11 Common Mistakes to Avoid as a Landlord
There are many great benefits that can come with owning a successful rental property. You will have a property that continues to gain equity over time. Meanwhile, you are renting it out every month and getting those rental payments. It sounds like a sweet gig to be a landlord. However, there are some pitfalls to avoid to prevent it from being a disastrous investment.
Here are 11 common mistakes made by inexperienced landlords:
1. Not Running Proper Analytics
Before you even buy and investment property, you have to run thorough analytics. Look at the neighborhood, rent prices, vacancy rates, crime rates and all the factors to make sure you are buying a house that will produce a healthy rental profit from month to month and year to year.
2. Underestimating Renovation, Repair and Maintenance Costs
As part of your analytics process, you have to perform a detailed breakdown of all costs. If renovations are needed, you have to carefully plan out your renovation budget and know exactly how much time and money it will take to get the house ready for tenants to move in. Then, you also have to factor in ongoing repair and maintenance costs. Things will break. Incidents will happen. At the very least, basic upkeep will be required. Don’t let these costs add up and take away any profit you might be making.
3. Underestimating Vacancy Rates
The biggest killer for rental property owners is extended vacancy periods. The house must be marketed effectively and you want to find good tenants that will commit to long lease agreements. It may be worth sacrificing a little rental price hike in order to keep a good tenant in the home.
4. Overpricing or Underpricing the Rent
Setting the rent price is a major factor in having a successful rental property. If you set it too low, you may lose out on profit or attract less-desirable tenants. If you set it too high, you may turn away good tenants or have longer vacancy periods. Read our recent article for some tips on setting the ideal rent price.
5. Weak Tenant Screening
It is very important to screen your tenants carefully. Do background checks and financial reviews. Make sure they are going to be good tenants who will pay the rent every month, while also taking care of the property while they live there.
6. Not Having an Investment Plan
Remember that owning a rental property is a significant investment of time and money, and ideally it will make you a lot of money in return. To be successful, you need a thorough investment plan, good bookkeeping and strong tenant service. You must treat your rental as a business, not a hobby.
7. Not Having a Solid Lease Agreement
If your rentals are based on handshake deals or your rental agreement is not iron-clad, you risk leaving too many loopholes that tenants might be able to take advantage of. Protect yourself, your property and your other financial assets with a good lease contract that has been vetted and reviewed by a real estate attorney.
8. Not Understanding the Legal Ramifications
When you own any property—and especially a rental property—there are certain things that need to be in place. You need proper insurance. There may be state and local housing codes that need to be enforced, especially if you are making major renovations. Everything should be covered and thoroughly documented to avoid legal trouble.
9. Becoming Friends with Your Tenants
Its great to have a positive, friendly relationship with your tenants. Just be careful not to become too close. They will look for ways to take advantage of your generosity and you could find yourself in an awkward situation (both personally and financially).
10. Neglecting Tenants
On the other side of the coin, you also don’t want to have a reputation for neglecting your tenants and ignoring their needs. If they have complaints or requests, you have to listen and fulfill your end of the rental contract. If not, you will lose good tenants and have a hard time keeping your property occupied with paying renters.
11. Doing it All Yourself
There can be a lot of responsibilities to take on as a landlord and it can be difficult to keep up if you don’t have ample experience as a rental property owner. You may want to consider hiring a professional property management company, or do your research and be fully prepared for everything that comes along with being a successful landlord. Even if you are overseeing the property yourself, build up a network of resources (contractors, handymen, legal advisors, financial advisors, etc.) who can help provide specific services and guidance throughout the process. You shouldn’t have to go it alone!
These are just some of the common mistakes we see many inexperienced landlords and rental property owners making. If you are looking to make the most of your real estate investments, consider joining the PropertyLark home buying network. We can help you with the analytics tools and resources you need to become a more successful real estate investor. Whether you want to buy your first rental property or you already own dozens, we have you covered!