People enter the landlord business for many different reasons. Maybe it’s by accident, maybe it’s by necessity, maybe you gained a property through an inheritance, or, maybe you diligently researched properties for sale and chose to purchase one (or more) as an extra source of income. Regardless of how or why you became a landlord, it can either be a profitable endeavor or a costly one. Here are some of the common pitfalls to avoid.
1. Not understanding your local market.
As a landlord, you want to make sure your rental property is in a desirable area that can attract a number of potential tenants. Just because the price is right doesn’t mean the location is. Get to know the neighborhood, learn about the local market, and understand what the market rents are.
2. Not understanding fair housing laws.
Before you start accepting rental applications, you need to understand fair housing and anti-discrimination laws. It is illegal to discriminate against renters and rental applicants on the basis of race, color, religion, national origin, sex, familial status or disability and there are protections in place for this. Rule of thumb – focus on the property and the amenities in your advertising and be careful about what you say. Did you know you cannot discriminate against those with Section 8 housing vouchers or a certified service or support animal?
3. Not marketing in the best light.
Just like any product advertising, in marketing your property for rent, you are selling a product. The product is oyur property, the amenities, and the lifestyle. You’ll high-quality photos and a virtual tour. You’ll also want a clear and concise description of the property and its amenities that is accurate and grammatically correct. You’ll also want to make sure your listing is posted on all the major consumer sites.
4. Not thoroughly screening applicants.
While you may want to minimize vacancy, you don’t want to be hasty in your decision-making either. It’s crucial that you properly screen each applicant by verifying income, running a hard credit check, criminal background check, etc. Ask each potential renter to complete an application and verify employment and residence history. Check landlord references and confirm renters have paid the rent on time.
5. Not completing an accurate lease agreement.
The lease is a binding, legal agreement between you and the tenant. You’ll want to make sure it thoroughly addresses the rules, policies and conflict resolution procedures and clearly defines tenant and landlord responsibilities. Make sure to put EVERYTHING down in writing. It may be worth the extra cash to have it examined by a legal professional as well to ensure that the terms protect your interests and comply with local and state regulations.
6. Not knowing your responsibilities as a landlord.
Securing a tenant for your property may feel like a win…but, your job is not over. As a landlord, you must uphold your responsibilities per the lease agreement. Check in with your tenants and stay aware of the condition of the property. Complete regular preventative maintenance and respond quickly to requests. Neglecting your tenants and your property may result in higher turnover, more vacancy, less rental income and potentially even lawsuits.
7. Not preparing for maintenance costs.
Be prepared for the possibility that your property won’t always be occupied and that unexpected maintenance costs may arise. If you aren’t able to fill a vacancy right away, do you have enough cash set aside to pay the mortgage? What if a major system or appliance in the home fails during a tenancy? Do you have the spare cash to repair it for them? Part of owning a rental property means there are always unforeseen expenses at one point or another. Establish a budget for yourself so you’re prepared when such costs do arise.
8. Not knowing when to hire a professional.
If you live in the area, are handy and have extra time on your hands, then you may want to manage your property yourself. But if you live out of the area, have more than one rental property, and a full-time job, it is in your best interest to hire a professional. A good property manager will take professional photos of your property, market it on all the major rental sites and in the MLS (multiple listing service), thoroughly screen applicants, complete the proper, legal lease agreement, manage tenant (and landlord) expectations, handle maintenance items, and keep up with property accounting. The best property managers will even minimize your vacancy period and get you more in rent.
9. Not efficiently managing your time.
For many landlords, managing even one investment property can be a full-time job. Managing an investment property is a big time commitment. So make sure to take time for yourself and create a list of people you can rely on for backup.
10. Not treating your rental like a business.
Regardless of how you became a landlord, your rental property is a business and an income source — and you need to treat it that way. If you’re managing it yourself, you may want to look into getting an accounting software that will help you in accounting for all your income and expenses on the property. You’ll also want to be sure to document all paperwork and communications with applicants and tenants.