Eleven mistakes inexperienced landlords make
By Katie Adams
Updated: Sep 17, 2009 10:00 AM EDT
As anxious as you may be to get a tenant in and paying rent, it's not
worth rushing ahead without checking their credentials first.
With the housing market collapse many investors who have been fortunate
enough to preserve their cash, or maintain access to credit, are snapping
up incredible deals on residential properties to try their hand at real
estate investing. (Find out how to stop chasing the market and start
leading it. Check out 5 Things Every Real Estate Pro Knows.)
While it may sound easy enough -- buy a home, make a few renovations and
rent it out for more than the monthly mortgage payment -- successfully
managing your own investment properties requires the mindset of a business
professional. Without experience, it can be easy to quickly lose money,
time and sleep by making these common new landlord mistakes.
1) Not running adequate checks on a potential tenant
As anxious as you may be to get a tenant in and paying rent, it's not
worth rushing ahead without checking your tenant's credentials first. Use
a rental application form that will provide you with adequate information,
pay the money necessary to obtain a credit report (to check on a history
of late payments, delinquent accounts, etc.) and take the time to verify
references including employers and former landlords.
Even if the tenant is "desperate" to move in and can make the deposit
amount immediately, check out their background first. Don't allow yourself
to feel rushed or pressured into making a potentially costly mistake.
2) Thinking the property will always be rented
Before closing on a property you need to do your own financial due
diligence and ensure that you can pay the mortgage (if you're taking on a
loan) in the event that you have months with no tenant paying rent. Don't
risk potential foreclosure and financial ruin because you failed to do a
simple cash flow analysis and maintain sufficient funds to cover the
mortgage payments when renters are few and far between.
3) Underestimating the cost of repairs or ongoing property maintenance
In order to keep tenants interested in (and paying for) the property you
will need to maintain it. Make sure you're charging enough in rent to at
least help cover a portion of ongoing maintenance costs (i.e. painting,
cleaning and carpet cleaning between tenants).
Also plan on having to pull money either out of the business or your own
pocket in the event that you don't have the cash needed to make major
one-time repairs (such as repairing structural damage, replacing
appliances, etc.).
4) Viewing it as a hobby
Owning rental properties is a business and in order to turn a profit
you'll need to operate it as such. That means establishing separate bank
accounts for deposits and expenses, using a bookkeeping system and
consulting a tax professional to ensure you are correctly handling (and
paying!) taxes on your business.
If you don't set yourself up with the necessary resources and
relationships you will most likely end up losing money. (Learn how fixing
a few pipes can be more profitable tax-wise than adding a new roof. Read
Tax Deductions For Rental Property Owners.)
5) Relying on a handshake
In business you can't rely on promises. For your own legal protection it's
essential that your tenants sign a lease agreement to reside in the
property and ensure that he or she understands the terms of the contract.
If you run into problems with your tenant you will need written, binding
documentation (i.e. a lease) in order for the judge to make a ruling. Know
your state's laws regarding leases and ensure that you use an appropriate
form for your state. FindLaw.com has compiled a state-by-state listing on
lease and rental agreement laws.
6) Asking illegal interview questions
You don't want to run the risk of giving a potential tenant sufficient
grounds to sue you for discrimination by asking the wrong questions during
the screening interview. The Fair Housing Act of the Civil Rights Act of
1968 requires that you cannot deny a tenant's application based on race,
color, religion, national origin, sex, marital status, handicap or family
status (i.e. if they plan on having children). Learn more about federal
and state fair housing laws through the Office of Fair Housing and Equal
Opportunity website.
7) Neglecting tenants
The home(s) you are renting out are your responsibility. If you do not
regularly check in with your tenants and on the condition of the property
you will have no one to blame but yourself if something goes wrong.
However make sure that you are not violating your state's laws regarding
tenant privacy before stopping by the property unannounced. You may
inadvertently give them the right to sue you or be released from the terms
of your lease agreement.
8) Not meeting state and local housing codes
As a landlord you're required to make sure the property meets health and
safety standards. If you don't take care of your end of the legal bargain
your tenants may have grounds to break the terms of your lease agreement,
potentially sue you and even to be legally entitled to compensation for
damage or injury due to your neglect.
9) Delaying an eviction
Not beginning eviction proceedings as soon as legally possible can be a
very costly mistake. If you run into problems with a tenant and are unsure
about your rights or how to proceed, contact an eviction attorney as soon
as possible. (Want to learn more? Read Tips For The Prospective Landlord.)
10) Not enforcing lease terms
If you outlined that late rent payments would incur a penalty, charge it.
If you noted that no pets are allowed and your new tenant buys a Great
Dane, enforce the penalty. If your tenants realize that you lax about the
terms of the lease they will likely follow suit. Set -- and enforce -- the
standard you want upheld.
11) Not writing it down
It's essential that you keep written documentation of interactions with
your tenants in the event that you ever need to take him/her to court.
Note phone conversations and keep copies of emails, voicemails or text
messages, etc. to be able to support your allegations.
If you are unsure about how to successfully start your career as a
landlord, or fear that you may not have the time necessary to perform the
job well, consider working with a professional property management
company. Interview several companies, check out their backgrounds and
references and ensure that, like your tenants, you understand and agree to
the terms of a contractual relationship.
*Note: never underestimate the value of a good Property Manager. Check
references or their Testimonies
online and get the job done right. It can save you thousands of dollars
over time and more headaches than you can imagine.
This note added by; Don Leske II / BCI Properties, LLC a
Full Service Management Company.
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