Having invested heavily into Real Estate in the past 2 years, I have learned a few lessons which I would like to share with you. Of course that in this article, I will be talking primarily about real estate in Portugal. Note that the lessons I will be sharing apply to the the Portuguese market only. You may think “Algarve Portugal real estate”, because that is very sexy and trendy, but I will actually be talking about real estate in Portugal as a whole. Note that the markets in Algarve and Lisbon are especially regulated, given that the majority of the leases are short-term leases.

And keep in mind, I invest in small, not-so-sexy markets. One of my rules is to know law extremely well and way better than my tenants. I certainly don’t want to take advantage of nobody, but I don’t want to face a legal problem just because they know it better than me.

So, let us cut right to the chase. What are the most important lessons I’ve learned so far in terms of Real Estate investing? This is by no means a “free real estate class online” that you find and take for a few hundred bucks. These are lessons I’ve learned in practice, on the ground, some of which cost me real money…

Lesson #1 – Some tenants will not pay rent (but you can do something about it)

To this day, I’ve had one rent due. One. My tenants were late for a few days and they told me they were going to be late.

Here is a question that I am asked a lot : “my tenants are not paying rent, what should I do?” I think that most of what you can do to avoid this problem, is actually done before you sign the leasing contract (jump to Lesson #2 if you want to know this straight up). Despite that, there is on thing that I’ve used successfully in the past in this situation… I partnered up with a lawyer and have him sending your tenants a letter advising for (the legal) late fees. I’ve found one who charges me 300€/yr. Most of the time, he doesn’t do anything, so it’s beneficial for both sides. A simple letter makes a huge difference when it comes to tenants being delayed. If they were forgotten the first time around, it will probably not happen again.

 

Lesson #2 – You may have to evict tenants.

What you do NOT want to do is an eviction without a tenancy agreement. But sometimes you have to. I minimize those chances, with the following:

1. I always agree on an automatically renewable, periodic contract with my tenants. In particular, I do 3-month contracts, which are renewed by themselves unless some party says otherwise. Obviously, if my tenants do something that I am not a particular fan of, I will notify them that I am not extending the lease. This also answers to the question of how to evict a tenant quickly.
2. You ask tenants for 1) reference letters of their previous landlords, 2) their income reports and receipts from the previous 3 months and 3) a guarantor. I demand this upfront and then turn things more flexible until I actually rent out the property (when I have the impression that they will be good tenants).
3. When setting down the contract, you agree with your tenants to have the right to do inspections every 3 months. This will give you access to the property and identify problems before they come to be.

To learn more about these two lessons, I recommend The Book on Rental Property Investing (Affiliate link).

Lesson #3 – Tenants will stay longer if you treat them well

This one is self-explanatory, and I have talked about it before, but it is the truth. I treat my tenants exceptionally well and they stay longer and refrain from damaging my properties.

Lesson #4 – Have tight connections with RE agents

They are really what drives the RE economy, so you gotta be good friends with some agents. The characteristics of a good real estate agent are, in my view, 1) integrity, 2) being prolific and 3) presentation. In fact, integrity and presentation are what makes a good realtor. Look for those. Stay close to them. I ask them to notify me when a great deal pops up. Most do, once you build a relationship.

BTW, being a RE agent is also a road to the riches: The Millionaire Real Estate Agent (Affiliate link).

Lesson #5 – Prorated rents

Tenants are legally able to ask you for a prorated rent, but the interesting thing is that it must be explicit in the contract, otherwise they won’t be able to claim that. Once, I’ve had a tenant asking me for a prorated rent because he was leaving my flat 1 week before the regular billing cycle (in all my contracts, this is from the 1st to the last day of the month). He actually showed me a legal prorated calculator, but this is only valid if this is explicit in the contract; if this is not so, do not accept prorated rents and notify your tenants of the reason. If the leasing contract accounts for prorated rents, make sure that your tenants’ arguments are right. Most people don’t know how to calculate prorated rent, that is the truth.