Like any business, managing a rental home also exposes one to mistakes. While it’s easy enough to purchase a property and convert it into a rental, the reality of being a landlord is challenging.
First-time landlords can commit a couple of mistakes, from mild inconveniences to errors that can make or break your real estate investment. Consider the following errors in order to prevent experiencing costly mistakes:
1. Lack of Thorough Tenant Screening
When your rental unit has been vacant for some time or you’re a first-time landlord, it can be exciting when a prospect wants to move in right away.
However, it’s vital to conduct tenant screening no matter how much you want to start earning an income. Why? You might end up spending a lot on the eviction.
Tenant screening helps you identify if an applicant is a potentially good tenant. You can check the credit reports, source of income and tenant history.
This will give you a fair idea of whether it’s wise to accept the tenant. Otherwise, it might cost you a lot to repair excessive property damages or be at risk for not being paid.
2. Being Overconfident in Having a Fully-Occupied Rental All the Time
There’s nothing wrong with having a positive mindset, but it’s also important to entertain reality. Factors outside of our control, such as a tenant moving out, can occur.
If you took on major loans and rely on the rental income for payment, this might be risky for you. Have other income sources so you’re sure to meet monthly bills and loan payments.
Economic downturns happen and you might find yourself with an empty rental. Having some funds to spend on maintenance expenses is crucial.
Think of moments when you’ll be facing this kind of situation. Prepare for the worst mentally and avoid overextending your credit line without other income sources.
3. Low Budgeting for Property Maintenance and Repairs
As a landlord, you need to be savvy with your finances. Having a budget for maintenance and repair will serve you well. You won’t be caught empty-handed when a mold problem or pest infestation turns up. You can use your budget to resolve maintenance issues right away.
If your budget is too small for maintenance, your rental business could be affected. Delayed repairs make for unhappy tenants. Not only that but your property would also look worn and unattractive. Your renters might move out, making it hard for you to find new ones.
Having a ready budget allows you to gain peace of mind in knowing you can resolve any property issue.
4. Treating Rental Management as a Hobby
Running a rental business is a serious affair. This means being organized and keeping track of your finances. It’s vital to have an accounting system to know where your money is going. Hire a bookkeeper to record figures accurately. You’ll also breathe easier come tax season.
Downplaying your rental business as a hobby can result in potential loss. You’ll have a hard time measuring your profitability. You could mismanage your time and resources. Renters can often sense if a landlord is managing a rental well.
5. Being Ignorant of the Fair Housing Act
When screening your tenants, landlords often hold interviews. This is part of the process. However, you also need to mind the type of questions you’re asking. As such, it’s best to learn more about the Fair Housing Act.
Enacted in 1968, the Fair Housing Act serves to reduce discrimination based on race, disability, religion, color, national origin, sex and familial status.
So avoid asking prospects questions related to their faith or if they own a service animal, for example. Being careful lets you avoid being sued and paying for penalties.
6. Being an Inattentive Landlord
Landlords have responsibilities towards making the rental property safe and habitable for the renters. At the same time, they must also provide quiet enjoyment.
If you’re guilty of neglecting your duties or disrespecting your tenant’s privacy, you might deal with an early breaking of the lease. Worse, your tenant can sue you.
Always be mindful of your duties and follow the state laws. Avoid putting your renter’s health on the line. If your renters have maintenance requests, be prompt in resolving them. If you take good care of your property and tenants, you’ll be rewarded with loyalty and continuous income.
7. Only Having a Verbal Agreement
Since a rental is a business, it should naturally have proper documentation. To protect yourself, always prepare a leasing agreement for a tenant to sign. You can’t trust spoken words because they can be hard to prove in court.
A good leasing agreement will cover the terms and conditions of the contract. If issues crop up, you can always refer to the stipulations of the signed agreement. It acts as a guide for the renter to check what’s required as a tenant.
8. Overlooking Policy Infractions
It’s understandable that landlords want to be flexible, but make sure to observe boundaries and limits. If your leasing agreement states that no pets are allowed, tenants must comply. If you notice that some tenants are starting to foster a pet, remind them of the rule.
Being too obliging as a landlord can result in your policies not being followed. If you’re not firm with one tenant, others may follow.
For example, you accept one tenant’s delayed payment without consequences. Your lease stated that a late fee must be collected and you didn’t impose this. The other tenants might hear of this situation and will not bother to pay for late fees also. They could also start paying late as there are no penalties involved.
Mistakes are part of operating a business, but it’s important to be cautious. You wouldn’t want negative situations to occur such as tenants moving out, facing a lawsuit or incurring a business loss.
Most mistakes are preventable, so be more aware of landlord-tenant laws and creating a solid leasing agreement. Avoid being too complacent and not entertaining minor issues that could possibly blow up. Be a conscientious landlord.
If the risk of mistakes feels too daunting, you can always find help through an experienced property management company like RentEasy.