From my experiences buying mismanaged rental properties, I have found that incompetent ownership is the number one reason that rental properties end up being mismanaged. This incompetence has a snowball effect and is the direct result of the owner's:
1. Lack of knowledge about the local rental market, which results in rental units being rented at below-market rental rates: This produces a breakeven cash flow, which is barely enough to pay for maintenance and debt service when the property is at 100 percent occupancy. Any vacancy causes cash flow problems that must be covered by the property owner.
2. Lack of knowledge and professional property management skills necessary to screen and select qualified tenant applicants as customers: This results in tenants who will not or cannot pay their rent on time and creates a negative cash flow, which the owner must subsidize from personal funds in order to keep the mortgage or deed of trust loan current.
3. Failure to respond to tenants' routine maintenance requests in a timely manner: This causes tenant turnover and vacancies, which increases the negative cash flow that the owner must subsidize in order to maintain the property and pay the debt service.
4. Failure to perform routine maintenance, which results in a neglected, rundown-looking rental property, with thousands of dollars worth of deferred maintenance: This type of property appeals only to a class of tenants known universally as tenants from hell, who are notorious for not paying their rent and being malicious vandals.
5. Failure to initiate eviction lawsuits against the nonpaying tenants from hell: This results in the property being taken over by the tenants from hell, which usually ends with the lender foreclosing on the mortgage or deed of trust loan because the owner is broke from subsidizing the negative cash flow and has filed a bankruptcy petition.
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At least once in every person’s life comes a time when the need is great and the resources are few. It can be hard enough to make ends meet on a decent wage, but, when the times get tough and the money just is not there to meet the need, a person can easily despair.