Top 10 Mistakes Landlords Make
Here are 10 of the most common mistakes landlords make and how to avoid them.
1. (Not) Understanding your local marketThe three most important words in real estate investing continue to be location, location, location. This is two-fold: First, it means making sure your rental is in a desirable area so you can attract more potential tenants. Just because the price is right doesn’t mean that the location is. Get to know the neighborhood, including access to transportation, grocery stores, area features and businesses. Second, understanding your location means learning about the dynamics of the local market, researching area taxes and determining what you can charge for rent — all of which are key to estimating the return on investment for your property.
2. (Not) Understanding fair housing lawsBefore you start looking for tenants, you need to understand fair housing and discrimination laws; otherwise, you risk getting into legal trouble. Fair housing laws are federal statutes that ensure equal access to housing for everyone. It is illegal to discriminate against anyone on the basis of race, color, religion, national origin, sex, familial status or disability. Many local and state governments have additional protections that you’ll want to become familiar with. A general rule of thumb is to focus on the property and amenities in your advertising and conversations — not on a group of people, who you think the ideal renter would be or features geared toward a specific group. The bottom line is to treat and communicate with every applicant and renter in the same way.
3. (Not) Putting your best marketing foot forwardWhile advertising a rental property may not be as sexy as advertising a hot new car, there are many similarities. Just like the best product ads, you’ll want to feature high-quality photos of your rental — and the more, the better. It’s worth the expense to have professional photos taken during the spring and summer months so your property looks its best. You’ll also want a clearly written, accurate and error-free description of the property and amenities.
4. (Not) Conducting a thorough tenant screeningWhile speed is important in filling your vacancy, you still want to choose a highly qualified renter. Create a documented process and criteria for finding, screening and securing a tenant. Make each potential renter fill out an application and verify everything from employment to past addresses (and get landlord references while you’re at it). You’ll want to perform a tenant background check and run a tenant credit report. Confirm that renters have paid the rent on time and have not caused problems for their previous landlords or employers.
5. (Not) Completing accurate leasing paperworkA 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 on 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. You can find many generic leases online, but you’ll want to review the lease requirements specific to your state or municipality and incorporate them into your rental agreement. Have it examined by a legal professional to ensure that the terms protect your interests and comply with local and state regulations.
6. (Not) Knowing your landlord responsibilitiesSecuring 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, keep tabs on 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 that you keep up on your taxes and financial reporting. Neglecting your residents and your property can result in higher turnover, more vacancies, lower cash flow or even lawsuits.
7. (Not) Anticipating maintenance costsBe 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.
8. (Not) Knowing when to hire a professionalIf you live in the area, are handy around the house and have the time to quickly respond to requests, you can keep up with some of the general maintenance and management of your property. However, if you have several properties or are juggling an investment on top of a full-time job, 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 a tenant leaves, you might want to hire a contractor to make significant improvements or repairs.
9. (Not) Managing your time efficientlyFor many landlords, managing even one investment property can be a full-time job. Between securing a tenant and keeping up the books, you should understand that any investment property is a big time commitment. No matter how much you love what you do, make sure to take time for yourself and create a list of people you can rely on for backup. Having a network of people who can help in a pinch is important for the maintenance and safety of your property.
10. (Not) Treating your rental like a businessHowever you got into landlording, your rental property is a business — and you need to treat it that way. Consider setting up a Limited Liability Company (LLC) for ownership. This can help protect you personally from legal actions or claims. In addition, 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. When you’re renting a property, you will hear a lot of different stories, and some of them may be sad. There are many opportunities to help your community, but you want to make sure any action you take makes good business sense. Successful landlords leverage skills from many different areas: customer service, marketing, accounting and home repair, among others. Reduce the risks that come with being a landlord by educating yourself and networking with other experienced landlords and related professionals. Join local or national landlord associations to keep up with changing rules and regulations, and share your experiences, so you can avoid the most common landlord mistakes.
*Even though we know a lot about rental marketing, we’re not lawyers. This resource is not a substitute for the advice of an attorney; you should not rely on this resource for any purpose without consultation with a licensed attorney.Resource: Zillow