I recently read an article at AffordAnything by Paula Pant and it really hit home. It spoke about having an investment strategy for real estate investments.
Turns out I bought the property but I didn’t have an investment strategy or even a plan. I bought the property that I personally wouldn’t mind staying in because that’s the plan — In future I plan to live in this property. That was my only criteria expect for the amount I can invest.
It is always better to write down a plan so that you have higher chances of sticking to it. For me here’s what I’m thinking.
Emergency fund for the property
While everyone has an emergency fund for their personal expenses, it makes sense to have a fund for their properties too. Paula, in her blog post, suggests that one should have at least 3 months of rents as emergency funds which also translates to 6 months of expenses covered. While I didn’t call it emergency fund, I did have something like this in mind. I thought of keeping at least 2 months of rent to cover up everything but after looking at professionals suggest 3 months I am certainly re-evaluating. I, anyway, plan to aggressively pay back my home loan and had plans of directly transfer the rent amount in my loan amount. As you know, I am planning to rent out the apartment as soon as April. This should at least allow me to pay an additional 25% of what I would have paid this year.
My parents have been landlords for the longest time although their apartments aren’t in any metro cities thus garnering smaller returns on smaller investments. Growing up I could see that they would really hate whenever any property would be vacant or in between tenants. I never asked them back then but they really accounted about 10% of yearly rental to vacancies. I am also going to do the same. Learn from the people who have done it and optimize.
I will do whatever possible to fill up vacancies. This is something me and friend try to do with our Bangalore building. 2020 was rough on us where we did not make any profit for the entire year. Yes, entire year! Thankfully neither I nor my friend are dependent on this secondary income. For the entire year of 2020 and the three months of 2021 we’ve made zero profit. And that’s okay. Vacancy is the only concern I have getting into landlording. Landlording feels so weird haha! However this doesn’t come in a way of my plan, since I plan to make extra payments from the rent amount. I’m not sure as of yet, but I’m more inclined towards adding whatever profits I make from the stock market experiment into paying extra on my min payment for the home loan. But then I do not want keep changing the goal post that often.
I’ve worked in the support department for a tech company and I have had many learnings on how to keep the customer happy. People tend to continue with a service if they are happy with the services. I’m planning to apply all of that and whatever I learned from my experience with the Bangalore project. Happy tenant will tend to stay as long as possible. And that could be the key to reduce vacancies. I’m not saying that I’ll be the best of the best landlord but I’ll try.
Do share your strategies.
Please note that none of this should be taken as advice to buy a property. You should contact your financial advisor for such decisions if you’re unsure of it. I’m only sharing my thought process on this blog.