Some people think that being a landlord is easy. The truth is that there’s a lot to learn before you can start actually making money renting your property. Your primary goals should be to protect your investment, comply with all the laws that govern rentals, and make some money along the way. Here are a few mistakes to avoid if you’re trying to reach your goals.
Renting property as a hobby
Some new landlords don’t treat renting a property like a business. They look at is as a casual sideline hobby that can work using a “set it and forget it” approach. If you want to make money, treat being a landlord like the business it is. Set up separate bank accounts for the business, be consistent in doing the required accounting, and consider hiring a tax professional to ensure you’re paying taxes correctly.
Underestimating the expenses associated with renting
Before purchasing your rental property, you’ll need to calculate projected revenue and expenses to determine if the property will produce a profit.
It’s easy to underestimate how much it will cost to complete repairs and properly maintain the property. Don’t skimp on these estimates. Things will break, and if you don’t maintain the property well you’ll have a more difficult time finding tenants…which can cause the value of your investment to drop.
The second thing you need to account for is vacancies. Every time a tenant moves, there will probably be things you need to do to prepare the rental for the next tenant. Depending on the situation, that may mean painting, replacing carpeting, and more. The property will need to be vacant during that time. Non-refundable deposits can help offset these costs, but you should still make sure you set aside saving in case additional costs come up.
In addition, even if the property is ready for the next tenant, it will still take time to find the right one. You can reduce the vacancy time between tenants by doing things like posting a listing looking for a new tenant before the existing one has left. However, you do need to factor in some percentage of vacancy for planning purposes.
Inadequate insurance is almost a whole category by itself, but it relates to the expenses you need to think about. You’ll need adequate property insurance and probably more than you’d expect in liability insurance. Don’t skimp on either of those two things that will protect you in the long run.
Making mistakes choosing a tenant
As a landlord, you’re always going to be anxious to get your property rented as quickly as possible. But making mistakes when you choose a tenant could end up costing you money.
1. Inadequate Screening
Don’t be fooled by a friendly face. Treat every potential tenant the same. Use rental applications and complete background and credit checks.
2. No formal agreement
A handshake agreement isn’t safe in today’s world. You want to avoid any misunderstandings that could come back to haunt you. Finalize a formal rental agreement to protect yourself and the tenant.
3. Asking illegal questions
There are things you can’t ask a potential tenant, either in writing or in conversation. If you ask questions about race, religion, marital status and more, you’re violating The Fair Housing Act of the Civil Rights Act of 1968, and leaving yourself open to be sued.
Violating housing codes or landlord/tenant law
Landlords are required to meet health and safety standards mandated by local authorities. Your tenant can sue you if you’re in violation. Although some laws are straightforward, educate yourself about habitable living conditions and what you are legally responsible for maintaining.
In addition, you could be asking for legal problems if you don’t familiarize yourself with the landlord/tenant laws in your state. State regulations will determine how you should collect and hold security deposits, the reasons that would justify you entering your tenant’s home, and how to proceed if you need to evict a tenant.
Originally published on Groundwork
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