There is a common misconception about earning money from a rental property. While it is typically considered “passive” income, the day-to-day management of that property should be viewed as anything but passive. That’s because a landlord’s job isn’t all that easy. You can purchase the property, make some repairs or updates and then start renting it out to your tenants, but that’s not the end of your involvement in this arrangement.
A landlord has many job descriptions and expectations that must be addressed in order to operate a successful and lucrative rental property. Chalk it up to a lesson learned and experience gained — or you can learn from the following mistakes. These are some of the most common mistakes made by landlords and what you can do to avoid making them with your properties.
1. Insufficient Insurance Coverage
Too many landlords try to cut costs by purchasing less than sufficient levels of insurance coverage. Some might even have the wrong type of coverage or fail to purchase any endorsements or addenda that will keep them protected in the event of multiple types of perils.
Most rental property insurance policies will have property coverage and liability coverage. The former protects you against damage or loss to the dwelling itself as a result of a covered peril. The latter protects you in the event a tenant or visitor is injured on your property. Keep in mind, not all perils are covered. So any loss or damage due to earthquake, flood, vandalism or other incidents may leave you footing the bill unless you purchase additional endorsements or addenda to address those perils.
Do not play it cheap with your insurance because it could end up costing you a whole lot more later. Be sure you are fully covered and your policy limits are adjusted to levels that will pay out enough to repair or replace what has been lost or damaged.
2. Insufficient Tenant Verification
Furnish each candidate with a suitable rental application form and have that person fill it out. Run a standard credit check before both parties sign the lease or you could be taking on that all too familiar headache. A credit score and payment history can be easily verified along with personal and/or professional references. From there, you can make an informed decision as to whether or not you should rent the property to that individual.
3. Expecting A Consistent Income
When a landlord assumes their rental property will be making a steady and constant income, they start to plan their own financial responsibilities around those earnings. Unfortunately, if a property goes vacant for even a month, that can have a drastic impact. So don’t make this mistake: Conduct an accurate cash flow assessment and put away some resources for that proverbial “rainy day” when your rental property sits vacant for any length of time.
4. Ignorance Of Tenants’ Rights
Even before your tenant signs any lease agreement, you are bound by certain federal, state and local laws with which you must comply. But too many landlords are not knowledgeable in these statutes, and they can find themselves in legal hot water. For starters, you must be in compliance with the Fair Housing Act, which prohibits you from discriminating against a client due to their race, religion, nationality, sex or disability.
Once you have a tenant living in your property, there are other protocols or procedures that you must abide by, covering topics like rent collection and proper storage of a security deposit, times when you are allowed to enter a unit, walking in unannounced and legal procedures for eviction. All of these are important facets of the landlord-tenant agreement, and violating any of them could result in a legal proceeding against you.
5. Disregarding Tenants
Tenants are obligated to maintain the property to a certain point, but the onus falls on you to ensure the unit or dwelling is safe. If your tenants contact you about a leak or a broken fixture or any other issue that is your responsibility to fix, you should not neglect requests to repair or replace something in the property. Failing to address these matters hurts you as a property owner in that a small problem can become far worse (and more costly to repair) and impacts you as a landlord in that previous tenants may urge future tenants not to rent from you. Responsible maintenance is the duty of any landlord.
6. Failing To Enforce Leasing Terms
Too many landlords are worried that a tenant will not renew their lease if the landlord is strict about enforcing the terms of the lease agreement. These could include fees added to late rent payments or restrictions on pets. You and your tenant entered the agreement with full knowledge of the terms. It’s up to you (and only you) to enforce those terms; failing to do so sets a bad precedent.
7. Waiting Too Long To Evict
It’s the last thing any landlord wants to do because of the time, money and hassle that comes with the eviction of a tenant. This is another reason why you want to have a strong knowledge of your legal rights. Many landlords will delay the eviction process for as long as possible; they’d rather have the rent than an empty property. But sometimes a tenant isn’t worth the wait, and problems get so bad with this individual that you are left with no choice. Don’t wait. If you have decided it’s necessary, initiate an eviction filing as soon as you are legally able. It will be worth it in the long run and you can go about finding a new, more responsible and financially stable tenant a lot sooner.
With sufficient preparation and a commitment to their property and tenants, landlords can avoid several common mistakes and pitfalls.
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.