Many people love being landlords because it provides freedom and the ability to be your own boss. There are so many things you should do when you are renting out to help you succeed as a landlord, as listed by us here, but there are also several things you should avoid if you want to prosper.
Choosing the wrong tenant can cause you extreme stress, not to mention legal issues. Not paying attention to your budget might leave you owing money instead of making it, and forgetting to keep copies of important documents or failing to pay attention to the legalities of renting out properties can lead to legal trouble. The costs of being a landlord can leave some people bankrupt. If you have the start-up capital to become a landlord or if you are already an established landlord, you can help stay away from serious problems by avoiding these six items.
1. Not pay attention to legal requirements
If you are building a rental property from scratch, you will have to deal with building permits. If you don’t complete the permit process, you will face fines as well as possible jail time. You also may need a new renter’s permit, and if you purchase an existing rental property, you will need to notify the city that there has been a change in ownership. You will also need to prove that the rental unit is safe and meets fire codes. You also may need to prove that your rental has structural stability, safe wiring, proper lighting, appropriate ventilation, adequate heating and cooling, and a sanitary living area.
2. Choose a tenant in desperation
You should definitely screen your tenants, and if you have multiple people interested in your property, you might have your choice of several good possible tenants. However, you may find that you only have one interested tenant and that you don’t feel comfortable with him or her. Understandably, if you rely on rental income to pay your own bills, then the idea of waiting around for the right tenant can be scary.
But if you bring in a tenant who lacks the financial means to afford the specific space you are offering, who doesn’t pay on time, or who doesn’t respect the space, you might be down a lot more money than you would have been by being without a tenant for a few months. You can find out a lot about a potential tenant through credit and reference checks, but some potential issues won’t show up on a credit report. One particularly telling way to learn about your potential tenant is to check his or her Facebook profile.
3. Leave renewal terms in the hands of your tenant
While it is every landlord’s dream to have the perfect long-term tenant who pays his or her rent on time every month, requests maintenance respectfully and patiently, and maintains the property well, many rentals see high turnover rates. Because the ideal long-term renter isn’t always available, you won’t necessarily want a renter to renew a lease. If you put in your contract that the renter can choose to renew, then you should stipulate that your approval is necessary before renewal.
If you do this, you will have a way out if the rental situation becomes a nightmare. This also provides you a way to increase the rent before renewing and offers you an out if you decide you want to use the property for something else. You also can include a automatic agreement by no response clause, so that if you do want your tenant to renew and they forget to get back to you, you are covered.
4. Forget to maintain a paper trail
In addition to always creating a contract, you should keep a paper trail of any issues that come up with a renter or rental space. If a tenant denies that you provided an updated lease, notice of rate increase, or another important document, you can protect yourself by keeping copies of all notices that you send to tenants. It is also important to keep a copy of payments as well as all important correspondence, including when you respond to a complaint or fix an issue.
Eviction notices can’t be served unless the tenant has been notified prior to the eviction being served, so be sure that you provide notification. If you ever face a lawsuit, keeping paper copies of all important material will help your case, and you can protect yourself further by providing written notices and updates rather than speaking to a tenant over the phone or in person.
5. Not budget properly
While the idea of extra monthly income is exciting, being a landlord doesn’t always pay off, and you will face good and bad months. You should not expect that all of your rental income will go straight to the bank. In addition to paying for the space you own (if you have a loan), you will have to pay whenever anything gets fixed. In addition, you won’t always have renters, and if you have several properties, the missed income can really add up.
You can help create a small buffer by collecting late fees, but that won’t cover much of the lost income when you have a big issue to fix or you have a vacant property. All of these issues have to go into your budgeting, as should taxes on rental income. Be sure to charge enough for your properties and to raise rent regularly (but fairly) so that you are covered during hard times.
6. Choose the wrong staff
As a landlord you will face constant issues. If you own a lot of properties, you should spend your time interviewing and maintaining excellent staff. If you hire a property manager, make sure that he or she has the experience to succeed. You can look for a property manager that has a specific rental specialty that matches your needs, shows properties in a manner that you like, properly screens all potential tenants, and appropriately deals with all issues, including problems after-hours.
Check in with your property manager regularly and keep that person accountable. If you prefer to keep track of the financial aspects of your rental business but don’t like confronting people, having skilled property managers will be especially essential. Also, if you are not super handy with fixing things, maintain a good work relationship with companies that can regularly help you fix maintenance issues. By creating an ongoing relationship and having the right staff, you will have people you can rely on at crunch time.
There are many other issues you should be aware of when you are a landlord. You should certainly offer quality rentals and keep them well maintained; you also might want to set specific office hours for for you and for your staff, if you have them. Some people say that you shouldn’t rent to family,and that you shouldn’t own rental properties in a different state than you reside in, but those issues really depend on your own circumstances.