Being an Orange County real estate investor can offer great financial rewards but it also comes with a good amount of risk. As a landlord one of the greatest risks is what I call a tornado tenant.
A tornado tenant can suck every last dime of your ROI out of your property in a single swoop. Let me give you a real life example. A past client of mine who lives on the east coast has an Orange County home he rents out. He called me a while back and let me know his tenant was moving and asked if I’d help him lease it out. During our conversation I find out the tenant hasn’t paid rent in 90 days and he is hoping they honor their word and move out in the next few weeks since the eviction process here in California is very time intensive. Ok so they move out and I go over to check out the property. Well they did around eight thousand dollars worth of damage on their way out (that’s where the tornado applies). They damaged everything from the flooring to the walls to the appliances and just for good measure they even put a giant hole in the sliding glass door (seriously it looked like someone took a microwave and threw it right through the glass, which they might as well of because they broke the microwave as well).
So over the next few weeks (while the home is sitting empty and no rent is being collected) I run back and forth to the home to let various trades people in to get the place rentable. Finally we are able to put it on the market, get a tenant who showed no tornado tendencies, and he’s collecting rent again. Mind you a week later the tenant found additional issues with the property that are going to run about another thousand dollars.
Looking at this situation you got three months of unpaid rent and another month and change while the place was being fixed up and re-rented then around another eight thousand dollars in damages.
So despite this being a good home in a great area of South Orange County you can see how one tornado tenant can do a great deal of damage to your return on investment. Imagine having a couple tenants like that in a row!
While you can’t predict what a tenant might do there are a few safeguards you can take to try to protect yourself. Before renting it out don’t just check their credit scores talk to their past landlords to see what type of tenant they were. Ideally the property would be close enough for you to be able to inspect from time to time, if it is not then have someone you know do a routine inspection to check up on your investment (mind you many property management firms do no offer this service). Act quickly when the rent isn’t being paid, especially in states like California where the eviction process takes a long time. Have a reserve to cover carry costs when the place is vacant as well as to cover damages a nasty tenant may do. Walk through the place; imagine a human tornado of destruction angry with you and wanting to express that anger on your property. Figure out how much damage they can do and what type of costs you would incur.
Real estate investing can be profitable but you need to be extremely proactive in your management of your assets. The reality is if you don’t have the time or desire to be very proactive in the management of your assets you may be better of investing in publicly traded real estate offering rather than owning individual homes that you rent out. If you have any questions feel free to contact me I am here to help.
949 599 6860