One of the recent threads, “The Top Five Landlord Mistakes”, generated a lively discussion (http://www.biggerpockets.com/forums/52/topics/23212-the-top-5-landlord-mistakes?page=1).

There are some really good “top mistakes” listed in these posts. But I also found a great many of what I’d consider myths listed among the mistakes.

1) The idea that you have to be totally ruthless when it comes to managing your properties. Throughout the threads, you read language like “never do a tenant a favor”, “never accept a late or partial payment”, and “evict immediately for non-payment of rent”. Do I sense a bit of a Nepolian complex here guys?

Being a landlord is not all that much different than running a hotel, a restaurant, or a plumbing business. Try being a plumber who is always rude to his customers. How much business will this plumber actually do? Will the plumber get referrals?

You get nothing out of being a total jerk to your tenants, accept perhaps a momentary ego boost. I’m not saying that you should let your tenants walk over you. However, you also need to be courteous to your tenants, even when they give you a good reason not to.

2) Doing a straight rental versus doing only lease options. A trend among some real estate gurus is to teach that one should only do lease options, and never do straight rentals.

I do lease options. And I also do straight rentals. Why? Well, the simple answer is that some houses just don’t make good lease option prospects.

I’ll give you a perfect example. I’ve got several homes in one neighborhood that easily rent for $500 to $600 per month. I have $20K to $25K invested in these properties. The market value is right around $50K for these houses. However, the people in this neighborhood just do NOT have money for down payments.

The culture of that neighborhood is to rent, and preferably have your rent paid by the government. Plain and simple. Why fight an obvious market trend.

Also, there is nothing that makes higher priced homes in nicer neighborhoods inherently a better investment. My friend Robert Elder has built his business around buying properties in low income areas, and renting to tenants who get rental assistance through the Section 8 program. At this point, he has more than 250 houses that yield more than $1,000,000 each year in rent just from the government, not to mention the rent that his tenants pay.

Answer: “I feel your pain. It’s not easy to decide exactly where to start buying investment properties.

When I first got started, I was literally driving all over the city looking at properties. I didn’t have any business looking at some of those homes.

It is best to pick what is called a “farm area”. This is a neighborhood where you put your stake in the ground. Where you seriously concentrate your efforts on finding deals.

A farm area is an geographic area in which you intend to buy and lease properties. Why would you want to concentrate your efforts on certain neighborhoods at the exclusion of others? One of the major reasons is so you can learn your market very well. When you do business over and over in certain areas, you learn what properties are worth. You learn what your leasing customers in those areas are looking for. What they are willing to pay.

Another advantage is operational. When your properties are concentrated within a small area, it is easier to manage than if you have properties scattered all over your city. Maintenance becomes easier for your workers to handle when all your projects are concentrated. Making trips to properties becomes easier. Hopefully, your neighborhoods will be within a manageable distance from your home. We recommend that distance be less than 10 miles.

How large should your farm area be? Our recommendation is that you start out with an area of 1 to 10 square miles. Your farm area does not necessarily need to be within one contiguous area with neat boundaries. You may have many islands within one main area.

Here are few pointers on finding that ideal neighborhood: Have you ever heard any of those “You know you are a redneck jokes”? In many senses, you will know you are in the right neighborhood for good rentals if you see some of the telltale redneck signs in the neighborhood: For example, cars parked up on blocks, or old beater cars and trucks.

Some other clues are that it’s an older neighborhood. Even though newer construction is good in terms of being lower maintenance than older construction, the price per square foot of newer construction is also higher. Anything newer than mid-1970’s is questionable in terms of getting a strong enough rent to obtain adequate cash flow from the property.

In fact, a good rule of thumb is that the rents should be 1% to 2% of the total price of the property. Once the rent gets lower than 1%, its cash flow potential is dubious. If you can find a number of properties in a neighborhood that meet that criteria, you have found a good candidate.

Look for rental properties in neighborhoods where average, blue-collar families want to live. We stress families, because you want long term tenants. Turn over is expensive. That is why we don’t like student rentals, room mate situations, or other arrangements nearly as much as average, blue-collar families.

Answer: “To answer that, I’d like you to take a look this video of Steve Jobs in a 1984 video launching the Apple Macintosh.

I love the memories that came up of actually using the Mac to do stuff. It was an incredible tool for its time.
About five years from that launch, the internet was just getting off the ground.
The point is that in 1984, the personal computer was just a novelty to most. Most people didn’t see its potential. But some did.
Five years from now, we’re going to look back to 2009 and say to ourselves, “boy I wish I bought more properties back in the good times. Look at the deals I passed up back in 2008, 2009, etc.” The market is going to be taking a turn, and it’s going to start moving up within perhaps a year or two.
Robert Elder and I are voting with both feet and all my money. The trick is having the systems set up to keep adding more and more properties to your holdings.
The following are 5 keys to being able to consistently adding cash flow properties to your holdings over the next few years:
1) You need to have a source of financing to fund the purchases. This means that you want to use other people’s money – not your own. When you use your own money, it quickly runs out.
2) You need to have a reliable system for managing these properties that keeps your vacancy and maintenance low. You need to have a stable cash flow so that your rents cover your mortgage payments and all your expenses.
3) You need to have a system for finding great deals. When you buy lots of built-in equity, you can buy more properties because you can leverage your equity into buying more and more properties.
You can learn more about all of these three keys in my newest course. But no matter what you do, don’t stay on the sidelines. Buy some real estate – you’ll be glad you did.

But let me get to my point…I’ve had some real challenges come up since I’ve been out of town.  I’m right in the middle of one of the most challenging evictions I’ve ever faced.  The legal part is not the challenge.  That part was easy.  The challenge was the very sad situation with the tenant.  Now there is sad, and then there is SAD…I"ve probably evicted 100 tenants over the years, but this one stands out.  I won’t go into the details, but let me just say that one of the former tenants is being detained for his involvement in a related shooting. 

In addition, I’ve had multiple service calls for several of our rental properties.  I’ve had another eviction I’ve dealt with in which we’ve had to do a lock out with the Sheriff. 

All of these issues are being handled by a competent team I’ve set up. 

In years past, before we set up an office, we had the calls forwarded to us.  We’d handle calls on the road.  Folks, this is not the way to relax.  When service calls come up, there needs to be coordination that’s handled by someone on the ground.  It’s really tough to do that when you’re on the road trying to enjoy your vacation. 

The main cog in our office is the office coordinator.  This is a position that most people would call the office manager. 

The consequences of not having a competent team on the ground is you can’t leave for short periods of time.  This is not a step towards freedom. 

If you aren’t big enough yet to hire someone for your office full-time,  hire someone to handle the coordination on your behalf while you are gone.  One possibility is to get a property manager to handle this responsibility while you are gone.  You’ll want to get this arrangement set up well in advance of your leave. 

You also need to think about where your business is going in the long run.  You need to set up a situation where you can step out of the picture.  Who knows, you might decide to relocate to another community.  Your life may change unexpectedly.  Setting up your business to run without you is the right decision for most people.  It’s definitely where I look to be. 

Right now, I’m still involved in many key aspects of my business.  But I’m the first to acknowledge that I can be replaced. I don’t want to be married to these rental properties for the rest of my life.