Owning and managing rental properties may seem straightforward at first glance – find tenants, collect rent, and handle maintenance. However, the reality is more complicated and filled with potential pitfalls that can lead to significant financial consequences. When investing in rental properties, the primary focus is often on ROI (Return on Investment). It’s entirely reasonable, as real estate investors aim to generate a reliable passive income. Yet, errors in property management can result in lost revenue, legal troubles, and various challenges.
Successful property investors have essential tools in their arsenal, and one of the most crucial is leveraging professional property managers to handle the demanding tasks. This article is here to highlight the top nine common mistakes made by landlords. By understanding these errors and learning how to avoid them, you’ll be better equipped to safeguard your investment and maximize returns. Continue reading to gain the vital knowledge needed for success in property management.
I Don’t Need a Professional Property Manager, I Can Manage It Myself
This is a common mistake that many new landlords often make. They find themselves dealing with more responsibilities than they initially expected when they signed up for the job.
Managing a rental property goes beyond rent collection. Property management is not for everyone. Meeting the demands of a rental property involves expertise and time.
Ask yourself some important questions before you decide to handle your rental property independently. For instance:
- Do you know how to handle repairs and maintenance?
- How will you collect rent from your tenants?
- Can you commit the time required for landlord responsibilities?
- Are you familiar with federal, state, and local landlord-tenant laws?
- Do you know how to screen tenants?
- Can you handle late-night calls by your tenant?
These are just a few questions to help you assess your suitability to manage your property. If you answered “yes” to most, then you are likely up for the challenge of self-managing. However, if your answers are mostly “no,” it’s better to hire a professional to manage your property.
Overlooking Tenant Screening
Having a trustworthy tenant is worth gold in property management. They pay rent promptly and take good care of the property, reducing the need for repairs. Yet, some landlords hastily screen tenants to fill vacancies fast, resulting in potential issues.
However, we suggest choosing professional property managers to carry out this task as tenant screening requires:
- Credit checks
- Background checks,
- and collecting references from previous landlords.
Tenant Screening properly will spare you headaches in the long run.
Neglecting Property Maintenance
Another common mistake landlords make is not keeping up with proper property maintenance. It’s crucial to ensure the property stays in good shape, making it appealing to potential tenants and maintaining its value over time.
Regrettably, many landlords either neglect property maintenance entirely or only do the bare minimum. This results in rapid deterioration and reduced property value. Moreover, tenants are less inclined to rent from a landlord who doesn’t prioritize property care.
Set aside money for routine upkeep and repairs on your rental properties to avoid making this mistake. Working with a qualified property manager to do these duties quickly is advisable. You can guarantee good property maintenance this way without adding to your stress.
Inadequate Insurance Coverage for Your Property:
Many landlords try to save money by getting less insurance than they need. Some might even have the wrong kind of coverage or forget to buy extra protection, which can be detrimental in the long run.
Most rental property insurance plans include coverage for the property and liability.
- Property coverage helps if something happens to the building, like damage or loss.
- Liability coverage helps if someone gets hurt on your property.
But not everything is covered. So, if something like an earthquake, flood, or vandalism happens, you might have to pay for it unless you get extra coverage.
Relying on Handshake Agreements
For your legal protection, your tenants must sign a lease agreement before living on the property, and they must understand what the contract says.
If issues arise with a tenant, you’ll need written, official documents, like a lease, to take any legal steps.
Before purchasing a property, familiarize yourself with your state’s laws on the rights and duties of tenants and landlords. To avoid this mistake, a professional property manager can be a valuable ally as they are well-versed in the legal ins and outs of renting out a property.
Unlawful Terms in a Rental Agreement
A residential lease should follow state and federal laws, and there are a few mistakes landlords should avoid:
- Including unfair conditions in the rental agreement,
- Making tenants give up their right to get back their security deposit,
- Forcing tenants to give up their right to sue the landlord.
Breaking these rules might lead to a lawsuit.
Neglecting a Backup Plan for Empty Units
Another mistake some landlords make is not having a backup plan for vacant units. Even great properties can have empty spaces occasionally, and it’s crucial to be prepared for such situations.
Many landlords either lack a vacancy backup plan or have an insufficient one. Consequently, they might lose money on their rental properties or face costly repairs.
To avoid this misstep, ensure a reliable vacancy backup plan is ready before the need arises. This could mean having a reserve fund to cover lost rent or unexpected costs or teaming up with a professional property management company that can swiftly fill vacancies.
Asking Biased Questions
According to the federal Fair Housing Act, landlords or property managers cannot deny renting a property based on discriminatory factors such as
- National origin,
- Gender identity,
- Sexual orientation,
- or familial status.
These have nothing to do with a tenant’s renting agreement. Landlords should steer clear of any questions or discussions that might hint at discriminatory motives. Tenant screenings, which include rental applications, can focus on unbiased aspects like
- Background checks
- Job history
- Past evictions
There is a minor difference in the selection of words that put your script totally off or on.
Failing to Think Long-Term
Making a few of the above-mentioned mistakes can often force investors to sell their properties prematurely. Sadly, this tends to occur when the market is at its worst, leading to selling at a loss.
On the flip side, smart investors adopt a solid strategy employing professional property managers. This approach enables them to expand their portfolios and hold onto their investments for the extended period needed to build genuine wealth.
Building a successful property investment story involves several key elements. If you’re new to real estate investing, consider hiring a professional property management company to guide you. Reach out to experts at Individually PM, as they can manage your rental property efficiently with their extensive experience.