Real estate investing is a long term play, and a few days ago I introduced five ideas that I feel are key to being successful as a buy-and-hold landlord.  I've already discussed the first two - here, as promised, are the final three...

Principle 3: Take care of your tenants

Nothing beats an investment that pays you every month – that’s why a prudently leveraged real estate portfolio beats the pants off the stock market in long term returns. But that rental property will only generate revenue if there is someone living in it. Vacancies are one of the greatest threats to achieving the financial performance that you expect out of your property, so once you’ve found the right tenant you’ll want them to stick around.

That means taking care of your tenants. But more importantly, perhaps, being responsive and respectful to your tenants will also increase the likelihood that they take care of your property. This will protect the unit’s value, and the end result is that happy tenants are likely to bother you less often.

This is what you want. Answer voicemails promptly and address needed repairs quickly – this is an investment that pays off. I recently had a tenant that would talk my ear off every time I came around. He was the first tenant to move into the property after I purchased it and made some upgrades, so I had to visit a few times after he moved it to get some problems ironed out. But building that goodwill paid dividends; they took great care of the house and I hardly ever got a call.

Principle 4: Don’t take shortcuts with repairs

Trying to save a few dollars on every repair is a short-sighted strategy. Your tenants will take note of how you treat the property and they’ll act accordingly; why should they respect your house when you don’t? A well cared for property is more likely to appreciate and in the end will cost you less to maintain and cause less trouble.

There’s no economic value in delaying a repair – you’re going to have to do it eventually, and if you wait not only will the problem have gotten worse (and, possibly, more expensive) but you will also have alienated your client: the tenant.

Principle 5: Know when to say “when”

The Peter Principle tells us that an individual tends to get promoted to his level of incompetence – essentially accumulating responsibility till he gets to the point where he can’t handle it, and that’s where he stays. Think Elliot Spitzer: great prosecutor, not such a great governor. So yeah, you’re trying to build your empire, but don’t overextend yourself with too many properties or projects. Most real estate investors have jobs to support their day-to-day lifestyle and invest in real-estate on the side as a long-term wealth building strategy. Assuming that you fit into this category (that you’re not a full time investor) it’s wise to make a deliberate decision as to how much you can take on in terms of workload and financial risk. Don’t cross that line.

You can do it

A well maintained property w/ a good tenant should not be a burden on your life. On an average month the only effort that is required of me is to take the rental checks out of my mailbox and deposit them into my bank account. But the key to maintaining this balance is being diligent in all of the steps along the way.