Perhaps you recently came into some money, or you’ve been saving for a while, and built up enough cash to do something significant… but you’re not sure what to do. You want to start a business, and after a little online research and maybe some advice from a friend or two, you decide to start a rental property business.
It seems easy enough, right? You buy a property, let other people know it’s available, they move in, and you get a check in the mail every month. Sounds pretty great!
Except, like anything in life, it’s never quite that simple. Owning a rental property business is something that requires planning, responsibility, attentiveness to your tenants, and attention to detail. It takes energy and hard work, but if you are determined to do things the right way and avoid the common pitfalls many landlords face, you’ll be in great shape.
Here are four of the most common mistakes landlords make when owning a rental property business.
Mistake 1: Writing your own lease agreement instead of getting a lawyer’s help
There is an old saying that goes, good fences make good neighbors the same is true in business: agreements in writing that are legally binding provide structure, security, and peace of mind for all parties involved, and they are crucial when bringing on a new tenant for your property.
You might be tempted to think that a lease agreement is simply a statement that defines how long someone can live in your property and how much they are required to pay each month for the privilege of doing so. But this couldn’t be further from the truth. Many legal light mirrors have occurred because of poor or unclear lease agreements between landlords and tenants. You might feel tempted to save time and money by trying to write your own lease agreement from scratch or copying someone else’s from someplace you don’t know. Still, it’s crucially important to utilize a lease agreement carefully created by an expert before you or your tenant signs on the dotted line.
You can get a state-specific lawyer-written lease agreement form from www.ezlandlordforms.com for next to nothing!
Mistake 2: Neglecting property management
If you are a landlord, it’s your responsibility to make sure your property is in great, livable shape. Your tenant might be responsible for lawn care, paying the electric bill, keeping the property clean, and things like this. But when it comes to the nuts and bolts of your home, it’s your duty to keep things working smoothly.
Many landlords forget that the safety and livability of their property is their responsibility, and often experience rude awakenings when they get midnight phone calls because a pipe bursts in the property 60 miles away. Driving to your rental property in the middle of the night to do plumbing work or get an emergency plumber to help you isn’t exactly a fun way to spend the early morning hours.
This is why it’s crucial to remember that property management is your number one priority as a landlord. Do you have the knowledge and tools to maintain and upkeep your property? Have you hired a property manager or a property management company to help deal with these items if and when they arise?
Many landlords forget the property management aspect of being a rental property owner and are often rudely educated on how important it is. Have a property management plan in place before you start renting your property. This will give peace of mind to both you and your tenant.
Mistake 3: Underestimating expenses
You probably know this, but you’d be surprised how many people forget this, only for it to come back and bite them in the bank account later.
Owning a rental property is expensive! There’s the basic mortgage payment, and then property taxes, private mortgage insurance, the cost of repairs, the cost of a property manager if you are using one, the cost of renters insurance unless your tenant is paying this, and the cost of new appliances, regular upkeep, and the list goes on.
Understanding your overall expenses for your property is crucial because it helps you know whether you will make a legitimate return on interest based on your rent cost. For example, if your mortgage is $2000 a month but everything else adds on an extra $700 a month, it wouldn’t be much of an idea to charge $2800 a month for rent; you’d only be making $100 in realized returns each month. There are better ways to make $100 in profit each month, that’s for sure!
Take careful stock of what your actual expenses each month will be, and only then should you determine a rental price that will make sense.
Mistake 4: Not making a plan for the unexpected
Many landlords struggle because they simply don’t plan ahead for all possible outcomes.
What happens if your tenant has to break their lease early? What happens if your property is vacant for a while? What happens if something catastrophic happens to one of your appliances and you have to shell out two or $3000 out of nowhere? What happens if your tenant gets into legal trouble and can’t pay their rent?
There are plenty of other questions just like these that each landlord should prepare for in the back of their mind. These don’t always happen, but they can. And it’s important for landlords to have a plan in place. If you fail to plan, you’re planning to fail.
Avoid these common pitfalls, however, and you’ll be in fantastic shape as you start your rental property business!