20 Essential Landlord Tips To Help You Avoid Common Mistakes
The Top 20 Landlord Mistakes You Must Avoid
Landlords are human and we all make mistakes, but if you could learn from others’ mistakes, why wouldn’t you, right?
Here are the top 20 mistakes you should avoid to keep your real estate investment journey profitable.
1. Not Changing Your Rent Prices
You have an amount in your head that you need to earn to make your investment work each month and that’s what you want.
Make sense.
Except the real estate market doesn’t work that way. There are ups and downs, and if you aren’t flexible with your rent when you’re looking for tenants, you may come out on the losing end. Instead, know when you should increase or decrease your rent to be competitive and still make a profit. It’s a delicate balance to figure out.
2. Not Understanding the Market
You could have the most fantastic and profitable vision in your head, but it won’t come to fruition if you don’t choose the right market.
Before you invest anywhere, know the market. Does it fit in with what you planned or will you fall flat on your face? For example, if you envision renting to large families who stay in the same home for many years, yet you invest in an area with high turnover, you won’t realize your objectives.
3. Filling Vacancies Too Fast
Vacancies can feel scary and force you to make rash decisions.
Don’t.
Take your time. You’re better off with an empty property than one with a tenant that won’t pay you or destroys the property. Take your time doing your due diligence. Know how to screen tenants and only accept them when you’re comfortable they are a good risk.
4. Not Understanding Your True Expenses
In a fantasy world, every investor walks away with a profit, but that’s not reality. In the real world, there are expenses – a lot of them. If you aren’t honest with yourself about the property’s cost, you could walk away with much lower profits than anticipated or possibly even a loss.
If you aren’t sure what a property costs, do your research. Roofstock Marketplace is a great resource to find out the costs of a rental property. It will also show you the income, profits, and any other numbers you need to crunch to make a solid decision.
5. Not Understanding Maintenance Expenses
As the landlord, you’re 100% responsible for maintenance. Whether you do it yourself or you hire someone, you also have to pay for it. Knowing a home’s condition and what it may need before you buy it is important.
Also, knowing what the home may need ongoing is important. As a general rule of thumb, estimate 1% of the property’s value in maintenance costs, but have a cushion because we all know the unexpected can happen at any time.
6. Underestimating the Work Involved as a Landlord
When you take on landlord responsibilities, you are in charge of everything, including the 3 AM phone calls because a pipe burst. It’s your job to handle the maintenance and repair issues no matter the time of day or what you have going on.
You’re also responsible for collecting rent, ensuring the tenant abides by the lease, and handling all aspects of paying for the home’s needs. It can be a lot of work, and many landlords hire a property management company to do the work for them, especially when they buy a property on Roofstock Marketplace that’s out of state.
7. Not Treating Your Investment Properties as a Business
Your investment properties are more of a business than an investment. You earn monthly income from the rent collected, and you’re in charge of taking care of your tenants. If you treat it as an investment, you may miss opportunities for tax write-offs or chances to increase your income.
When you treat your investment properties as a business, you’re more likely to be professional and work hard to keep your earnings up and increase your capital gains.
8. Not Assessing the Area’s Rent Before Buying a Property
Just because you think a property is great doesn’t mean the renters in the area think the same. Knowing how much you can charge for rent in the area and how likely people will rent the property.
The number you have in mind that you can charge for rent may not be the average rent for the area. Don’t find out the hard way. Know the area’s average rent before you buy so you can make sure it’s worth it.
9. Not Researching Your Property Management Company
It’s okay to hire a property management company, but only if you research them first. There are good and bad companies out there, and since you’re hiring a property management company to help with your investment, you want someone you can trust.
A property management company will deal with your tenants, collect the rent, handle the home’s maintenance, and even handle evictions if it’s necessary. If you hire a ‘bad apple,’ you could end up losing money on your investment.
10. Not Marketing Your Properties
When you have a vacancy, it takes time to fill it. Not marketing the property will leave it vacant even longer. Getting the word out about the property will help you fill it faster. You can work with a real estate agent or list it yourself, but creating a compelling listing that makes potential renters want to see it is key.
Don’t forget to ask your current tenants to spread the word about the property too. Word-of-mouth is sometimes the best form of marketing you can have.
11. Not Offering Multi-Year Leases
Don’t assume your tenants only want a single-year lease. What if you could get your current tenants to commit to a two or 3-year lease? That’s less work on your part, and if they are good tenants, it gives you peace of mind.
When you’re working out the lease terms with potential tenants, discuss the option to have a longer lease and possible ways out if you or the tenant worry about being stuck in a long-term agreement.
12. Not Knowing the Landlord-Tenant Laws in the Area
Each locality has its own landlord-tenant laws. Get familiar with them to make sure you follow the law. Even a small mistake could cost you thousands of dollars. Even if you weren’t aware that you were breaking the law, the penalties and consequences still prevail.
13. Not Figuring Vacancy Into Your Forecasted Income
No property has 100% occupancy. Life happens, and vacancies occur. Find out the average vacancy time in the area and figure it into your expenses. If you aren’t sure about the average vacancy rates for the area or how to figure it in your expenses, work with Roofstock Marketplace. They give as many details as possible about potential properties, helping you make a good decision about a property.
14. Agreeing to Terms Verbally
Don’t agree to anything verbally. It’s okay to have discussions and work things out verbally, but then put everything in writing. It’s the only way to cover both parties – you and your tenants.
It’s a good idea to use an attorney to draw up the lease and any other agreements, so you know you’re following the law and both you and your tenants are protected. Anything agreed upon verbally will not hold up in court.
15. Forgetting to Make Big Decisions Before Bringing in Renters
Think about what you want and don’t want with your property before you bring in tenants. A few examples include:
- Will you allow pets?
- Do you want a security deposit?
- Will you allow smoking?
- Can the tenants hang wall decor?
Think of all possible issues that could arise and put the terms in writing. This way, there’s no questioning what tenants can and can’t do when they rent your property.
16. Not Requiring Renter’s Insurance
As the landlord, you must carry some insurance, but why should you carry the entire responsibility? Require your renters to carry insurance to at least cover their own belongings and liability.
Renter’s insurance is a fraction of the amount of homeowner’s insurance, yet it provides a valuable resource for renters.
17. Not Knowing the Laws When Interviewing Tenants
You have the right to screen and interview tenants, but you can’t ask questions that are considered an invasion of privacy. Talk to your attorney and find out what questions you can and can’t ask before talking to tenants. Even though you’re renting out your home, it’s still a business you are running, and it should be treated as such.
18. Not Running Background Checks on Tenants
It’s another expense, but running a background check is essential. You want to know who is living in your home, and a background check is the best way to find out. Many landlords also run a credit report. While you may not care about their credit history, seeing that they pay their bills on time and are financially responsible can tell you a lot about a person’s character.
19. Charging Rent That’s Too High
You want to make a profit – everyone does, but if you charge too much rent, you won’t make any money. Renters know the average rent for the area, and they can pinpoint someone who is ‘robbing’ them from a mile away.
Do your research and know what you can charge. Even if you feel like you have the best property in the area, it doesn’t mean you can overcharge – you’ll end up making less money in the end.
20. Not Tracking Your Expenses
Remember, you are running a business. If you don’t track your expenses, you could miss out on important tax write-offs. Keep a careful record of your expenses and use a tax planning software or tax advisor to ensure you take advantage of every deduction available to real estate investors.
The Bottom Line
Treat your investment property as a business and think like a landlord. As much as it’s fun to be friends with your tenants – they are another source of income for you, just like your job. Take your investment seriously, and it could be another source of retirement income or even be a legacy you leave behind for your loved ones.
Source: yahoo.com
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