9 Common Mistakes New Landlords Make
Renting out a property for the first time is stressful and exciting. A lot of new landlords see dollar signs wherever they look and jump in with both feet. When the market is hot, it’s easy to believe that all you have to do is post your rental online and the rest will take care of itself.
It doesn’t quite work that way.
There are a lot of potential pitfalls that trip up new landlords. Before you know it, you’re losing money, your property is damaged, or you’re getting sued. Okay, so that sounds like the worst case scenario, but it happens more often than you realize.
If you’re a new landlord, make sure you avoid these nine mistakes.
Not Screening Your Tenants
The screening process tells you whether you want to rent to potential tenants or not. Criminal background checks, credit checks, income verification, and checking references will give you an idea if this tenant will be a good renter or not. Skipping this means you don’t know what kind of renter you’re getting, and it might be an unpleasant surprise.
Using a Bad Lease Agreement
The worst lease agreement is no lease agreement. The second worst lease agreement is the one you buy off a shelf at Office Depot or the one you find in a Google search. Your lease agreement should be specific to your property and outline all of your policies from pet to repairs to renovations and upgrades -- and what happens when the rules are broken. A good lease won’t have loopholes and will help you if you have to evict later.
Charging the Wrong Rent
Before you rent your property, you need to do market research so that you know the right amount to charge each month. Basing the rent off of your mortgage might mean that your rent is too low or too high. The rent you charge should at least cover your mortgage and basic repair costs, but ideally it should help put a little money in your pocket, too. But if you don’t charge the right amount, you might not be able to rent it at all.
Underestimating the Cost of Repairs and Maintenance
Regardless of the rent you charge, you’re going to have to plan very carefully for repairs and property maintenance. These aren’t expenses you can skip, and they almost always cost more than you think they will. You have a responsibility to take care of the property, fix problems, and keep it livable. You need a budget for repairs, and it’s always better to overestimate rather than skimp.
Believing You’ll Always Have Tenants
If renting your property the first time felt almost effortless, that’s great! But it’s not going to be like that all the time. Even the best tenants will move away eventually. You need a solid marketing plan to put in place the moment you know you’re going to have a vacancy. Ideally, your new tenants will move in as quickly as possible after your old tenants move out. But without a solid plan, you could be stuck with a long-term vacancy and no income.
(Unknowingly) Breaking the Law
Under the Fair Housing Act, there are very specific things you can’t do or say as a landlord. You can’t lie and say a property isn’t available because you don’t want to rent to a “certain” type of person. You’re also not allowed to ask if a potential tenant is married, whether they have kids, if they have a disability, or what religion or ethnicity they are. You’re supposed to be fair and impartial to all potential tenants. Get caught asking the wrong questions or giving bad information, and you could be out of the landlord business very quickly.
Only Making Verbal Agreements
Everything you do should be in writing. This includes the lease agreement, any late payments or special options that you allow, and anything you give permission for your tenants to do. While a verbal agreement can be binding, it’s impossible to prove in court. You want proof on your side, especially if your tenants take your permission to do one thing and turn it into a bad habit or an expensive mess.
Neglecting Your Responsibilities
As a landlord, you have certain responsibilities and obligations to the property and your tenants. Your rental must be safe, livable, and taken care of. Your tenants must have running water and access to heat and air. When things break, you have to arrange for repairs. You’re also required to handle the security deposit in a specific way, notify renters of certain situations in writing, and follow the law.
Delaying the Eviction Process
Very little is more mysterious to a new landlord than the eviction process. It’s complicated and can be expensive. It’s understandable that so many people find it daunting. But when you delay, tenants can do more damage to your property and spend even longer not paying you. Better to evict them sooner rather than later so you can repair your rental and get better tenants in.
Feeling overwhelmed with all the potential mistakes you can make? Realize that you’ve already made a few? Work with a property management company that can help you avoid mistakes, keep good renters, and help you become a better landlord. Contact ERA American Real Estate today.