There are many types of do it yourself landlords. Maybe you’ve inherited a property and wish to keep it as an investment. Possibly you are new to real estate investing and recently purchased your first property, or maybe you have been relocated for work or personal reasons and wish to retain the property you already own. If you can relate to any of these reasons you may be a candidate for these common mistakes.
1. Credit/Background Checks: If you are not running proper background checks, you need to; Running a credit report is the first step to obtaining a clear picture of the person applying for residency. Second is verifying employment, obtain a copy of their most recent pay stub or other income verification from an outside source. Don’t forget 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 agreements that create a contract and define the terms or understandings of each party. “handshake” deals, and “friend of a friend” deals are not recommended. Without a legal “contract” you will have a hard time enforcing the terms or ending tenancy should you need to go to court. Its recommended to have an attorney familiar with Real Estate dealings review your agreement.
3. Vacancies: There are usually gaps in tenancy between renters. Time is needed to prepare, market and show the property. Also, you may want to set up a savings account to cover expenses for up to 3 months. Also, if possible set up an account for repairs and upgrades.
5. Delaying Legal Actions and / or Evictions: Delaying legal action or the eviction process when renters default on their lease obligations (including non payment of rent) can be very costly. File necessary legal actions timely to help mitigate lost income and potential damage to your property. In these cases it is also recommended using an attorney with eviction experience.
6. Not Keeping Up on the Rental Market: Most rental owners simply 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 are not managing your investment effectively. Thinking that the renter will move or that you 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, this simply is not true. Many of these policies become void if you are no longer the occupant of the home. Check with you agent and let them know you are renting the property to ensure you have proper coverage.
8. Not Giving Your New/Renewing Renters a Lead Based Paint Disclosure: For most rental property owners and as of December 6, 1996, the Lead Based Paint Disclosure law went into effect. According to the law, every owner with a property built prior to 1978 must give all new and renewing renters a disclosure and pamphlet on lead paint. Failure to do so could result in a $10,000 fine.
9. Not Factoring in the Value of Your Time: Unless you are a full-time real estate investor, odds are your primary job is not being a landlord. But now that you are a landlord, you are probably spending several hours a month dealing with your rental, especially during a lease turnover. One big mistake new landlords make is not valuing their time. Ask yourself, “what is my time worth?”, do a little math and the n see if you are getting a return on your investment. If not, you may want to think about what you can do to ensure your rental property is working for you instead of the opposite.
10. Not Accounting for the Learning Curve: Finally, a common mistake DIY landlords make is becoming a landlord without accounting for the learning curve. Not accounting for your lack of experience can cost you in obtaining your long-term goals. You should either get advice from an experienced landlord or consult with professionals such as attorneys with experience in landlord/tenant and investment property laws. Also consider a licensed property manager to ensure you are covering your bases and not dealing with unnecessary risk with your investment property.
The good news is, there is professional help out there. Find a local property manager and give them a call and set up a property review.