Owning rental properties is a tough business, and even simple mistakes can quickly lead to big financial consequences. It’s imperative to be well researched and stick to proven business practices, especially for less experienced landlords entering the business. That’s not to say that experienced landlords don’t make mistakes (they definitely do), but if you can avoid some of the bigger traps in the beginning, you’ll be much better off. Here are some big mistakes any aspiring landlord should know how to avoid before starting their business.
Bad tenants are a common nightmare scenario for landlords, and going halfway on the screening process is the easiest way to end up with them. Since vacancies are basically just money trickling away, it can be tempting to fill them as fast as possible, but filling one with a bad tenant can be an even bigger problem. Conversely, things can also be a bit overwhelming with how easy a simple rental application is these days. There may be times when you have more potential tenants than you know what to do with.
Fortunately, it isn’t difficult to perform a free background check on any potential tenant. This will let you check for any criminal history as well as their credit score. Generally, you’ll want tenants who are financially sound, so it doesn’t hurt to get an employer reference either. Just be sure to verify the potential tenant’s identity, as using a false ID is one of the most common scams out there.
Lack of proper insurance is a bad mistake in any situation, and as a landlord, this can lead to financial devastation. When shopping for insurance, there are two basic types a landlord will need: property insurance and liability insurance.
There are different levels of property insurance, but the basic idea is that this will cover you in cases of damages caused by disasters such as fire, flooding, earthquakes, and other natural occurrences. Liability insurance covers you in cases of incidents occurring on your property—think things like personal injuries. The general rule of thumb is that you should be covered for one million per accident.
Being too lax with tenants
Obviously, some landlords are easier for tenants to deal with than others, and it’s certainly possible for the two to develop a good rapport. However, crossing the professional line can be a big mistake. Becoming friends with a tenant could lead to them taking advantage of your good nature. Make sure to be stern about policies, especially when it comes to late rent, or you could easily pay the price later. A tenant who is behind on rent should be notified about the possibility of eviction ASAP, as this can be a lengthy process, and it’s better to start the ball rolling sooner rather than later if it comes to it.
Basic maintenance is one of a landlord’s biggest responsibilities. When repairs are required, you should take action as quickly as possible, as failure to do so can be a legal liability. Having routine inspections can help you stay on top of this and potentially spot problems before tenants do.
You’ll also need to be careful about working maintenance into your budget. Charging enough rent to cover unexpected repairs is important if you don’t want to reach into your own pocket when the time comes. This is always a possibility in case of a major repair, such as structural damage, but you should always have enough to cover small issues like fixing appliances. If anything, it’s best to try and overestimate how much you’ll need to set aside for maintenance issues because it’s almost always more than you think.