Avoid These Common Landlord Mistakes
By Paul Esajian on March 9, 2015
Owning a rental property can be an enjoyable and profitable experience. What can be better than having someone else pay down your mortgage every month? However, it can quickly turn into a nightmare if you do not know what you are getting into. There is perhaps no other area of the real estate business that can lead to as much frustration and liability then being a landlord. It is one thing to lose money on a rehab project, but it is another to have to deal with an eviction or be subject to a law suit. Owing rental property can lead to extraordinary long term wealth, but you will have to avoid some pitfalls along the way.
Instead of looking at comparable rents or thinking about what work needs to be done on the property, the very first thing you need to do is get a grasp of all state and local laws. Each town and state can have their own set of rules that you need to abide by. In some areas, you need to have an approval to rent to college students while in others your property needs to conform to strict rental standards. Never assume that you can do something with your property. Even though you are the owner, there are still rules you must follow. Before you do anything else, you should find out just what you can and cannot do.
In the rush of excitement to get your property rented as quickly as possible, it is tempting to agree to the first tenant that applies. While there are many good tenants, all it takes is one bad one to change your business. You need to instill and follow strict tenant application guidelines for every new lease. This means having each tenant complete an application and spend the time to follow up on the references and information enclosed. You can never ensure you will have a good tenant but there are clues on the application that can give you an idea on the strength of each applicant. While you may view this as unnecessary and time consuming, it is the most important thing you can do for your property. Tenants are the lifeline of your property. Without good tenants, it will quickly impact every other area of your business.
Even the nicest rental properties will see things happen that are out of the landlord’s control. As a landlord, it is important that you have people or reserves in place to handle these issues as they come up. If you have your tenant wait even a few days for you to repair a clogged toilet or to replace a broken window, they will quickly sour on the property. You never know when you will need an electrician or a plumber in a pinch, but it is important that you have people you can quickly call when you need them. It is also important that you continue to add to your reserve fund every month. There will be long stretches when you will never use these funds, but one day out of the blue the roof may start leaking or the furnace will suddenly stop. Without funds in place to repair or replace these items, you will be forced to take money from other accounts or cover these costs on credit. Neither of these options is very appealing, and both can set your business back. If you own rental property, you need to have a reserve fund and people you can call in a pinch.
If you own a rental property, you should expect calls on things that may not be important to you, but they are important to the person calling. Instead of ignoring your tenants call for a day or two, deal with problems as soon as they come in. This doesn’t mean you have to drop everything if the shower is leaking, but you should try to have someone at the house within 24 hours. Many tenants have never rented before, so it is important that you clearly define what your responsibilities are and what is expected from them. Each tenant is different, but all tenants will have some issues with the property. You need to expect phone calls or emails on everything from parking problems to dishwasher repair. If you focus on taking care of your tenants, they will go the extra mile in taking care of your property.
Finally, you need to treat each property like a business. This means keeping records of all expenses, having reserves, marketing and focusing on customer service. The minute you start to waiver on your policies or guidelines, you will start to see trouble. There will be times when you wonder why you are in the real estate business, but if you can get through those times you will realize all of the advantages of owning rental property. Being a landlord can be done in your spare time, but you need to treat it as if you were the CEO of your business.
There are many mistakes that landlords make every day that can be easily corrected. If you focus on these few, you will be off to a good start. Being a landlord can be taxing at times, but it also can be the most rewarding thing you do for your business.