Landlords: Learning From the Mistakes of Others
Renters Warehouse Blog
Landlords: Learning From the Mistakes of Others
While most landlords are bound to make a few mistakes when they’re first starting out, the truth is that many slipups and mishaps can be avoided.
By being aware of common pitfalls that new –and experienced landlords alike often fall victim to, you can avoid the most prevalent, and painful mistakes.
Whether you’re an experienced landlord or new to the game, here’s a look at some common blunders that you’ll want to avoid making.
- Rushing to Fill a Vacancy
While there’s nothing wrong with wanting to keep your vacancy rates low, problems arise when a landlord is so rushed to fill a vacancy that they compromise on their standards.
“It is easy to drop your standards when a unit is about to become vacant,” writes Larry Arth, Founder, and CEO of Equity Builders Group Emotions. “Emotions take over and a prospect comes to you waving cash at you. Sure, they do not represent the perfect tenants, and their income is lower than I require, but they are nice people and they have the cash for the deposit and first month’s rent. Besides, I will start negative cash flow next week if I do not rent to them.”
However, Arth says, problems soon arise.
“Three months later, I struggle to collect rent, and month after month is a fight to get paid,” he continues. “I tell myself, “I wish I had held out for better tenants.” Like so many others, I have learned it is far better to have a few weeks of vacancy while finding the best tenant than to hurry and rent to a bad apple.”
Instead: Screen Tenants Properly
It’s important to realize that a vacancy is not the worst thing that could happen. Filling that vacancy with a tenant who does more harm than good would be far worse than letting the property sit empty for a couple of extra weeks. So take your time to vet applicants thoroughly, running them through an airtight screening process to ensure that only qualified candidates gain access to your home.
- Failing to Enforce Policies
As a new landlord, it can be tempting to bend the rules or let the late rent slide. It can also be easy to overlook contracts and rules; after all, what could possibly go wrong? You want to be nice, and your tenants seem decent. Why not just let it slide, just this once?
The problem, though, is that if you work with them once, it sets a precedent –and a tenant will often expect you to do it again. Additionally, once a tenant falls a couple of months behind on rent, it can be tremendously difficult for them to get caught up. Of course, there are some exceptions. Just make sure you carefully consider the implications before you start letting things slide.
Instead: Stick With the Contract
Having policies and procedures in place is a vital first step, but equally important, is upholding those policies. Consider having a late fee policy included in your rental agreement, outlining what the penalties are for late rent, and then make sure you charge those fees if a tenant is late.
- Doing It Alone
Many landlords start out doing it all; everything from tenant sourcing and screening to maintenance and repairs at the weekend. But while you can do it all yourself, at least in the beginning, once you have two or three properties under your belt it’s another story.
“Managing a property all by yourself without the help of a property management company will occupy so much of your time,” says Sterling White, experienced real estate investor who owns just under 400 units, “And the thing is, the amount of time that you put into chasing after rent, screening for potential tenants, and fixing the broken sink, you could easily have used to either educate yourself, perform research, or invest in new properties.”
Instead: Hire the Professionals
Experienced landlords often claim that hiring a property manager was one of their best moves. Don’t hire your best friend or neighbor, there’s more to successful property management than simply keeping an eye on things. A good property management company will advertise vacancies, screen applicants, collect rent, handle maintenance, and more. And when it comes to investing in a property that is outside of your city or state; a good property manager is especially invaluable. Not only will they be able to keep an eye on your property in your absence, but they’ll also be familiar with local and state landlord-tenant legislation; helping to keep you in compliance with the law.
- Getting Carried Away With Rent Prices
For most first-time landlords, there’s a certain level of pride that comes with owning a new property; especially if you’ve fixed it up and have it looking great. Additionally, if you’ve recently had to install a new roof or HVAC system, it can be tempting to up the rent a bit in an attempt to recoup the recent costs.
Instead: Be Realistic With the Rent
It’s important to ensure that you set your rent competitively. Too low, and there’s a chance that you’ll be losing money, too high and you risk higher-than-average vacancy rates. It’s vital to try to find the sweet spot for rent –not too high, not too low. When pricing your property, take a look at other, similar rentals in your area on Zillow and Trulia to see what they’re renting for. Remember: the market will ultimately determine the rent, not you!
- Not Accurately Estimating Repairs and Maintenance Costs
As a new investor, it can be easy to underestimate the costs involved with upkeep and unexpected repairs that arise.
Instead: Be Realistic With Pricing
It’s important to accurately estimate the cost of maintenance and repairs. This is especially crucial if you’re buying a fixer-upper property. In these cases, you’ll want to make sure you hire an independent inspector to assess the property first, to ensure that you’re clear on the extent of work required to get it into rent-worthy shape. When assessing a property’s profitability as a rental, you’ll also want to make sure you factor the cost of ongoing maintenance into your calculations. In most cases, you can plan to spend at least 1% of the property’s value on maintenance per year, but of course, the age and condition of the property will impact this figure as well.
- Treating It Like a Hobby
Another common mistake is neglecting to treat investment properties like the money-producing venture it is. But all too often, landlords treat their rentals like a hobby, something that they handle on the weekends. However, this mindset could prevent you from generating the type of returns that you could be –and could lead to some additional mistakes along the way.
“Know what hat you’re wearing,” says Mary Velasquez, Realtor, and former Landlord. Being a landlord is a job. You’re a landlord for the money, not for the friendship.”
Instead: Treat It Like a Business
If you want to find success with your investments, it’s important to treat your rentals like a business. Just like a successful business has financial goals and milestones, along with policies and procedures, your investment venture should as well. This means taking the time to establish clear investment goals from the start, along with establishing investment criteria; for instance, what type of returns would you like each of your investments to generate? 10%? 12%? 15%? How many properties will you need to invest in to reach your financial goals? Having policies, procedures, and a plan for management in place will also make it easier to scale your portfolio as well –since you’ll have already laid the groundwork, investing in additional properties will be far easier, and more feasible as well.
- Having a Lack of Knowledge on Landlord-Tenant Law
Finally, one all-too-common mistake that many first-time landlords make is neglecting to brush up on landlord-tenant law. Being a landlord, though, involves being aware of your responsibilities. State law varies considerably regarding issues such as security deposits, landlord access to the property, and evicting tenants –so you’ll want to make sure you’re familiar with the laws in your rental property’s state. Additionally, federal law requires landlords to offer fair housing, which means that there are certain procedures that you should follow in order to ensure that all applicants are screened fairly.
Instead: Familiarize Yourself With Landlord-Tenant Law
For landlords, it’s important to take the time to brush up on landlord-tenant law –at a federal, state, and municipal level. Being aware of your responsibilities will help you to create policies that are in line with the law, keeping you in the clear.
While there’s always a learning curve when it comes to being a landlord, this doesn’t mean that you have to learn everything the hard way. By learning from others who have been there, done that you’ll be able to sidestep many common issues, and set yourself up for rental property success.
Landlords: what’s one mistake that YOU’VE learned from?