As with any business venture, getting into the rental property game has a learning curve. It takes a while to get your footing, and you’re certainly going to make some mistakes at first — a lot of them, actually.
Fortunately, thousands of investors have gone before you, and you don’t enter this world blindly.
Want to make sure you don’t fall into the same traps as other first-time landlords? Here are the six biggest mistakes to avoid:
1. Underestimating the management side of things.
Buying a great property and finding a tenant are only the first few pieces of the puzzle. After move-in, there’s a whole slew of ongoing tasks you need to handle. From collecting rent and reporting it to credit bureaus to maintaining the property and making repairs, there’s any number of to-dos you’ll need to manage week-to-week (not to mention pay for).
It’s critical you allot enough resources — both time- and money-wise — to cover these tasks and then some. And if you can’t? Hire a property manager who can. Your rental business depends on it.
2. Pricing your rent wrong.
On-point pricing is vital as a rental property investor. Price too high, and your property sits vacant for months on end. Price too low, and you lose out on precious profits and attract the wrong type of tenants.
Your best bet is to use comparable properties, as well as the expertise of a neighborhood real estate agent, to align your rents with local trends. And if your property goes unrented for a month or two at that price point? Don’t dawdle in dropping your asking rent. Decreasing your rent by just $25 usually costs less than a month of vacancy in a solid market.
3. Not screening your tenants properly.
You’re entrusting your property (and your income) to your tenants, so make sure you vet them thoroughly. Sure, you want to reduce vacancies as much as possible, but don’t rush through the screening process just to avoid another vacant week.
Have a comprehensive process in place for checking your tenants’ credit and background, and take your time to verify all their application data — past rental history, employers, etc. (Just make sure to abide by all fair housing laws in the process).
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4. Forgetting to account for vacant periods.
No matter how well-located or in-demand your property is, you’re going to have vacant periods from time to time. It might be due to repairs or cleaning between tenants, or it might be because of a lull in the market. Whatever it is, it’s important you account for these financially before getting into the rental business. Make sure you always have a financial cushion to cover the mortgage, utilities, and other costs in the event your property is vacant. Falling behind on one mortgage creates a trickle-down effect, and it could impact your entire operation (as well as your own personal finances.)
5. Keeping bad records (or not keeping records at all).
Even if it’s just passive income for you, you’ll want to treat your rental properties as businesses — and ensure your accounting practices follow suit. Keep solid records of all expenses, rental payments, repairs, and maintenance for every property you have, and make sure you save receipts, too. You should also keep copies of any communication you have with tenants. That includes emails, texts, faxes, and of course, documents like leases, addendums, and inventory forms. You never know when a legal issue might necessitate these items.
6. Failing to keep in touch with tenants.
Staying in touch with your tenants is a crucial part of being a landlord. For one, it helps you keep tabs on the property — a property you own and that’s tied to your personal income. On top of this, it also shows the tenants that you’re on the ball, you care, and you want their rental experience to be a good one. This fosters more mutual respect (between parties and for the property) and can help you keep good tenants around longer (and that’s a win for any landlord!)
The Bottom Line
We all have to start somewhere, and mistakes will undoubtedly happen. Just be thorough, look at the bigger picture, and have clear expectations for your business, property, and tenants, and you’ll be well on your way to rental property success.