It can be difficult to manage an investment property, especially if you are a novice. There are several moving parts, and it takes a bit of time for landlords to get the hang of the different things they need to know to manage their property.
Before becoming landlords, the majority of landlords were first homeowners who believed that having a rental property was equivalent to owning their own home. Because of this, few real estate investors take the time to learn about being a landlord.
As a result, they make errors that they could have avoided, mistakes that not only cost them money but also have the potential to end their investing careers prematurely. In this article, we’ll outline ten mistakes landlords frequently make and explain how to avoid them and how to correct them.
1. Not viewing the investment as a business
Many landlords see their rental property more like a hobby than a business. They don’t believe that the numerous facets of the property require the use of systems or experts to manage them. Their outcomes are average at best since they don’t establish the proper connections or get the required resources.
2. Failing to plan for vacancies
The typical first-time property investor will have rosy expectations for their initial investment. They assume that everything will go according to plan and do not consider the possibility that there will be vacancies for protracted periods of time during the year. They make a mistake by failing to account for vacancies when considering whether to purchase a home.
3. Inadequate tenant-screening
Inexperienced landlords frequently make the error of improperly vetting their tenants. They skimp on tenant screening because they are so eager to get a tenant in the house. They don’t follow up or ask the necessary questions to check a tenant’s claims, so the landlord accepts a tenant who has a history of making late payments or having unpaid bills.
4. Asking illegal interview questions
When interviewing prospective tenants, inexperienced landlords frequently ask inappropriate questions. They run the risk of breaking the fair housing regulations, which shield prospective tenants from prejudice. It is not permitted to ask the renter any questions in the application on their race, color, religion, national origin, sex, marital status, ability, or family situation.
5. Failing to have a well-written lease agreement
Every contract must be written in black and white. There is no such thing as a “gentleman’s agreement” when dealing with tenants. A well-written leasing agreement is a requirement. Every communication with tenants should be in writing; it is not sufficient for them to simply sign the lease. Putting things in writing could save you a lot of money.
6. Violating guidelines for security deposits
Some states forbid landlords from imposing unreasonable security deposits on tenants. Strict guidelines on how long you can keep the deposit after the end of the tenancy are in effect, even in states without caps. There are guidelines for how the money should be kept throughout the tenancy as well.
7. Failing to keep a cash reserve
You must still make mortgage and insurance payments even when your rental property is vacant. You need money to pay for those expenses and the cost of eviction and upkeep. Many landlords make the mistake of ignoring the fact that having a cash reserve on hand gives you the shock absorbers you need to get through difficult times.
8. Not enforcing the terms of the lease
Every scenario that could possibly occur on the property should be covered in the lease agreement, along with your plan of action in the case that it does. What are the repercussions, for instance, if a renter disregards your no-pets rule or makes a late payment? However, tenants will learn to disregard these conditions even if you have them in place and don’t enforce them.
9. Underestimating the cost of maintenance
In the thrill of purchasing their first investment property and beginning their career as a landlord, many investors frequently underestimate the cost of keeping a property. Due to their error, they are unable to raise the rent since they must maintain their competitiveness yet must spend so much money on repairs and maintenance that they are unable to turn a profit.
10. Violating housing codes
State and local housing regulations are more strict for rental houses than for your own personal home. Tenants have the right to withhold rent until you correct any violations of these regulations if they discover them. Additionally, you face the danger of having your company shut down by the authorities.
How can you avoid these mistakes?
As with all businesses, the best way to avoid mistakes is to work with someone who already knows the way. For landlords, that person is a property manager. An experienced property manager can help you avoid all the mistakes listed in this post and their financial impact on your investment.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.