7 Mistakes Every New Landlord Makes (and What You Should Do Instead) | Ezine Daddy

Owning a rental property can be a great way to earn passive income and build wealth over time, but being a landlord isn’t necessarily easy. Too many beginners find this out the hard way.

With that in mind, here is a list of seven of the most common mistakes new landlords make and how to avoid them when starting out investing in rental property. By learning these ahead of time, you can position yourself to maximize your income and minimize unnecessary hassle.

1. Not checking tenants

Far too many new landlords simply advertise their rentals and rent them out to the first person who comes along. It’s easier to be selective in a housing crisis like the one we’re having now, but it’s still common for new landlords to ignore basic screening tools.

At the very least, it’s a wise idea to run a credit check on potential renters to see if they’re used to paying bills on time and to check references – employers and former landlords, not Friends. If something doesn’t check out, don’t rent to that applicant. It’s better to leave your property vacant for another week or two than to find the wrong tenant.

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2. Underestimating repair and maintenance costs

When determining your budget, a common mistake is to underestimate how much you will need to spend on repairs and maintenance of your property. In fact, some new landlords fail to plan for them at all.

There is no hard and fast rule and, by definition, repair costs can be unpredictable. But a good rule of thumb is to set aside at least 10% of the rent each month to plan for those expenses — and more if the property is older. If you don’t end up needing it all, great. But if you do, you’ll be glad you planned ahead.

3. Not putting everything in writing

First, all landlords should use an appropriate rental agreement form for the state in which the property is located. Don’t rely on handshake agreements, even if you’re only renting a room in your home or if your property is a duplex where you live in the other half. A legally valid rental agreement offers you valuable protection in the event that your tenant is not doing well.

It’s also important to include property-specific policies in your lease. To name just a few examples, this could include a pet policy, noise restrictions, or parking rules. If your tenant ever emails or texts you about the property, save it for future reference.

4. Lack of budget for vacancies

An important but often overlooked concept for new landlords to keep in mind is your property will not be manned all the time. Eventually it will be empty.

In general, it’s a good idea to expect your properties to be vacant for a month each year. To avoid disruption to cash flow, it is advisable to set aside a portion (e.g. 10%) of your rental income specifically for this purpose.

5. Not viewing a property

Check the legality of visiting your tenant occupied property before simply showing up, but it’s a good idea to check on the condition of your property from time to time. As a personal example, I had a gutter drop from one of my rental properties and the renters didn’t report it. It’s very common for problems to go unreported – overgrown landscaping, slow roof leaks and dripping faucets are just a few examples of minor problems that can become big (costly) problems if left undetected.

6. Be to nice to tenants

Of course, it’s a good idea to maintain a cordial relationship with your tenants. But there’s a big difference between a good landlord and a pushover.

For example, if your lease says there will be a late fee for unpaid rent after the 5th of the month, enforce it. If your lease doesn’t list pets and you find that the tenants have a cat there, take action. And if you’re having trouble with a tenant and need to evict them, start procedures as soon as possible. (Believe me, it may take a while.)

7. Property management is too expensive

Many first-time home owners choose to manage their properties themselves simply because they want to maximize income. To be clear, self-management can be a wise move for people who have the time and desire to get hands-on with their real estate investments, but it’s not for everyone.

If you don’t want to find and screen tenants, regularly inspect your property, deal with problem tenants, coordinate repairs and maintenance, and deal with other property issues, a property manager can be worthwhile. The typical property manager takes 10% of the rent your property brings in, but it’s important to remember that your time is valuable. A good property management fee can be justified.

Some of these mistakes can be expensive

As a first-time landlord, you probably won’t do everything right. As with any other new business venture, no matter how much homework you do, there will be some learning curve when you start investing in real estate. However, by knowing the most common (and costly) mistakes to avoid, you can put yourself in a good position to avoid unnecessary loss and expense when you figure things out.

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