Many investment property owners do not put much thought into whether they’ll be able to pay the mortgage on their investment property each month.
After all, that’s why you have tenants, right?
However, it’s not just tenants failing to pay their rent each month that can cause your rental property business to go under. In fact, not being able to cover the mortgage each month has the potential to do far worse damage than a few missed payments by your tenants.
At least with tenants that don’t pay their rent, there is a remedy for collecting those payments.
If you don’t pay your rental property’s mortgage, you are in trouble with not only the tenants that are leasing from you, but also the lender that gave you money to finance the property in the first place.
Today, we are going to look at some great mortgage payment tips so you can avoid running into trouble paying up each month.
What to Do if You Can’t Afford the Mortgage Payments on Your Investment Property
1. Secure the Right Financing
One of the biggest mortgage mistakes Minnesota property owners make when they get into the rental property business is not taking the purchasing of a property as seriously as they should.
You should make sure to reduce your debt, establish good credit, shop around for the right financing terms, and secure a good down payment before even thinking about investing.
You should also never buy a property you can’t actually afford, no matter what the market is projecting you can collect in rent each month.
Do your research and make sure that the property you are looking to buy is within your budget and can command the rent rates you expect. Consider how you will handle various situations, such as potential vacancies or tenants who are behind on rent payments. Will you still have enough money to cover your mortgage payments, regardless of tenant income?
Remember, you are ultimately responsible for paying the mortgage each month.
Your lender will not care that your tenant skipped town, rent rates took a dive, or that you didn’t understand the financing terms.
Lenders expect their money each month and you need to be able to provide that, regardless of what’s happening with your rental property business.
2. Properly Screen Tenants
Once you secure the right financing for your Minnesota rental property, and you have finalized your purchase, it’s time to focus on avoiding the mortgage mistakes many property owners make while their properties are being leased.
As a property owner, it is tempting to want to keep your rental leased at all times, regardless of what kind of tenant is living there. However, this can cause you a lot of problems deep into the lease term if you didn’t properly screen your tenant.
Although we mentioned above that there is a remedy for handling tenants that don’t pay their rent, do not be tricked into thinking this works every time. Also, don’t be tricked into thinking that collecting missed rent payments is a fast process.
True, if your tenants fail to pay their rent, you or your property management company can evict the tenant and keep their security deposit to make up for lost rent payments. You might even be able to take them to court for the money they owe you for the remainder of the lease.
However, if your tenant decides to move out unexpectedly, and disappears without a trace, you are going to have trouble recovering that loss in rent, not to mention any damages you may have to take care of before moving another tenant in.
Meanwhile, you will still have to cover the mortgage payment each month until you get new tenants in place.
While you can never fully avoid a situation like this, the key to preventing it is thoroughly screening your tenants before choosing one to move into your rental. Make sure your potential tenant has enough income to cover the rent each month, that their references are legitimate, and that they have no prior evictions on their record.
You want to place tenants in your rental that will pay their rent each month, without fail, as well as care for your property so that you never have to worry about covering the mortgage in the middle of a nasty eviction proceeding.
3. Avoid Vacancies
Proper tenant screening can help you prevent placing tenants in your property that won’t pay their rent on time each month. However, the other half of the equation − and the key to being able to cover your mortgage each month − is to avoid vacancies.
After all, zero tenants mean you’ll be receiving zero rent payments, which means you have to cover your mortgage on your own.
If you find out your current tenants will not be renewing their lease come the end of their term, start advertising your rental as available well before they move out to minimize the time your property is vacant.
Begin the tenant screening process, get your maintenance crew on board to fix anything that may need fixing or replacing, and start working with your property manager to tweak your lease agreement if there is anything you want to change, such as the rent rate.
In addition, if your tenants don’t have a need to move elsewhere anytime soon, take it upon yourself to make sure they are happy with their stay during the entire lease term.
It is far easier to secure a lease renewal than it is to place a brand new tenant in your vacant property. And by renewing your tenant’s lease for another term, you are guaranteed that steady income that is covering your property’s mortgage.
Staying proactive and making sure your current tenants are happy and don’t want to leave, while also filling vacancies as soon as they happen, will help reduce the strain of having to cover the mortgage in between tenants.
4. Maintain the Property
This may seem counterintuitive, but putting some money into your rental property can actually help you save money in the long run.
Tenants want a beautiful place they can call home. They want their appliances to work, their yards to be well maintained, and if they run into any issues during their tenancy, they expect you or your property manager to handle maintenance and repairs efficiently.
Keeping your rental property maintained does a few things:
- It allows you to command higher rent rates from the start that more than cover the mortgage each month
- It appeals to a higher quality tenant pool that is not only willing to pay higher rent rates, but also pay on time every month and care for your well-maintained property
- It satisfies current tenants when they have a maintenance or repair issue, which leads to continued rent payment each month and possible lease renewals at the end of the lease term
- It solidifies your reputation in the rental property industry as being a person that cares for tenants and not just someone looking to make a profit, which can lead to fewer vacancies
The more effort you put into caring for your tenants and the rental property they lease from you, the more inclined they will be to pay their rent on time each month and care for your property as though it was their own.
What to Do If You Are Having Mortgage Trouble
If you find yourself having trouble covering the mortgage on your Minnesota rental property, and are looking for a way out, how we can help.
Homestead Road is dedicated to helping people in trouble with their homes avoid foreclosure.
We pay for properties as is, meaning you won’t have to invest any money into your rental, even if your previous tenants did some damage, in order to sell it to Homestead Road.
You won’t have to invest in a real estate agent, and all the fees that come with selling a piece of real estate, which can make your financial troubles worse when you are seeking a way out of trouble.
With Homestead Road, you can receive up to 20% more for your property, no matter the condition it’s in, thanks to our unique business model. This means bailing yourself out of mortgage trouble becomes a reality, and you can move forward with the minimal amount of damage to your finances and credit.
Buying a rental property and covering the monthly mortgage is much like buying a home for yourself and paying the mortgage each month. It has to be done.
It doesn’t matter whether the property has tenants, what the monthly rent rate is, or whether the property has been sitting empty for months. It’s your responsibility to pay your mortgage, just like your tenants pay their rent.
Unfortunately, there are instances where your intentions were good, but the timing was off, and you find yourself in some financial hot water with your mortgage.
If you need help unloading your Minnesota rental property because you’re having mortgage trouble, and are looking for a fair cash offer, contact Homestead Road today and see how we can help.