Being a landlord involves several responsibilities to both your property and your potential tenants.
There are many considerations when renting out your property, including a steady income stream and long-term capital growth, but that doesn’t mean it’s all plain sailing after those decisions.
Mistakes help us grow and give us the opportunity to learn as individuals, however, as a landlord making a mistake can sometimes cost you a lot of money.
Unknowing your local market
You have probably heard that expression about the three most important words in real estate: “location, location, location.” As a landlord, that means finding a rental in a desirable area that can attract more potential tenants. Just because the price is right does not mean the location is.
Get to know the neighborhood, including access to transportation, grocery stores, area features and businesses. It also means learning about the local market, researching area taxes and determining what you can charge for rent, all of which affect the potential return on investment for your property and help you predict your monthly rental income.
Not Understanding fair housing laws
Before you start accepting rental applications, you need to understand fair housing and anti-discrimination laws. Fair housing laws ensure equal access to housing. It is illegal to discriminate against renters and rental applicants based on race, color, religion, national origin, sex, familiar status or disability. Many local and state governments have additional protections that you’ll want to become familiar with.
Disregarding the importance of marketing
No matter how good your property is, you still need to put your best marketing foot forward. It may be worth the expense to have professional photos taken. You will also want a clearly written, accurate and error-free description of the property and amenities.
Skip tenant screening/ Getting inadequate tenant references
While speed is important in renting your vacancy, you still want to end up with a qualified renter. Create a documented process for finding, screening and securing your tenants. Ask each potential renter to fill out an application, and verify employment and residence history. It’s a good idea to perform a tenant background check and run a tenant credit report.
Forget completing accurate leasing paperwork
A lease serves as a binding, legal agreement between you and the tenant. As such, you’ll want to make sure it thoroughly addresses the rules, policies and conflict resolution procedures for living at your property, and clearly defines tenant and landlord responsibilities.
Remember to put everything down in writing: A handshake or verbal agreement won’t hold up in court. Let a legal professional to ensure that the lease agreement’s terms protect your interests and comply with local and state regulations.
Avoiding your landlord responsibilities
Securing a tenant for your property is a huge milestone. But your work is not done. As a landlord, it’s your job to meet your terms of the lease agreement: Check in with your tenants, stay aware of the condition of the property, complete regular preventative maintenance and seasonal maintenance, and respond quickly to requests.
Make sure your property is a healthy and safe place to live and keep up on your taxes and financial reporting. Neglecting your tenants and your property may result in higher turnover, more vacancies, less rental income or even lawsuits.
Not anticipating maintenance costs
Be prepared for the possibility that your property won’t always be occupied. If you aren’t able to fill a vacancy right away, do you have enough cash set aside to pay for the mortgage, utilities and other maintenance costs? Maintaining a rental property comes with unforeseen expenses, such as damages and unexpected repairs, and the bills still need to be paid. Complete a cash flow analysis and establish a budget so you’ll be able to cover these potential costs, then track your expenses to ensure you’re staying in the black.
Ignoring when to hire a professional
If you live in the area, are handy around the house and have the time to quickly respond to requests, you can maximize your rental income by handling some of the general maintenance and management of your property.
However, if you don’t want that much responsibility, you may be better off enlisting the services of a professional property manager. Also, depending on your experience and the condition of the rental after your tenants leave, you might want to hire a contractor to make significant improvements or repairs.
Not Treating your rental like a business
However, you got into land lording, your rental property is a business and an income source — and you need to treat it that way. Consider using accounting software or a spreadsheet to keep close track of your income, expenses and ultimately your return on investment. Document all of your procedures and communications with applicants and tenants, and make sure to stick to your procedures.
Successful landlords leverage skills from many different areas, including customer service, marketing, accounting and home repair. Reduce the risks that come with being a landlord by educating yourself and networking with other experienced landlords and related professionals.
Lack of communication
Communication is the basis of any business. As a landlord, you need to communicate effectively and regularly with your tenants. This means staying up to date with maintenance requests, late rent notifications and lease renewals.
Investing in real estate can be a solid way to build wealth, but only if you do it correctly. To help you get your building investment off on the right start.
Avoiding these mistakes can mean the difference between making or losing money on your investment property.