**This article was originally written on May 2, 2016, but was updated on December 8, 2020.
While it has had its ups and downs, purchasing real estate is a safe way to invest your funds. However, with the rise of more investors comes a similar set of DIY landlords. While managing your property yourself can be beneficial for some, the downside is that property owners often don’t have the time or the resources to manage a rental successfully. This results in a host of common mistakes that can prove to be costly in the long run. Learn the most common problems you’ll encounter as a DIY landlord and what to do about them.
1. Not Running Thorough Background Checks
If you are not running proper background checks, you need to start today. These reports can tell you vital information on if the tenant is a good fit for your property or not. Firstly, run a credit report to get a clear picture of the person applying for residency. Next, verify employment by obtaining a copy of their most recent pay stub or other income verification from an outside source. Remember to have a verification release signed by the potential renter to obtain information from employers and past landlords and then follow up on those sources for accuracy.
2. No Written Rental Agreement or Lease
Rental agreements and leases are legally binding contracts that define each party’s terms or understandings. Any “handshake” deals and “friend of a friend” deals without a written agreement to back it up can cause many misunderstandings down the road. Further, without a legal “contract,” you will have difficulty enforcing the terms or ending tenancy should you need to go to court. Avoid unnecessary hassles by having an attorney familiar with real estate dealings writing your agreement and having you and your tenant sign it.
3. Not Preparing for Long Vacancies
Having gaps in tenancy between renters is sometimes an unavoidable problem for landlords. Prepare for a vacancy by setting up a savings account to cover expenses for up to three months. If possible, it would also be advantageous to use this time to properly repair or upgrade the unit before you show the property.
4. Neglecting Property Maintenance
The property that you are renting out is your responsibility. You must maintain the property’s interior and exterior, and good renters expect to move into a clean, well-maintained property. The property should be held to the level you would move into yourself before securing a renter. By doing this, you can ensure the tenant is happy and stays in the property longer. Keep in mind, as the owner of a rental property, you are also required to make sure that your property meets all local and state health and safety standards.
5. Delaying Legal Actions or Evictions
Delaying legal action or the eviction process when renters default on their lease obligations (including nonpayment of rent) can be very costly. File necessary legal measures timely to help mitigate lost income and potential damage to your property. In these cases, it is also recommended to use an attorney with eviction experience.
6. Not Keeping Up on the Rental Market
Most rental owners look in the newspaper to see what other owners are renting their property for and determining a rental amount, and many are just happy to have their mortgage covered. Doing your research and due diligence will help to ensure your rental rate is appropriate for your area. If you already have your property rented but do not increase the rent upon renewal, you will not effectively manage your investment. Thinking that the renter will move or do not have enough time to re-rent the property are common fears. However, those fears do not make you any more money. Renters do not expect rents will never go up, and in-fact many expect a modest increase each year. Have your facts prepared; for instance: taxes, insurance, maintenance, and other factors are common reasons for rent increases.
7. Not Having the Proper Insurance Policy
Many landlords feel their homeowners’ policy covers them adequately, but this is not true. Many of these policies become void if you are no longer the occupant of the home. Check with your agent and let them know you are renting the property to ensure proper coverage.
8. Not Giving Your Tenants a Lead-Based Paint Disclosure
For most rental property owners, and as of December 1996, the Lead-Based Paint Disclosure law went into effect. According to the law, every owner with a property built before 1978 must give all new and renewing renters a disclosure and pamphlet on lead paint. Failure to do so could result in a costly $10,000 fine.
9. Not Factoring in the Value of Your Time
Unless you are a full-time real estate investor, the chances are that you have another job in addition to property management. As a landlord, you are probably spending several hours a month dealing with your rental, especially during a lease turnover, which can take a toll on other responsibilities you have or your personal life. Another common mistake new landlords make is not factoring in their valuable time. Ask yourself, “What is my time worth?” Use that answer and factor it into your budget to see if you are getting an accurate return on your investment. If not, you may want to think about alternatives, like hiring a property manager, to ensure your rental property is working for you, not the other way around.
10. Not Accounting for the Learning Curve
Lastly, many property owners mistakenly become landlords without accounting for the learning curve. Your lack of experience can cost you in obtaining your long-term goals if you’re not careful. Getting advice from an experienced landlord, consulting with real estate attorneys, and doing other research can go a long way in preventing costly mistakes due to inexperience. Consulting a licensed property manager can also ensure you are covering your bases and not dealing with your investment property’s unnecessary risk.
If you’re a rental property owner but want to make sure you avoid these costly mistakes, we can help. Your local property manager at Real Property Management Landmark can provide guidance and assistance during each step of the process to help you boost your return on investment, cut costs, and gain peace of mind.
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