Many people have decided that they want to take their financial future into their own hands by investing in real estate and then becoming landlords. While this can be a fantastic way to increase your wealth, being in charge of the property and handling tenants is not always easy, at least for those who are just starting out in this field. It is important to look at some of the biggest mistakes that landlords are making today so you can avoid these problems.
Mistake #1: Choosing the Wrong Property
When new landlords are buying their first investment property that they plan to use as a rental, they do not always think through the purchase as much as they should. Just having a great location is not enough. You need to take time to run the numbers and make sure that the property is going to make money for you, or at the very least, pay for all of the expenses.
Consider the mortgage cost you will be paying, and then consider all of the other fees you will have to pay. This can include property taxes, HOA fees, and the like. In addition, make sure you are considering how much the property will take to maintain, and factor in for unexpected repairs.
Then, check to see how much rent is for comparable properties in the area. Will you be able to make enough money on the property when you charge the going rental rate for the area? If not, you will want to move on to find a better property.
Mistake #2: Choosing the Wrong Tenants
New landlords who have bought a property are always excited to have tenants into the home as soon as possible. They know that each month they have a vacant unit they are spending extra money. However, this does not mean you should allow just anyone to live on your property.
It is essential that you put in the effort and take the time to do a full background check on the tenants. Do they have enough income to pay for the rent? Check to be sure they are actually employed, and get in touch with their prior landlords to see whether they were paying their rent on time. Were they problem tenants? Were they abrasive? Did they pay their rent on time?
To make things easier on yourself, you might want to hire a company that can take care of the background checks and help you find great tenants. In fact, working with a property management company can help you to deal with many of the common mistakes that landlords make.
Mistake #3: Wasting Too Much on Unneeded Upgrades
You want to have a home that is nice and that is habitable by your tenants. Everything should be in working order on the property, and you might want to make some upgrades. This can entice tenants, and it can keep your current tenants happy.
However, you do not want to make the mistake that many inexperienced landlords make by spending too much on upgrades. The rent that you can charge is not based on the landscaping, but rather market conditions. When you spend too much on upgrades, it can take years for you to make that money back.
Mistake #4: Not Using a Lease
This is a massive problem, and even though it is not overly common, it does happen. You need to have a lease, which is a legal contract that will protect you and the tenants alike. Most landlords know that they need to have a lease when they are dealing with tenants they do not know. Unfortunately, some new landlords feel that they could rent the place to their friends and family without needing to go through the formality of a lease.
This is a big mistake. While you might have great friends and family that you love and trust, this does not mean they are always going to make great tenants. If there is no lease, there is a huge potential for issues to arise, and this includes the potential for legal problems. A lease will save you the headache.
Mistake #5: Not Checking on the Tenants
You do not want to hover over your tenants and watch their every move, naturally. However, you do still want to check in on them occasionally. Ask them if they are having any issues with the property, for example. In addition, request to come by ever couple of months to check in on the property.
While most tenants are going to be great, there are some tenants that will cause property damage, and that will not take good care of the home. You want to find these problems sooner rather than later.
Mistake #6: Not Being Consistent on Rent or Rules
You have the rules and regulations in your lease for a reason. You expect the rent to be paid on time, and you expect that the tenants will follow your basic rules, whether you don’t allow pets or you need them to take care of the lawn. When it comes to these rules, and the date of the rent, you need to be consistent. In some cases, when a tenant has a serious problem with the rent for one month, it could be possible to provide them with some leniency, but this should be a one-time affair.
They need to know that you are serious about these rules, and you should not be afraid of eviction if you find that you have problems with your tenants. It is not a nice process, but it might be the best solution in some instances.
Being a landlord can be fantastic. It’s relatively easy, and it is possible to avoid the biggest mistakes that landlords tend to make when you keep this list in mind. In addition, consider giving some serious thought to working with a property management company. It might cost a bit more, but they can take care of so many problems that many landlords find that it is well worth the cost.