Investing in a rental property is a good way to create a passive stream of income and build wealth over time.
But it’s also important to understand that buying a property and managing it are two different things.
If you’re just starting out in the rental business, there are a few things you need to know. And the more you know about property management, the fewer mistakes you’ll make.
So, keep on reading to find out about some of the most common rental property owner mistakes and how you can avoid them.
1. Doing everything on your own.
To run a rental property successfully, you need some prerequisite skills, and experience.
These will help you navigate any complex issues that could arise during the course of your career as a landlord.
For example, without knowledge of the landlord-tenant laws, you may find yourself battling a lawsuit in court.
If you find yourself without the time to acquire this know-how, then hiring a professional may be the wise thing to do.
And this applies to performing your own repairs and maintenance chores as well.
Even though it might look simple enough on YouTube, you could be left with more damages (and a larger bill) at the end of your DIY.
2. Failing to set clear and specific boundaries.
Managing tenants isn’t always a walk in the park.
This is especially true if you fail to set clear and specific tenant rules.
Sadly, this is a mistake that far too many landlords make. The consequences of this slip-up are often costly and a huge waste of resources.
To protect yourself, set clear and specific rules in your lease or rental agreement.
For example, in regard to rent, make sure to cover details such as:
- The amount of rent due at the end of the month
- When the rent is due. In most cases, this is typically on the first of the month
- The amount of grace period, if applicable
- Penalties for bounced checks
- The amount of late fee and when it comes into effect
- Acceptable payment methods
3. Setting the wrong rent prices.
Charging the wrong amount for rent can have a devastating effect on your investment.
Charge too little and you may end up in a negative cash flow situation. Charge too much and you can have a difficult time filling your vacant rental units.
Generally speaking, you can tell if the rent isn’t right if you see any of these 3 red flags:
- One, if the turnover rates are especially high
- Two, if you find it difficult to fill your vacancies
- Or three, if you receive complaints about the rent being high
4. Trying to resolve maintenance issues on your own.
When getting started, you may not see the need to hire experts to fix things at your property.
After all, it’s the goal of any investor to minimize expenses.
But, as briefly mentioned in the first point, if not handled properly, small repairs and maintenance issues can evolve into bigger problems.
You may end up paying more than what you could have spent if you hired an expert in the first-place.
Failing to handle repair and maintenance issues in a timely manner can also lead to bigger problems.
For example, you may find yourself on the wrong side of the law. Remember, as a landlord, you are responsible for ensuring your property meets habitability laws.
This could also cost you a few good tenants. Good tenants expect a landlord to look after the property, fix structural issues and ensure it is well-maintained inside and out.
If your property requires repairs and maintenance, make sure to hire the right people to get it done right the first time.
5. Failing to have an insurance policy.
When the unimaginable happens, your best defense against financial ruin is by having an insurance cover.
Sadly, not all rental property investors understand the importance of this safeguard. Leaving them vulnerable if/when a disaster strikes and destroys their investment.
Having a landlords’ insurance will help protect you from financial losses.
Depending on your area, examples of such disasters include storms, floods, and fires.
6. Failing to know the law.
The relationship between landlords and tenants is one that is guided by many laws and regulations.
Knowing these laws is essential to running a successful rental venture. Some of the laws include:
- Tenant privacy laws: Tenants have a right to the quiet enjoyment of their homes. To access the rental unit, the law requires you to give your tenant adequate notice first.
- Security deposit laws: Depending on the state, these laws guide the use and return of security deposits.
- Eviction laws: To successfully evict a tenant, you need to follow the law to the letter. You cannot do such things as changing the locks, turn off the heat or electricity, remove the front door, or take the tenant’s belongings.
- Habitability laws: These laws require you to provide a liveable, safe and clean property to your tenants.
- Disclosures: Most states also require landlords to make certain disclosures to their tenants. For example, disclosures on potential or safety hazards like lead-based paint or mold.
- Fair Housing Rules: Enacted in 1968, these laws protect tenants from any form of discrimination based on certain characteristics, including: sex, disability, familial status, national origin, and gender.
Please note that these laws vary depending on the state.
What may apply in other states may not be applicable in yours. Make sure you do your homework thoroughly.
7. Forming unhealthy relationships with tenants.
Having a relationship that is good and friendly with your tenants is important for your rental’s success.
However, the last thing you want is being too nice to your tenant to a point that they start taking advantage of you.
Your tenants may become careless and irresponsible in regard to the lease or rental agreement.
To prevent this from happening, set your expectations and boundaries up from the beginning.
Let them know what the lease or rental agreement requires of them and what happens if they don’t adhere to it.
Managing tenants isn’t always an easy task.
That’s why many property owners turn to property management companies to manage their rental properties for them.
A qualified property management company will help you to collect and optimize your ROI by avoiding these common mistakes.