Owning investment properties as a source of income is a dream of many. What is not part of the dream, however, are the headaches associated with being a landlord. Common mistakes made by first-time landlords can make the headaches even worse.
Becoming a landlord sounds easy. You buy a house, do some renovations and then rent it out. Managing investment properties successfully, however, requires a business professional’s mentality.
First-time landlord mistakes
It is easy to make these rookie landlord mistakes that quickly lose your time, money, and sleep. Here are just a few common mistakes landlords make when they buy their first rental property:
1. Not marketing properly
You must market your property well, no matter how great it is. If you want your property listing to be noticed, you should become an expert in its marketing. Your listings should be receiving attention. It is a good idea to learn the basics of a successful property listing.
Although you might think that photos and a title are more important than descriptions of the property, every detail matters. You should create a title that highlights the property’s strengths, give accurate details about your property, and include quality photos.
2. Sticking to fixed prices
It is fine to set a fixed price for your property. However, if you lack flexibility in a slow market for rental properties, you could lose money or experience an increase in vacancy rates.
You should be a smart and farseeing landlord and react to any major changes in the rental marketplace. It may be a good idea to accept lower offers during slow seasons and slightly increase the price during high seasons. This will ensure that you get the best value for your property.
3. Not running proper background checks on a tenant
Renter background checks are vital to ensure that your tenant is financially stable, has a good rental history, and takes care of your property. Do not let your first impressions fool you. Even a tenant that seems perfect at first can turn out to be a nightmare.
You should run a background check, which should include:
- Credit check
- Background/criminal check
- History of employment
- History of rental/eviction
- Public records (court documents, etc.)
This is not something you have to do by yourself. Many online background check services specialize in helping landlords. They can give you a thorough background check in a matter of minutes.
4. Asking illegal interview questions
Avoid asking inappropriate questions during screening interviews. You don’t want the potential tenant to file a discrimination lawsuit against you. You cannot refuse a tenant’s application because of race, color, religion, or national origin.
5. Taking it as a hobby
Renting properties is a business. To make a profit, you will need to run it like one. To ensure that you are properly handling (and paying!) taxes, it is important to set up separate bank accounts for expenses and deposits. You should also use a bookkeeping system. Taxes are an important part of your business. You will lose money if you don’t have the right resources and connections.
Although you won’t need to spend as much time managing your units, it is important that you take it seriously. If you don’t have a business-oriented approach to your landlording strategy, it will cause you a lot of problems.
6. Underestimating the cost of repairs and ongoing property maintenance
Maintenance will typically cost about 1-2% of your property’s annual value. If you own a $150,000 duplex, it is not surprising that you will need to spend $1,500-$3,000 each year on repairs. You may need to pay more for repairs in some years, such as if your roof is damaged or the furnace stops working.
Another rule is the 50% rule. You can expect your total rental operating costs, including maintenance, repairs and insurance, to equal about half of your rental income. Renting for $1,200 per month will net you $600 to keep your property in great shape. Beautifying your rental property will also make it far easier to keep it rented as more people will be enticed to live there.
7. Not checking on Tenants and communicating with them
As a landlord, your tenants are your greatest assets. Tenants who are trustworthy and responsible will take care of your property. Even the best tenants can be frustrated if they don’t get timely responses to their questions or if communication is poor.
It is a good idea to check in with your tenants once or twice a month. Even a simple message saying “I just wanted you to check-in and see how everything is.” can make a difference. You can ask your tenants about any problems they are having and find a solution. This will keep them happy and satisfied and help you keep them living in your property.
Before you stop by the property, make sure you aren’t violating any state laws regarding tenant privacy. Inadvertently, you may give them the right to sue or be released from your lease agreement.
8. Renters Insurance is not required
Renters insurance is a great idea. Why?
Renters without insurance may be responsible for paying out-of-pocket for repairs or may need to file a claim with their insurance company. This can increase your rates.
9. Failure to document tenant communications
Even if your tenants are good, it is a good idea to keep track of all communications.
If you need to bring your tenants to court, it is essential to keep written records of all interactions. Keep a record of phone conversations and a copy of any emails, voicemails, or text messages. To be able to back up your claims.
10. Relying on a handshake
You can’t trust promises in business. To protect your rights, tenants must sign a lease agreement to live on the property. They also need to understand the terms.
For a judge to rule on a dispute with a tenant, written documentation (i.e., lease) will be required. Make sure you are familiar with the laws in your state regarding leases. FindLaw.com provides a comprehensive listing of state-by-state lease and rental agreement laws.
11. Eviction process delay
You must evict tenants who are unable to pay rent. This isn’t personal. It’s business. You have the right to start eviction proceedings if your tenants fail to pay their rent according to their lease.
Contact an attorney immediately if you have problems with a tenant or are unsure of your rights.
Being a First-Time Landlord Can Be Rewarding (and Challenging)
There are some easy ways to avoid some of these common mistakes made by first-time landlords. Being engaged is the best way to get involved as a landlord for the first time. There are many things to consider and plan before you rent your property. Many new residential and commercial landlords look for a qualified property management company.
Why Should You Consider a Property Management Company?
A landlord may consider hiring a property manager. Maybe the landlord is overwhelmed by the number of rental units within a portfolio. It may also be beneficial to have another person manage the rental if the property is located in another state, city, or country.
While passive rental income may be attractive to landlords, the responsibility of managing properties or properties may not suit their personality or skills. A landlord might want to manage certain aspects of the business, such as finding and screening tenants. However, a property management company can work directly with tenants on daily issues like maintenance and repairs.
If you find yourself in one of these situations, it might be worth considering the pros of hiring a property manager.