There are seven common mistakes landlords make when renting their investment property. And as they say, if you have not made any investment mistakes you probably have not made any investments. This is as true of the property rental business as of any other business. However, learning from mistakes is the key to mastering your investment business. The great news is that you can learn from other people’s mistakes, and not have to make them yourself.
Common mistake #1: Rushing to fill a vacancy
New investors often make a bad judgment call, when they rush to fill a vacancy. In the rush to secure a tenant, it is easy to drop your standards when a unit is vacant, or about to become vacant. Emotions can take over when a prospect comes to you waving cash at you. This is one of the most common mistakes that landlords make.
You may forego the tenant screening process even though they do not represent the perfect tenants. If they come across as nice people and claim to have the cash for the deposit and first month’s rent, you may be tempted to overlook their financial background. And bother with checking their credit history and landlord references. Or, upcoming payments could result in a negative cashflow situation, further hastening the need to rent the property. These and other reasons may create a false sense of urgency, swaying you towards approving the first prospect that rings your bell.
However, just a few months later, these tenants may be unable to pay rent. And you may end up fighting for rent month after month, wishing you had waited for better tenants. In hindsight, it is far better to have a few weeks of vacancy while finding the best tenant. Rather than rushing into a deal and renting to a bad tenant. It is a good idea to follow a standard scorecard for the decision-making process, to rule out emotional factors.
Common mistake #2: Failing to maintain your rental property
Another common mistake that landlords make in trying to increase cash flow, is ignoring or postponing much-needed repairs to their property. To maximize your cash flow, you must maintain your property in great condition, at times. Or they opt for inexpensive “temporary” repairs on a property, often requiring multiple visits from craftsmen and handymen, who may still not be able to contain the problem. More so, when roofs or foundations require specialist repairs from duly qualified experts.
By ignoring essential and timely inspections, emerging problems can go unnoticed. Over time, they evolve into much larger and more serious issues, with the property developing a bad reputation with unhappy tenants. Frequent tenant turnover results in higher costs and lower cash flow. Repeated or poor-quality repairs damage not only the appeal of a property but also devalue its market value. Make it a habit to schedule regular inspections to check the state of the property and schedule the repairs and maintenance needed.
Mistake #3: Considering tenants just as a source of income
The investment property business is no different from any other business. It would help if you worked hard to find customers first and foremost. Then you need to treat them well, to retain them, in the face of competition. And finally, cultivate a long-term relationship, to earn their loyalty. New (or young!) landlords, often view their tenants merely as a source of monthly income.
However, in reality, they are like your partners and are an integral part of the business. They pay the rent that generates the income needed to keep your business running. So, you need to treat them as valued customers, and not just people renting out a room, or a property you own. By being attentive to them and their requests, you can make them feel like valued customers, who will willingly renew their leases year after year. Happy tenants will take great care of your property. Unhappy tenants will neglect or may even destroy your property.
Mistake #4: Not defining the rules
By not defining the boundaries, many tenants may seek to push the boundaries to see what they can get away with. This usually happens early on, during the tenancy period, but can also happen during a major property management event. So, it becomes a case of either you setting precedents, or they are.
It is always a good idea to list the expectations of new tenants, at move-in. You can do this when you do the walk-through inspection, as you can point out specific dos and dont’s, applicable to the exterior and the interior of the rental property. Make sure to have a “Rules of the house” manual, that outlines the parts from the lease on policy and procedures. It should highlight their role and responsibilities as a tenant, and yours, as a landlord.
Common Mistake #5: Befriending tenants
Landlords sometimes try to be friends with their tenants, for one reason or another. You want to like and trust each other, but as you are in a business relationship, you should keep it that way. Developing a close relationship with tenants makes it difficult to manage, with emotions interfering with logic. From a business person’s perspective, you must keep emotions separate from running an effective business. This is one of the more common mistakes that landlords make when renting out their property to tenants.
Common Mistake #6: Losing out on multi-year leases
Every landlord knows that tenant turnover is a costly business and the single most significant expense they encounter. The good news is that you can manage this expense, and do not need to carry it on your books, year after year. By identifying and qualifying good tenants who want to stay long-term, you can offer them two- and three-year leases, to lock in the revenue opportunity.
Another effective way is to build in rent escalator clauses to increase rental rates each year. In both ways, your cash flow will improve. Tenants who stay long-term will not have to worry about their move-out anniversary. You also want to treat these tenants well so they continue to renew leases. Maintain an open line of communication and be reasonably flexible with genuine demands.
Mistake #7: Thinking like a landlord instead of an investor
The most successful investors spend their time investing instead of being landlords. This is what separates successful investors from the ones who struggle to advance. As a licensed real estate agent, your client may ask you to manage their property. Whilst the added revenue opportunity may tempt you, managing property is a full-time position. Therefore, to effectively manage a property, you need to devote full-time attention to it, and something you cannot do as a part-time landlord!
How we can help
Hiring a reputable property management company can ensure your property is rented to the right kind of tenants. As experienced property managers, we can help you avoid the hassles of replacing tenants every few months. By thoroughly vetting potential renters, as part of the tenant screening process, we can select the right kind of tenants for your rental property.
Imagine how much easier it would be if we scheduled and performed regular property inspections, checking up on tenant activities, so you as a landlord, do not have to. Our property management professionals have the necessary knowledge and required experience. Look no further than Real Property Management Premier.
Contact us online or call 954-800-4433.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.