You wake up to the sound of your phone buzzing. You’re getting your first landlord maintenance call… in the middle of the night.
Out of the fog, you try to understand the problem. What?! All the toilets are overflowing, and the water is coming up through the tubs and sinks? This can’t be happening.
Well, as extreme as it may sound, it happens more often than you think. We get after-dark maintenance calls a few times a week from our tenants – no matter how good the house is. Even with a great property, no one escapes the dreaded late-night maintenance call.
Most people forget to think about maintenance calls. Others try to avoid them by covering it in the lease and requiring the tenant to pay the first $75 of any repair. But that backfires: Tenants will avoid any repairs they can, and you’ll end up with a laundry list of damages after they move out.
While 3:00 a.m. phone calls may seem like one of the worst parts of a DIY landlord approach, that’s just the beginning. Here are the six of the worst mistakes a new landlord can make.
1. Placing an Unqualified Tenant
We deem tenants unqualified when they have a low credit score. If you choose someone with a history of not paying people, they may not pay you either. Plus, because their credit is already low, they have little incentive to pay.
That’s why an airtight tenant screening process is vital. Don’t make exceptions. If you do, you’ll likely end up with missed payments, bounced checks, and evictions. Not only is this the worst mistake you can make – it’s also the most expensive.
2. Leasing to Friends and Family
When you lease to friends or family, they’ll expect special treatment outside the residential lease. Sometimes, they know too much about your finances. If they know your mortgage isn’t technically late until 30 days later, a family member may take advantage of that window. If they think you don’t need the money, it makes enforcing terms of the contract even more difficult.
Plus, when you mix your business and personal life, you risk ruining relationships. We’ve had dozens of clients ask us to evict a family member – which makes for really awkward holiday dinners!
3. Making Decisions With Little Market Knowledge
We’re in the information age, so you can find plenty of market stats online for free. But that doesn’t mean you should trust these sources or use them as a sole point of reference to make investment decisions.
Free sites like Trulia and Zillow are valuable in their own right, but ultimately, the data is unreliable. The information is curated from public submissions without professional verification.
If you head over to Zillow or Trulia they may suggest your property is worth a certain dollar amount. In actuality, the estimate may be 20 to 30 percent above the market value. And your house is guaranteed to sit on the market for a while if you follow that advice.
Use resources that are monitored by professionals. At LEAP Property Management, we get true market value information from trustworthy sources verified by local real estate boards. We’re confident our market knowledge is accurate.
4. Overestimating Improvements
Don’t make a property nicer than the neighborhood. Sure, your house will look great, but does the math make sense? If you make an $8K improvement to your house, only to bring in another $200/month, it’ll take 3+ years to get that money back.
Here’s what usually happens: You make great improvements on the house. Then you set the rental rate too high. The house sits on the market too long. You realize your mistake and lower the rent. Now, you end up collecting about the same rent as before.
5. Using Online Templates to Enforce Lease Terms
It seems like a cheap lease template would save money, but oversights in an unproven lease could cost you the house.
Some leases set the late fee too low. You’ll end up with tenants that pay late every month because it doesn’t cost them much extra.
Other templates don’t specify the number of days required to give notice. Without requiring proper notice, landlords end up with little time to market and find the next tenants. Our lease requires 30 days so we can fill the vacancy quickly.
Some leases work against you, not allowing you to market a property while a tenant is in it. And some just don’t specify how these processes work. If a tenant denies a showing, we charge them $80 based on our lease. However, when it is unspecified, there’s not much you can do to make them cooperate.
6. Treating It Like a Hobby
When people underestimate the time and effort involved in managing a property, they mismanage their money. This isn’t a hobby – it’s a multiple hundred thousand dollar investment.
When DIY landlords think of it like a side project, they’re more tempted to cut corners and only deal with the property when they “feel like it”. If it’s not viewed as a job, they don’t always take the time to document everything, they miss background checks, and they rarely respond to tenants quickly. They could even ask illegal interview questions without realizing it.
7. Delaying Evictions
It’s tough to hear about the problems that made a tenant miss rent without being affected. But leases are in place for a reason. Too often, landlords hear a sad story and give tenants another week – usually followed by yet another week – to help out. In reality, if rent is a priority, they’ll pay it. If not, it’s time to evict them. You’re running a business and shouldn’t sacrifice months of rent payments.
8. Navigating Situations Without Knowing the Law
Are you well-versed in laws that protect landlords and tenants? You should be. If you manage a property without an understanding of housing laws, it’ll cost you money.
For instance, something as simple as collecting partial payments for past due rent can hurt your case when you file against tenants for non-payment. In court, partial payment is still considered a rent payment, so it starts the entire 30-day eviction process over from day one.
This is just one example of how being unaware of the law can impact your property. If you want to protect yourself and your finances, do your homework or hire a professional.
9. Getting Too Personal With Tenants
It’s easy to fall into the friend zone with your residents, especially if you genuinely like them. But when it’s time to have tough conversations about paying rent and respecting your rules, it’s more difficult when you’re friends. Keep communication between you and your residents focused on the business transaction. You provide them with housing and they pay you for it.
How to Avoid These Common Landlord Mistakes
Here are four ways you can be start being a smarter landlord right away, and avoid these common rental property pitfalls.
1. Prepare for Repairs.
You need to factor property repairs into your budget from the very beginning. There’s no way around it – things will break. And if you don’t have money set aside, it can put an unpleasant strain on you.
Put away a safety net of at least 1% of your property value. If your property is over 10 years old, start saving even more – 1% likely won’t be enough.
2. Don’t Forget About Uncle Sam.
In a perfect world, all of your rental income would be money in the bank. Unfortunately, that’s not the reality. You’re required to pay taxes on rental income, so always keep that in mind when you want a true picture of how your property is performing.
If you aren’t 100% comfortable managing your own taxes, hire a CPA. If you decide to manage them yourself, projecting your liability incorrectly could mean cutting a larger check for taxes at the end of the year than you expect. Plus, a professional has the inside scoop on deductions and other tax benefits you may not be aware of.
3. Delegate to the Right People.
You’re not superhuman. You need help from the right people to make your property perform it’s very best. Keep a solid team of contractors you can call for repairs and avoid DIY unless you have the skill. Also, don’t cut corners or hire contractors without the proper credentials just to save a few bucks.
If you work with a management team, pass the reins and let them lead you in the right direction. Our best clients take a completely hands-off approach. Because we know the business and the market, we can negotiate fair prices for bids and operate the property while they sit back and enjoy profits.
4. Limit Communication With Tenants.
Like we mentioned earlier, it’s easy to fall into the friend zone with your residents. Smart investors avoid communicating with tenants altogether when they hire a management company. Interacting with residents is the manager’s job.
Tenants tend to expect leniency from landlords. So when a property manager enforces lease terms, they look to the landlord for reprieve. Encourage your tenants to speak directly with the property manager to reduce back and forth.
If you manage your own property, we understand there’s no way around communicating with your tenants The key to being a successful landlord is staying professional and keeping your relationship strictly business. When you cross the personal and professional line tenants have room to take advantage of you.
Leasing a property doesn’t have to be a nightmare. To avoid these mistakes (and more), trust your property to a professional property manager. From placing a tenant to enforcing the terms of a lease, a good property management group secures your investment through every aspect of the rental process.