10 Common Mistake Renters Makes



When moving into a rented house, after signing the lease, you would be taking care of someone else’s property. However, there are some mistakes that most tenants do when living in a rented place. 

Declining the renter’s insurance
Usually the landlord would have insurance on the property that he lets out on rent. However, this doesn’t cover the property of the renter. You can call your insurance carrier and ask about coverages. This way any loss of property on a rented property doesn’t incur any personal financial loss. 

Don’t sign contract lease without reading it
The contract would have the details of the lease. Whether it is an apartment, flat or a house for rent in Bangalore, the details would include the start date, the length of the lease, and the amount of deposit and terms of the agreement. Ensure that the owner gives a copy of the same to you. 

Don’t pay rent beyond due date 
Some of the rental agreements would include a fine if the rent is due beyond a fixed date. It is therefore best to make all the payments before the last date. If the date is causing a problem, it is best to talk to your landlord and sort out the wrinkles in the contract. This way no late fees are incurred. 

Not reporting of problems in the property when they occur 
Most of the landlords are dependent on the tenant to inform them of the problems when it occurs with the property. The size of the problem does not matter. To cite an instance, if there is a problem with the plumbing, before it leads to bigger issues, it is best to inform and get it repaired. This way the owner saves money and it also keeps the tenant safe. 

Inviting more people to stay with you
Most property owners would clearly state whether you are allowed to invite other members to stay with you in the apartment. If it is a place like a paying guest in Bangalore or Mumbai, then it is understood that the place would have multiple people staying at the apartment. However, it is best to clarify all doubts before signing the lease with the landlord. Sometimes, you may want a roommate to share the rent costs, and then too clarify the same before moving in. You cannot sublet apartments, therefore, the best way to avoid hassles is to ask the property owner and be clear about all things before moving in. 

Failing to provide notice before moving

Most landlords would have their set of rules about moving out of an apartment mentioned in the lease. They usually ask for a month’s notice, however, if that is not feasible, the tenant may even have to pay a month’s rent. To avoid this, the best way is to clear all doubts with the property owner and if possible find another tenant who can replace you as soon as possible. The landlord does not incur any loss of rent making him happy.

Real estate will ever crash?


Indeed a Big Question
So many times I've come across people who say it is high time inflation in real estate and the market is going to crash. A basic understanding of real estate and finance would prevent many of these so-called "financial writers" from their fantasy headlines. Remember, these are writers--not real estate geniuses. They are people who make a low five-figure income putting words on paper. They love exciting doom and gloom headlines. 

They interview self-proclaimed experts from the stock market arena who know NOTHING about real estate. "Sell all your real estate and buy stocks from me." Real estate cannot be compared against other financial markets like you would compare a Yamaha against a Honda. 


Much of the value of the stock market and other financial markets is "good will." The only solid asset of some companies is the real estate they own. One good scandal, lawsuit, or moronic manager and that "non-real estate" value can go up in a puff of smoke.



Real estate: The foundation of wealth, currency, value

Real estate will NEVER EVER crash. It never has, it never will. It cannot happen. It is NOT possible. Yes, there are corrections.

A total crash in the general market will not happen. You will never see a Rs. 80 Lac house become a Rs. 20 Lac house. Not unless everything else is devalued, and then it makes no difference. If real estate were to sell for "pennies on the dollar" then the days of penny candy will be back, and you'll get change from a buck back from MacDonalds again.

You will never have a 1500 square foot house sell for Rs. 20 lac while a Toyota Innova sells for Rs. 20 Lac. All other value in this world is basically tied to real estate. If real estate plunged, so would everything else. But it is not going to happen.

If values began to plunge, money would rush in so quick your head would spin. Japan, Germany, or dozens of other capital markets would flow this way.


Local markets "correct" themselves

Even in local markets this is the still true. When Boeing shut down, the market was hurt bad. Someone literally put up a billboard saying "Will the last person leaving Seattle please turn out the lights?" Well, where is that market now? And what happened when local people moved out?

FIIs came in and bought up properties and made millions upon millions upon millions. Over last 10 years, I've seen some corrections around different parts of country, but nothing resembling a crash. I have books on my shelf about the coming real estate crash of year 80s, crash of the 90s, etc. It never happens. It never will.

Authors that write those books have no greater insight to the future of the world than the heaven's gate people or Jonestown groupies. But like those organizations, there are always nuts willing to listen to financial fanatics. The definition of fanatic is "zeal without knowledge".

Real estate doesn't crash. Not nationwide. Not without a general crash of everything. And believe me, the stock market, commodities etc. would have gone down the toilet long before. The same stock market writers predicting a real estate crash would be leaping from a ledge.

Now, I am talking the residential market and ONLY the residential market. Commercial real estate and other areas can have wider swings. Hotels can be overbuilt or shopping centers can be overbuilt.

But, it corrects. The plan and path for an investor should not be one of panic. There are things to do and not to do.



Here is what you should do . . .

1. Avoid or be extremely careful of areas that are highly dependent on one employer, industry or other factor. A large company shutting down or having big layoffs can drastically affect a local market. Well this point doesn't worry Bangalore real-estate because it has so many industries.

On the other hand, in the same area you can also have both stability and volatility. We had a steel plant shut down a few miles away from me and that local area was hurting. At the same time, I live near an extremely stable University that has to turn away students and the market is quite stable. So, in the same city or adjoining cities you can have both safe and risky areas.

2. Stick to bread and butter properties. The average property that any Tom, Dick and Harry would live in. Even villas or apartment complexes can have more volatility.

If you are following a buy and hold philosophy (which I do not advocate), than you need something very stable to hold on to-residential single family homes in the starter home range and just above. High priced homes can be volatile, too.

3. Be careful about "buy and hold." The plan of buy all the real estate you can and hold on for dear life has flaws. I heard one guru say "buy all the real estate you can and hold on by your fingernails if you need to." I know of many people who acquired the nicknames "nubby" or "stubby" throughout the years.

It is very high risk to be highly leveraged with no plan for a downside. The same guru also used to say "Negative cash flow is like bad breath; it's better than no breath at all."

Well, I've seen it squeeze the breath right out of many people leaving tragedies of everything from bankruptcy to divorce and even death and suicide. Even a small market correction in prices or rents and someone has to begin eating their portfolio and that rarely works.

4. Have some reserves. If the only way you have food for your family is if all the tenants pay, there's a problem. If a property flooding or needing a new roof means you can't make mortgage payments, you have a problem. If you clothe your kids from what tenants leave behind, you've got a cash flow problem and probably not the happiest kids.

This isn't just a joke. I've known people that were that tightly stretched and that even ate the food tenants left behind. Anyone following a strategy where there is little or no cash flow and no ability to handle problems or a market correction is gambling with their finances, future and even family. Again, a buy and hold strategy must be very carefully planned out.

5. Make your profit going in. No other strategy makes sense. You don't need to "buy and hold on for dear life." The greatest thing about real estate is that you can profit from an "inefficient" market. The fact that there can be profit from the moment you own the property is wonderful and quite unique to real estate.

When a stock broker shows you how to buy IBM stock at less than the price your neighbor is paying right now, this very moment, then pay attention to what he has to say. Until then, learn all you can about real estate. There are many, many strategies and techniques to make money when you buy the property.

When you are good at it, you can buy and resell quickly and make a large profit. When that happens, you have little concern for what happens to the market ten years, one year, or even one month from now.

It's about education. When a stock market analyst tells you that real estate is going to crash, he is only demonstrating his ignorance. When a real estate investor is worried about a crash or even a correction, that is also about lack of education.

6. Learn to forecast a market. That doesn't have to be all that hard or ultra-technical. You can watch your local market for factors such as "housing starts" and new and existing home sales.

Basically there are even some simpler predictors available from the Board of Realtors. I like the "average days on market" factor that is available in the sold information. That is the time between the listing of a property and the sale date. When that time begins to go up, a market is turning. If you want to apply a little calculus, you can even catch it sooner, but I won't get into that here.


But, back to the original message. Real Estate Will NEVER Crash--no matter how many headlines or talking heads say so.


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