Conclusion for Your Third Nomad Property

Wasn’t that a great little ride?

Started With Two Nomad Properties in Scenario 1

We began by talking about what happens if you bought two Nomad properties—one rental and one to live in.

In that first scenario, I explained our assumptions about your paycheck and living expenses and how we modeled it that you earned $5,000 per month total for your household. I make an implausible—if not impossible—assumption; I assumed you never got a raise over 40 years. You and your spouse started off earning $15 per hour working 40 hours per week or $10 per hour working two jobs for a total of 60 hours a week and that for the entire 40 years of the model, you continued to earn that same amount.

I also assumed that in that first scenario your personal expenses remained the same for the entire 40 years. Your cost for food, clothing, etc remained fixed for the entire 40 year period. Again, this is not likely but so is not getting a raise. I did assume that you spent every dime you earned from your fixed paycheck (after paying income taxes) on your personal expenses so you were not saving anything at all.

What did change during the 40 year period though is your housing expenses. Property taxes and property insurance on the properties you owned did go up as the property value increased. This caused you to dip into savings to pay this increase in housing expenses because you were not making enough from your fixed paycheck to be able to afford these increases.

I had you start with $40,000 in savings. It turns out this was more than enough in the first scenario for the down payment on your first purchase with 3% down payment as well as the down payment of 3% for your second property when you converted the first to a rental.

Plus, since your first rental had negative cash flow, you had enough in savings to handle negative cash flow until rents increased and your cash flow improved and became positive. Eventually, after several years, your rental property started to replenish your savings and make it grow rather than draw it down.

We further assumed that you kept your savings in the stock market and could, somehow magically, get a consistent 8% per year from your stock market investments. I think this is optimistic based on historical data, but we used it on all 5 scenarios. I plan to write new content in the future that will show how assuming different interest rates for the stock market return in similar scenarios impacts the actual results. So, if you’re interested in that look for that new content.

Gave You Raises in Scenario 2

In our second scenario, I kept many things the same, but changed a few things to show how those changes made a difference in our model.

What stayed the same? We still purchased only two Nomad properties: one rental and one to live in. Same properties, same down payment, same loans, same rents and tenants. We also started with the same $40,000 in savings earning 8% in the stock market.

What changed in this scenario though is related to our paycheck and saving money. In the second scenario, instead of assuming you did not receive raises for 40 years, I assumed instead, that you earned a 3% per year raise to your paycheck. However, I also assumed that your personal expenses like the money for food, utilities, and clothing increased by 3% each year as well. Another assumption that changed for this scenario is that I assumed you were saving $160 per month from your paycheck in month 2. As your income goes up by 3% and your personal expenses go up by 3%, the amount you end up saving increases by 3% as well.

Saving that money monthly and investing it in the stock market makes a huge difference in your numbers, so it is very likely worth doing.

One other thing that changed in scenario 2 is the amount of money we started with. Instead of starting with $40,000 we started with $10,000. We did not have enough money for a 3% down payment to buy the second property in month 13. We had to wait until we saved enough money for a 3% down payment plus a little more than $5,000 in cash reserves. I say a little more than $5,000 because we want to save $5,000 in today’s dollars in cash reserves, but we figure out what $5,000 is adjusting for inflation and use that number.

Added a Third Nomad Property In Scenarios 3 and 4

For scenarios 3 and 4, I essentially copied what I did for scenarios 1 and 2 except instead of just buying two Nomad properties we bought 3 Nomad properties. That means two rental properties and the property we lived in.

In scenario 3 we discovered that the $40,000 we started with wasn’t quite enough to deal with the increase in expenses, negative cash flow and down payments we required if we were not getting raises. That meant we needed to add additional money to the model to do it.

However, in scenario 4 I showed you how to do the entire model starting with $10,000 by just delaying purchases of new properties until you have enough money to handle those increased expenses.

As you probably expected, buying three Nomad properties tends to be better than buying two Nomad properties. However, it appears as though saving money from your paycheck makes a huge difference as well as we could see in the results from scenarios 2 and 4 where we did save money from our paycheck and invest them in the stock market at the optimistic 8%.

We Unleashed the Full, Unbridled Power of Nomad in Scenario 5

Fabulous secret powers were revealed to us the day we held aloft our magic sword and said… by the power of Greyskull… sorry, wrong story… the secret powers were revealed when we showed what doing the full Nomad model of buying 11 Nomad properties looked like in scenario 5.

In that scenario, we started with $10,000 and as we saved enough from our paycheck to buy another property plus about $5,000 in cash reserves, we bought another Nomad property. Our first few required 3% down payment. Additional properties required 5% down payment.

Turns out, that’s a pretty darn good model for acquiring 10 rentals.

Checklists for Tenant Turn-Over and Emergencies

To round out the book, I did share with you some of the resources we have when you need to move a tenant out of your property and, additionally, how to not be a jerk and leave your loved ones the info and tools they need to handle your business should something unexpected happen to you.

We have both checklists and classes on those topics for you to assist you.

Speaking of checklists and classes… you might have guessed (and you’d be correct in guessing such things) that these are not the only classes, checklists, or scenarios we’ve ever created.

In fact, since 2003 I’ve been teaching real estate investing classes for my local real estate brokerage clients in Fort Collins, CO. If you are in Northern Colorado and looking for a real estate broker to help you buy or sell a home, I’d encourage you to attend a few of our real estate investor classes and see if you think I’d be an amazing real estate broker that could help you buy or sell a home. If you happen to live in another city and want me to recommend a real estate broker near you to assist you, you can reach out to me about that as well.

In the last couple years we started to record the real estate investor classes and publish them on both the LearnToBeRich.com website and my brokerage website, JamesOrr.com. Here are links to the pages that have the classes published… all but a few exceptions are free and available to the public. We do keep a small number locked down for paying clients only.

I tend to publish some of the results from scenarios where I test a very large range of real estate investing models and variables on the LearnToBeRich.com blog and also in books you can purchase on Amazon. However, the chance of me modeling your exact, unique, specific situation as a scenario using the Nomad Calculator 3 is extremely unlikely, but I have good news for you.

You can enter in your own properties and run what-if scenarios on your own exact, unique, specific situation yourself using the Nomad Calculator 3 here:

And finally, in a previous life, my wife Tammy and I operated nuclear reactors in the United States Navy. When you operate a nuclear reactor you don’t do anything without a checklist. So, when we came to the real estate world, we looked around for the checklists for doing this business. I was shocked when I could not find them, so we started to create our own. The latest result of my checklists are in the form of the Ultimate Nomad Checklists which you can access on the LearnToBeRich.com website here:

To stay abreast of the newest downloads and goodies I release, I’d encourage you to subscribe to our mailing list and the 100+ episode and growing podcast:

Well… that’s all I got for you for now… I hope you’ve enjoyed our little journey together discussing Your Third Nomad Property.

Preparing For Emergencies

As your real estate business becomes more valuable, more profitable, and more complicated you need to step up your game and become more organized and systematized.

Unless you are a real estate empire building hermit, you probably have people you care about that would need to step up and help should something happen to you. Now, something happening to you could be a temporary issue like an injury or illness that prevents you from working or managing your real estate business for a short period of time. Or, it could be something catastrophic like your number being called in the ultimate lottery.

In either case, it is critically important for you to leave detailed instructions to have someone you trust to step in and take over running your real estate business (and all your other affairs for that matter) should something happen to you.

We call this setting up an emergency plan and I find that about the time you acquire your third Nomad property is the appropriate time for you to document this for yourself and for the benefit of the ones you love.

So, we have some resources that are available to you with discussions related to setting up an emergency plan and the suggested steps for setting one up on your own.

First, there are two versions of the class I’ve taught on this. Here’s the class description and links to access both of them.

Emergency Plan Workshop

Boom! You’ve been hit by a bus! Is your business ready to be run by someone else in your temporary or permanent absence? In this workshop, you’ll leave with an emergency plan for someone to take over your real estate business. We will walk you through a series of exercises to document what you’d like your backup to know and do if you suddenly and unexpectedly are unable to run your real estate empire.

Secondly, here’s the abridged checklist we set up for creating your very own emergency plan. Just like with the checklists for the tenant turn-over, you should really access these on the website here:

https://LearnToBeRich.com/emergency-plan/

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Complete the "Emergency Plan" checklist:

https://LearnToBeRich.com/emergency-plan/

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Emergency PlanPost-ClosingUltimate Nomad ChecklistWeek 65

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Watch the recording of the live presentation of "Emergency Plan Workshop" available on:

https://LearnToBeRich.com/emergency-plan-workshop/

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ClassesEmergency PlanUltimate Nomad ChecklistWeek 50

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Watch the recording of the live presentation of "Warning: The Dangers and Risks of Real Estate" available on:

https://LearnToBeRich.com/warning-the-dangers-and-risks-of-real-estate/

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ClassesEmergency PlanUltimate Nomad ChecklistWeek 21

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Create your own "Emergency Plan" assuming you won't be able to talk or tell your Emergency Contacts any more than what you have written down, documented.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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With the help of your Attorney create a Will that will document who is responsible for taking over should you die.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Determine who your Primary Emergency Contact will be.

You'll need their name, address, phone and email.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Email or call your Primary Emergency Contact for your Emergency Plan to tell them where your Emergency Plan is located and how they can access it should something happen to you.

Emergency PlanUltimate Nomad ChecklistWeek 51

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While having your Primary Emergency Contact listed in your business Operating Agreement will give them the ability to step in and manage your business should something happen to you, they may need a Limited Power of Attorney to manage your personal affairs.

With the help of your Attorney give your Primary Emergency Contact a Limited Power of Attorney so they can handle your affairs should you become injured or incapacitated.

Emergency PlanUltimate Nomad ChecklistWeek 51

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With the help of your Attorney, add your primary Emergency Contact to your LLC Operating Agreement as who takes over as manager in case you're injured, incapacitated or die.

Let them know they're to take over as manger if something happens to you.

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Emergency PlanLLCUltimate Nomad ChecklistWeek 50

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Make sure your primary, backup and third Emergency Contact all know the others. Send each of them the other's contact info in case there is an emergency for you and they need to contact each other.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Make sure your Primary, Backup and Third Emergency Contact all know your Attorney's contact info.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Create your own "Emergency Plan Summary" sheet and tell your Primary, Backup and Third Emergency Plan contact and your Attorney where it is located. For example, you might have a copy of it in your safe in your home and you have a key to the safe on your primary keychain.

The "Emergency Plan Summary" should list the following information at a minimum:

  • Name, address, phone and email of your Attorneys
  • Name, address, phone and email of your Primary, Backup and Third Emergency Contacts
  • List of all your properties (rentals and owner occupied)
  • List of tenants in each property and where to find their tenant file
  • List of all your bank, savings and investment accounts with account numbers, logins and passwords
  • List of all your LLCs, trusts and other entities, what is in each and who is to run them should something happen
  • List of all your mailboxes and where the key is to each
  • List of all your email accounts and password for accessing each
  • List of all your insurance policies and the Insurance Agent for each
  • List of all your Powers of Attorney, who they're with and where to find each
  • Location of your Will
  • If you've buried or otherwise hidden any treasure, a map or at least clues as to where to find it
  • Your preferred referral list for all your contractors and professional advisers
  • Documentation on your key business processes (how to run your business if you're not there)

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Store an off-site backup of your "Emergency Plan Summary" sheet in case of fire, floor or other issue with your primary copy of your "Emergency Plan Summary" sheet.

Example might be you store your primary "Emergency Plan Summary" sheet in your locked safe in your office. You could keep a backup in your safe at home.

Another example might be you store your primary "Emergency Plan Summary" sheet in your locked filing cabinet at home and your Attorney has a second copy in his locked filing cabinet in his office.

IMPORTANT NOTE: My personal Attorney suggested NOT using a safe deposit box as they can be hard for your Emergency Contacts to access should something happen to you.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Sit down and go over your entire Emergency Plan with your Emergency Contacts so they're familiar with it and how it is setup.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Make sure you update your "Emergency Plan Summary" sheet yearly.

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Emergency PlanUltimate Nomad ChecklistWeek 50

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Complete "Emergency Escape Plan" checklist

https://learntoberich.com/emergency-escape-plan/

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Emergency Escape PlanEmergency PlanUltimate Nomad Checklist

The time to plan for the inevitable is before it happens. That means the time to plan for an emergency that could happen at any time is right now. Don’t put this stuff off. If you truly care for the people closest to you that will need to be responsible for this should something happen to you, you will set up your own emergency plan now. Failing to do so is a real jerk-move. So, don’t delay… do it now.

Preparing For Tenant Turn-Over

I hope you enjoyed us going over the scenarios for Your Third Nomad Property. To review, up to this point, we covered two scenarios if you decided to not do your third Nomad property and just stick with two Nomad properties (one rental and one that you live in).

Then, we looked at two more scenarios where you did just one more Nomad property to get a total of three Nomad properties (two rentals and one that you live in). These are similar to the scenarios where you just did two Nomad properties except you’re doing three Nomad properties.

Then, I called back to the days when you first learned about the Nomad model and how you dreamed of doing the full Nomad investing strategy to acquire 10 rental properties and living in a world of luxurious passive cash flow that covered all your expenses and more. I reminded you what the numbers look like for doing the full Nomad model and how it compares to just doing two Nomad properties and also how it compares to doing three Nomad properties.

Resources From Previous Books

Now, I’d like to take some time to remind of you of some of the resources that you have available to you that you will likely need when buying your third Nomad property.

In my book Your First Nomad Property, I shared with you the resources for buying your first Nomad property since that is what you need when considering buying your first Nomad property. You don’t need resources on how to find and screen tenants. When you’re buying your first property, you need the resources for the buying process, how to analyze deals as a Nomad and how to finance Nomad properties. You will still need those same resources when you go to buy your third Nomad property, but I won’t repeat myself here with those same resources. Instead I will remind you to look at my book Your First Nomad Property for those.

In my book Your Second Nomad Property, I shared with you the resources for renting your first Nomad property since that is what you need when preparing for buying your second Nomad property and converting the first one to your very first rental. In that book I share with you the resources on how to find tenants, how to screen tenants, the lease and how to explain it to your tenants, tenant move-in, and property management. As you prepare your second Nomad property as a rental, you will want to reference my book Your Second Nomad Property again to review those resources since I won’t repeat myself here again with those.

New Resources

However, as you approach buying your third Nomad property, you need new resources. These are resources we have not discussed before. Resources for tenants moving out of your properties and turning over the property to a new tenant. We call this tenant turn-over. Plus, you will need some resources in case something should happen to you so your loved ones know how to step in and manage your growing real estate rental empire with minimal hassle.

Preparing For Tenant Turn-Over

It is a best practice in most situations to maintain your property in great condition while your current tenant is living in the property. This minimizes the time required to prepare the property for your next tenant when the current tenant moves out.

For example, having maintenance done on your air conditioner and furnace can and should be done regularly and not specifically when the tenant is turning over. However, if you’ve been a neglectful landlord and have not been properly maintaining your air conditioner and furnace while the current tenant is living in the property… first, shame on you for not maintaining your several hundred thousand dollar asset… and secondly, you should definitely do it when you have tenant turn-over.

Now, that is not to say that you need to wait for your current tenant to move out to have this maintenance done. In fact, we strongly encourage Nomad landlords to minimize vacancy by doing as much maintenance on the property while the property is tenant occupied. Things like having the air conditioning and furnace serviced are definitely things that can be done while the current tenant is in the property. Or, you could do it as soon as the new tenant moves in. Either way, the point is that you don’t need to do these things in a vacant property that is not collecting rent.

When we analyze properties we typically use 3% vacancy on properties that we are renting out with year long leases. The reason I feel comfortable using 3% vacancy is because we are starting at least 60 days in advance of a tenant moving out (and in most cases 90 days in advance) to start marketing for the next tenant. We can start rent a little higher than we think we can get and slowly drop rent a little bit each week until find a tenant. You should find a tenant before the house is actually vacant… so adjust rent down to keep your properties occupied.

For example, if you’re thinking a property might rent for about $1,850 per month, you might start marketing it for rent 90 days in advance of your current tenant moving out. You know they’re moving out because your lease tells them they need to sign a lease renewal and tell you of their intent to vacate 90 days prior to their current lease expiration. Back to the rent amount. If you think your property might rent for $1,850 per month, you might start rent at $1,995 90 days in advance. Rent is rarely an exact number. You might find someone who wants the property at $1,995. More likely, you will need to drop the rent to get it rented.

So, you advertise for rent for a week at $1,995. If you get no calls or very few calls, you might drop it to $1,950 after a week of advertising it. For lower rent amounts, you might not drop $45; instead you might drop it $10 per month. If you are getting a good number of calls on the property, maybe you don’t drop the rent at all and advertise it for another week to see if you can get $1,995 per month. What is a good number of calls? You will need to know what is normal for your market, but in many cases, I would consider getting half a dozen calls inquiring about it as good enough for me to keep it at that rent for another week.

Each week, as you’re getting closer to the property being vacant and not collecting rent, you can continue to lower your rent until you are getting decent call volume. As call volume on your marketing to find a tenant picks up, you can either not lower rent at all or lower it by smaller amounts.

Tenant Turn-Over Checklists

We have two tenant turn-over related checklists: one to prepare for the turn-over and the other for actually turning the property over. Both are comprehensive checklists for Nomads on the LearnToBeRich.com website.

The checklist for Tenant Turn-Over Preparation is located:

https://LearnToBeRich.com/tenant-turn-over-preparation/

The following is an abridged version of that checklist, but I’d strongly encourage you to check out the web version.

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Replace fire extinguishers to prepare for the next Tenant/Tenant-Buyer.

They have limited lifespans and it is probably cheaper to just buy new ones than to have them serviced.

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Property ManagementSolving Tenant ChallengesTenant Move-InTenant Turn-over PreparationTenantsUltimate Nomad ChecklistWeek 45

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Have AC and furnace serviced preparing for next Tenant/Tenant-Buyer.

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Tenant Turn-over PreparationUltimate Nomad ChecklistWeek 45

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Your HVAC person may replace the furnace filter for you, but they may not. So, make sure you have a new furnace filter installed.

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Tenant Turn-over PreparationUltimate Nomad ChecklistWeek 45

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Check for leaks under all sinks and near all water sources. Fix them as required.

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Tenant Turn-over PreparationUltimate Nomad ChecklistWeek 45

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Call your carpet cleaner and schedule a time for them to clean the carpets right after the current tenant vacates the property.

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Tenant Turn-over PreparationUltimate Nomad ChecklistWeek 45

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Make arrangements for getting the locks changed the day the old tenants move out.

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Tenant Turn-over PreparationUltimate Nomad ChecklistWeek 45

The checklist for Tenant Turn-Over is located:

https://LearnToBeRich.com/tenant-turn-over/

As you might have expected, here is an abridged version of that checklist. I still recommend that you check out the web version though.

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Complete the "Tenant Turn-over" checklist:

https://LearnToBeRich.com/tenant-turn-over/

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Post-ClosingTenant Turn-overUltimate Nomad ChecklistWeek 65

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If you have not done so recently, review the recording of the live presentation of "Property Management Mastery" available on:

https://LearnToBeRich.com/property-management-mastery/

Mark this task as complete once you've watched it.

Tenant Turn-overUltimate Nomad ChecklistWeek 45

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Record the condition of the property upon move-out so you know what needs to be done and what should be deducted from security deposit.

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Tenant Turn-overUltimate Nomad Checklist

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Check the fire extinguisher under the sink to make sure it is still there and still working when the Tenant is leaving the property. If not, replace it with a new one.

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Tenant Turn-overUltimate Nomad Checklist

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Have carpets professionally cleaned. Deduct expense from security deposit (if your "Lease" has that clause).

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Tenant Turn-overUltimate Nomad Checklist

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Change the locks on all external doors. You can call a locksmith to change the locks or you can replace the locks themselves.

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Tenant Turn-overUltimate Nomad Checklist

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Reset the garage door opener(s). Even if all remotes are returned you should reset the opener anyway in case the previous tenant paired their vehicle to the garage.

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Tenant Turn-overUltimate Nomad Checklist

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Verify your tenant has paid the last month of utility bills before returning their security deposit. Deduct any unpaid amount from the deposit.

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Tenant Turn-overUltimate Nomad Checklist

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Switch the utilities back into your name if the property will be vacant for more than a day or so.

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Tenant Turn-overUltimate Nomad Checklist

Classes About Tenant Turn-Over

We do have several classes that deal with topics related to tenant turn-over as well. Here are a few of them:

Property Management Mastery

Once you’ve placed a tenant in your property, you must remain diligent and manage the property. In this class we walk you through the process to prepare your property for a tenant moving in. We also cover the best practices for move-in and move-out with the tenant or tenant buyer. Plus, we cover what happens the first week and first month after the tenant moves in. We discuss how frequently and what to do during property inspections while the tenant is living there. Then, we cover what happens the last 90 days of a tenant’s lease including preparing to rent the property to another tenant, damage deposits and much more.

https://LearnToBeRich.com/property-management-mastery/

Solving Tenant Challenges

Despite our best laid plans and best efforts, not every renter will be the perfect tenant we hope and screen for. Challenges with rental properties happen. This class covers checklists and processes for dealing with tenant challenges like late rent, evictions, lease term violations, and much more.

https://LearnToBeRich.com/solving-tenant-challenges/

I also have additional classes I’ve taught for our local real estate brokerage on these topics that you may also want to review:

Next, we will discuss tenant turn-over and share resources available for that.