Being a landlord can be a very rewarding venture. Done correctly, the right strategies can yield a constant stream of passive income, the building of long-term wealth, and the advantage of property appreciation. Even with such potential rewards, many landlords fail in their quest for success. As a matter of fact, a substantial number of landlords suffer setbacks that result in financial loss, tenant turnover, and even property damage.
Why do so many landlords struggle? The answer lies in a few very common mistakes that new and even seasoned landlords make. By understanding and avoiding these pitfalls, you can ensure that your property investments remain profitable, your tenants are happy, and your real estate business thrives.
In this article, we’ll explore the top mistakes landlords make and how you can avoid them.
1. Underestimating the Importance of Tenant Screening
One of the most important steps in property management is tenant screening. Renting to the wrong tenant can cause an avalanche of problems, from skipped payments of rent to property damage and legal issues. Unfortunately, many landlords overlook this step or base their decisions purely on emotions, such as wanting to fill the vacancy quickly.
Mistake to Avoid: Not thoroughly screening tenants. Forgoing credit checks, background checks, and reference checks can lead to disastrous consequences.
Solution: Always do a thorough tenant screening. Look for a good credit history, excellent rental references, and a clean criminal record. Also, be sure to verify income to make sure the tenant can afford the rent. This step, though time-consuming, may save you from many headaches down the road, such as non-payment of rent or eviction.
2. Setting Unrealistic Rent Prices
Setting the appropriate rent price is important to attract reliable tenants who will provide regular income. Most new landlords make the mistake of setting their rents too high to maximize their profits. Other landlords may set the rent too low; this can lead to lost income.
Mistake to Avoid: Either overpricing or underpricing the rent due to unrealistic expectations or lack of research regarding the current market.
Solution: Before setting your price, research the local rental market. Take a look at other similar properties in your area, considering factors such as square footage, amenities, and location. By setting a competitive rent price, you will attract quality tenants while still ensuring you are making a profit. You can also use tools like Zillow, Rentometer, or consult with local property managers to get a better idea of the going rates in your area.
3. Ignoring Maintenance of the Property
Many landlords consider maintenance to be an added expense or would rather not do it until something happens. Ignoring property upkeep will eventually result in much more serious problems later on. Regular maintenance not only helps preserve the value of your property but also ensures tenant satisfaction and prevents costly repairs.
Mistake to Avoid: Putting off needed repairs or skipping maintenance, such as HVAC inspections, plumbing checks, or pest control.
Solution: Adopt a proactive maintenance schedule to keep your property in top shape. Perform regular inspections of key systems, address small issues before they become bigger problems, and respond to tenant maintenance requests quickly. The cost of regular maintenance is far less than the cost of major repairs, such as replacing an entire HVAC system or fixing water damage caused by neglected plumbing.
4. Ignoring Legal Responsibilities
Owners need to keep a critical eye on various local, state, and federal statutes. It’s a big challenge to those who are not familiar with the law to provide legal oversight from fair housing regulations to eviction procedures. If these rules are not followed, major consequences include expensive lawsuits and fines and also eviction orders that can take your rental business to its knees.
Mistake to Avoid: Not knowing your legal requirements as a landlord, or not following the right procedures when addressing tenants.
Solution: Take the time to learn the laws that affect landlords in your area. Familiarize yourself with fair housing laws, eviction processes, and any local regulations regarding security deposits, rent control, or tenant rights. If you’re unsure, consult a real estate attorney or property management professional to ensure you’re on the right side of the law.
5. Inadequate Insurance Coverage
Insurance is one of the most important aspects of property management. Without the right coverage, you risk financial ruin if a disaster strikes. Many landlords make the mistake of choosing the cheapest insurance policy without understanding what it covers-or, even worse, failing to get enough coverage in the first place.
Mistake to Avoid: Skimping on insurance or failing to fully understand what your policy covers.
Solution: Buy comprehensive insurance to cover property damage, liability, and loss of rental income. Homeowner’s standard insurance would not work for a rental, and you should get landlord insurance. This will protect your interests in case of tenant damage, natural disasters, and even loss of income from vacancy and other causes. Always read the fine print and make sure you’re adequately covered.
6. Poor Lease Agreements
A well-drafted lease agreement is vital to protect your property and your rights as a landlord. Many landlords either use a generic or outdated lease template or, worse, don’t use a lease agreement at all. Without a clear lease, misunderstandings can arise regarding rent payments, maintenance responsibilities, and other key expectations.
Mistake to Avoid: Using a vague or incomplete lease agreement, or failing to have one at all.
Solution: Always use a comprehensive, legally-binding lease agreement that clearly outlines expectations, rent payment terms, maintenance responsibilities, and rules regarding property use. A well-written lease will help to avoid disputes, ensuring you and your tenants are aware of your respective obligations. Seeking legal advice in the preparation or the review of the document can help ensure it complies with all the legalities of your location.
7. Failure to Screen Vendors and Contractors
Whether it is a renovation, routine maintenance, or an urgent repair, the contractors and vendors are literally very important to the success of your rental. Unfortunately, most landlords neglect to take the relevant steps in properly verifying these professionals, which often leads to jobs poorly done, inflated costs, and even legal problems.
Mistake to Avoid: Hiring any contractor without checking their references or verifying that they have the proper licensing and insurance.
Solution: Research and properly screen contractors and vendors prior to hiring. Hire licensed professionals who have positive reviews and proper insurance. Get multiple bids for large repairs or renovations, and confirm the completed work is to a standard and/or to code.
8. Neglecting Tenant Communication
Effective communication with tenants is one of the best means to nurture a good landlord-tenant relationship, handle unwarranted complaints, and keep your house well looked after. A mistake commonly made by landlords is ignoring complaints from tenants, showing delayed responses, or failing to update them in regard to living concerns.
Mistake to Avoid: Poor or inconsistent communication with tenants may lead to frustration or misunderstandings.
Solution: Communicate with your tenants and get back to them as soon as possible with whatever they need or are complaining about. Call them regularly to ensure they are comfortable in the property, and fix any maintenance issues immediately after they arise. A good relationship with the tenants will increase retention and reduce tenant turnover.
9. Ignoring the Long-Term Financial Picture
Many landlords become too consumed with the immediate profits and lose sight of the long-term financial health of their properties. It’s one thing to keep the cash flowing, but it’s also important to think about the long-term goals of property appreciation, tax implications, and how to handle vacancies and unexpected expenses.
Mistake to Avoid: Focusing solely on short-term profits without considering long-term financial planning.
Solution: Consider a long-term strategy in your business of rental properties. Also, consider potential appreciation in property, tax benefits, and unexpected expenses due to major repairs or vacancies. It would also be smart to build up a reserve fund for months when your property might sit empty or if costly repairs were to be needed. In this way, a long-term strategy shields you from financial crises when the inevitable bumps occur.
10. Not Having a Contingency Plan for Vacancy
Vacancy is the sad reality of property management. Even with the best tenants, there comes a time when a tenant moves out or decides not to renew their lease. Some landlords make the mistake of not having a contingency plan for this and end up in a financial bind when a house sits empty for months on end.
Mistake to avoid: Poor planning around vacancy periods, not budgeting costs related to finding a new tenant.
Solution: Always budget for periods of vacancy. Even when your property is always occupied, it is very important that you plan for those times when tenants will leave. Consider the advertising cost, cleaning, and possible discounts on the rent to accommodate new tenants. The better prepared you are, the less likely you’ll experience a financial strain when a vacancy does happen.
Conclusion
Being a successful landlord requires more than just owning property; rather, it takes knowledge, strategy, and attention to detail. If you avoid these common pitfalls, you will increase your chances of success with your rental business. Whether it’s focusing on tenant screening, keeping abreast of legal requirements, or proactively maintaining your property, every step you take will ensure your rental business is a profitable, long-term one.
