It’s no secret. Slumlords do exist. In fact, every year, the Public Advocate’s Office releases a Landlord Watch List which features the worst landlords of NYC, not exactly a credential you’ll be adding to your resumé.
Though properties owned by slumlords should always be avoided by potential tenants, there does lie an attractive quality from a business perspective. Sites like GoHomeNY can help both renters and investors discover what people are saying about properties they are interested in. Given the right investor, you can really have a diamond in the rough on your hands, provided you are willing to sift through the dirt to find it.
Now, how much dirt are we actually talking about?
The problems that come with repaving the path of destruction of a slumlord are two-fold: getting the property up to code and restructuring relationships with existing tenants.
Yes, making the tenants happy is an important part of your investment!
Getting the building back to legal and safe standards is necessary for obvious reasons. But the reckless acts of slumlords aren’t one-sided. Overtime, frustrated tenants have less and less respect for the property owner, and in turn, the property. They stop making an effort to pay rent on time. They show less care for their apartments, leaving damaged floors and cabinets. Seeing the circumstances they’ve been forced to deal with, can you blame them?
Thus, the creation of the slumlord cycle. The slumlords don’t care about the tenants so now the tenants don’t care about the property.
Why do you need them to care?
At the end of the day, real estate is a business. As a property owner you provide the product – the living space and upkeep – and the customer, the tenant, pays you to use this product. Without customers, your business will fail. And without happy customers, your product will be mishandled.
As the new landlord, you are not only inheriting the maintenance needed to get the building up to par, but you’re also inheriting all the angry tenants who haven’t heard from their slumlord in months. They don’t care that you’re new. You are still the one to blame.
So, how do you break the slumlord cycle? Here are some great places to start:
1. Get a property manager! As an investor, your time is valuable. This is time that doesn’t need to be spent fixing toilets or patching up drywall. Slumlords are notorious for trying to do all the dirty work themselves in an effort to save money. All this does is result in maintenance issues piling up causing inconvenience and dissatisfaction in tenants and not to mention exhaustion on the landlord’s end. A reliable property manager can take on these responsibilities and handle them in a more efficient manner.
2. Screen all future tenants. It is important to have a rigorous screening process. Having one will ensure that you have reliable people who will pay on time. And a bonus is that it makes your property more desirable. You need people that WANT to live at your property. Compare it to applying for a job. When I get a second interview at a company, it makes me feel like they are serious about who they are hiring. If I’m offered a job without even sending my resume or before a face-to-face, it’s as if the company is desperate, that they would take anyone. A strict screening process adds value and credibility to your property.
3. Make paying rent on time attractive. You can really get creative with this one. I know one landlord who does a raffle for his tenants. Every time a tenant pays on time, their name is entered in the raffle. Every 6 months, he picks a name and gives that person 4 round-trip tickets to Hawaii. How awesome is that?! He gets 6 months of rent paid on time by every tenant, and only has to give out one prize twice a year. Now everyone is happy!
4. Turn maintenance issues into value-add opportunities. Oftentimes, slumlords will keep their buildings at the lowest possible quality, leaving plumbing issues unattended or staircases unsafe. Aside from the obvious violations and complaints that come from a legal standpoint, this is also bad business. Let’s say the building has outdated toilets that are not water efficient. Suppose the amount of money to change out all the toilets would be around $3000. The new toilets would then save around $1000 on your annual water bill. A slumlord would look at these figures and think, “It’s going to take me three years to make the money back that I put in. Not worth it!” A smart investor on the other hand will see this as an opportunity to add value in terms of increasing NOI (net-operating income) in addition to increasing equity on the property. Keep your focus on the long run rather than how much money you are spending today.
Most often, the best solutions are the ones that benefit both the property owner and the occupant. Contrary to slumlord beliefs, winning does not depend on the suffering of others. It’s the rule of reciprocity, give and you shall receive!
Now go out there and break that slumlord cycle!