my first home in 2007 at age of 23 with an interest only loan. My first tenants were from New Orleans right after hurricane Katrina. I lost 6 months of rent and 10K in damages with them. My second tenants of the property set my kitchen on fire and left me their dog after the eviction, wish I had paid them couple hundred bucks to leave. Now my parents live there so I'm set for now, except there is not cash flow. I also refinanced since then.

Damir

Jay Hinrichs · Answer

@Thomas Williamson

get your tenants to pay you weekly.... why   how many weeks in a year... ?  how many months... take your 800 dollar rent divide by 4 and let them know they owe 200 every Friday... this is why boarding houses that take weekly clients do so well.

I think if you do the math you will see what I mean

Larry Turowski · Answer

Great responses everybody!  Nice to hear.  I used to wonder if I was the only idiot.  But investor rules are more just safe guideline, and you should be prepared if you decide to go "off road."

What rules for investors have you broken (and maybe routinely break) and how has it worked out for you?

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