Today I want to talk about an inevitable part of being a real estate investor: the tenant turnover. For some reason, this is one part of investing that seems to scare new investors. But the truth is: a tenant turnover is simply part of being a real estate investor.
On this episode of Investing in Real Estate, you’re going to learn how to prepare for a tenant turnover. We’ll discuss what a tenant turnover entails, plus how to prepare yourself mentally and financially. Press play to learn more!
On this episode you’ll learn:
- What you can expect from a tenant turnover.
- Why it’s so important to prepare in advance.
- How to actually handle the expenses of a tenant turnover.
- And much more!
What You Can Expect From a Tenant Turnover
Here’s what you should expect: as your tenant’s lease nears to a close, your property manager will discuss with them if they’d like to renew the lease or if they’re planning on moving out. If the tenant is moving, the property management team will inspect the property to determine what types of repairs need to be done. This can be anything from deep cleaning to drywall repair and painting, replacing carpet, and so on. The property management team will decide what needs to be done to make your rental suitable for the next tenant. And think of that as a good thing! You’re making a great home for your tenant while also keeping up the maintenance of your investment.
Why It’s So Important to Prepare in Advance
The tenant turnover process can be one of the most expensive parts of running a real estate business. Those expenses can vary, but it can add up quickly! Not only are you paying to repair the property, but you’re also missing out on rental income. That’s why it’s important that you 1) prepare and 2) work with a great property management company. I don’t want you to feel shocked or panicked when you hear about an upcoming tenant turnover. Remember, you’re a responsible investor! It’s normal to feel a little uneasy, but since you’ve done your due diligence, a tenant turnover is not going to make or break you.
How to Actually Handle the Expenses of a Tenant Turnover
How you deal with tenant turnover expenses depends on how you bought the property. If you are working within a self-directed IRA, then your custodian and property manager will have to account for these expenses through the self-directed IRA. Remember, all expenses for the property have to come out of that account, and you cannot pay for it out of pocket.
If you are paying for a loan out of your rental income, then you need to make sure that you have a couple months of loan payments set aside so you do not default on your loan. This is all a part of your accounting for those expenses. How you pay for these expenses can vary, but no matter your situation, the most important thing is that you have a plan. So when (and not IF) your property manager alerts you of a move out, I want you to feel confident and prepared.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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