Some facts about small rental properties

Small residential properties are prone to lots of mismanagement as a result of incompetent ownership. This lack of proper management results in a myriad of problems and when trying to trace back to where the problem seems to have originated one finds out that this had much to do with the inadequacies of the owner in terms of:
a. The failure to grasp the intricacies of the market with respect to the best rent rates that can be charged for the property. The incompetent property owner will normally set the rates below what is the market rate and in thus doing he/she is barely able to break-even, handle the costs for repair and maintenance, and also the critical mortgage payment. This happens even when the entire property is totally occupied.
b. The property owner normally lacks the skills that are required to vet the various persons who present themselves as tenants. As a result, some rooms are occupied by persons who are totally uncooperative when it comes to the remittance of rents and this forces the owner to dip into his personal finances in order to sustain the payment of mortgage. The property is therefore always faced with a negative cash flow.
c. The owner may be incompetent in terms of failing to see the urgency that is required in effecting the necessary repairs and maintenance. This leads to an exodus of tenants and the property is soon under more negative cash flow. The mortgage becomes unsustainable and since the property itself is not earning as it is supposed to, the owner can hardly match the financial obligations from his/her own personal funds.
d. As a result of poor maintenance, you will find that most properties that were built as ideal rental investments will only attract the vagabond type of tenants that are notorious for failing to pay rent on time or even paying nothing at all. These tenants are also notorious for their vandalism such the property is transformed into shambles.
e. When these types of tenants are allowed in the property the incompetent property owner will even fail to initiate court orders that will evict them. As such he/she continues to pay for the mortgage until it’s no longer sustainable and they have to file for bankruptcy. The lender is then obliged to take over the property.
There are four main types of mismanagement that are often experienced in small rental properties. These include:
a. Tenant mismanagement – This normally occurs when the property owner decides to admit tenants on a first-come first-serve basis without first screening the prospective tenants or putting eviction orders in place.
b. Financial mismanagement- This occurs when the rents being charged are below the market rates. The management fails to make efforts to collect arrears and there are often little or no records of payment.
c. Maintenance mismanagement – This occurs when there is hardly any meaningful effort being put to restore the property to an attractive and appealing investment that will draw tenants. The little that is done is the handiwork of unqualified personnel who are only hired to cut down on costs.
d. Records mismanagement – As the name suggests, there are hardly any records that show payment, maintenance, tax payment etc.