6 Ways to Reduce the Risk of Rental Ownership

Does owning so many houses bother you? Aren’t you worried about your risk of owning so many homes?

I get those two questions and many more variations of those same two questions all the time! They are correct. We own soon to be 7 houses. That is A LOT of house with almost 1.2 million dollars of DEBT! How can I happily get myself in so much debt when so many people and websites are doing everything they can to get OUT of debt?

There are two ways to look at owning homes when it comes to mitigating your risk.

Lots of House = More Risk

Lots of House = Less Risk

It is basically the half empty versus the half empty philosophy!

Lots of houses means if one goes empty then you have enough back up to cover the empty house. The other version is counting on them all going bad at once as if you are going under.

Let’s be honest I follow the philosophy of more is less risk!

(At the same time we have mitigated our risk)

1. Diversified Areas

We own in 3 different states, 4 different cities and 3 different “economic systems.”  Hanford,  California, Virginia Beach, Virginia,and Charleston, South Carolina . While all have a DOD presence they are very different. NAS Lemoore is the Navy west coast base where the F-35 program will be based.  Virginia Beach or Hampton Roads, has a HUGE military presence along with DOD and other industries.  Charleston has the military base but also has the medical center, Boeing, and other big named companies. We don’t put all our investment eggs in one rental market basket. We spread that risk over many different markets. If one tanks then it is only on that tanks. Not all 7.

2. Self Manage 

I am a control freak who likes knowing exactly where her houses are at one time. I like the tenants to call ME with issues so I know what is going on. I pick the tenants so if there is an issue it is MY fault.  We don’t let them go empty and we lower the price if need to prevent them from sitting empty.

3. Sweat Equity Positions

We put as little money into the homes as possible by purchasing distressed properties. While there is lots of sweat equity from fixing them up to dealing with the red tape of buying short sales and foreclosures, the equity position has been awesome. Many of our homes have  20% equity in them compared to the “comps” when we only put 5% down. We also buy the ugly swan in the best areas. LOCATION, LOCATION, LOCATION is very true!

4. Rental Exit Plan

We plan on renting the house out from the start. We only buy houses that are in areas that we think they will rent well. While you never know unto you try to rent them we are conservative with the price, and we have done well. We have not found that rent has fallen so by pricing conservatively at current prices we have done well.

5. Tight Business Systems

We put everything in writing. We have a tight lease, that seems to get longer and longer. We have a repair deductible, break lease clause, reverse military clause, and many other things to protect all parties. Verbal doesn’t count. Writing does. It’s as simple as that.

6. Control Expenses

We buy newer more expensive homes. So we know going in that we are going to have tighter margins. We expect that and our business model expects that. That’s why I have always called our investing style the Southwest airlines model. We watch our extra expenses very closely, work very hard to prevent vacancy, and watch our expenses. While you can’t control all repairs, they can and will happen.

Here’s the Thing

You will experience your TRIAL by fire! We had ours, and it is what made me a VERY tight landlord. I had to! Other people’s strengths are in getting the BEST mortgage rates, etc. You will have your strengths and you will have your weaknesses.

How many houses do you own? How do you plan on mitigating your loss by owning more or less homes?