Being a landlord sounds relatively simple at first. You buy a property, rent it out, collect monthly rent payments, and handle repairs once in a while.
While all that is true, it’s not the full picture. In reality, managing a rental property takes a lot of hard work and knowledge of the law that first-time landlords often learn the hard way. Unfortunately, being ignorant of the law can cost you time and money, not to mention peace of mind.
Whether you’re already a landlord or you’re looking into renting a property for the first time, here’s a look at how to avoid the top 7 mistakes new landlords make.
- Skipping the tenant screening process
It’s understandable to be in a rush to fill a vacancy, but handing the keys to the wrong tenant can cost you months of unpaid rent and property damage. For every applicant worth considering, it’s crucial to run background and credit reports, verify their income, and call references, especially past landlords.
Never rent to a tenant with major red flags, like evictions, unstable income, late debt payments, or sketchy references. Don’t skip this process for anyone.
- Trying to do everything alone
Whether you rent one property or five, it will eventually become too much to handle on your own. At first, you might do your own repairs to save money, but after a while, it will be too cumbersome and time-consuming to do it all while still living your own life. This is the reason most property investors hire a property manager.
When you work with a property manager, they’ll handle all your day-to-day landlord duties, like screening tenants, collecting rent, sending notices, and making repairs. They’ll also field early morning emergency calls. Most importantly, having a property management team working for you will be your first line of defense against unknowingly violating the law. For instance, San Marcos property managers from Green Residential ensure everything is done professionally and legally for their clients, from creating lease agreements to handling security deposits.
To avoid the overwhelm of being caught off guard with more responsibilities than you can handle, hire a property manager from the start.
- Renting to friends and family
It’s a nice gesture to rent a property to friends or family, but it rarely works. People you have a personal relationship with are more likely to expect discounts and special treatment, and are less likely to follow the rules and then get mad when you ask them to move out. In the end, you could lose your profitability and your relationships.
- Not having a solid written lease agreement
A handshake and someone’s word, no matter how trustworthy they are, is never good enough. Even responsible people misremember details and you need a solid agreement to fall back on in case there’s a disagreement. In a worst-case scenario, you’ll need a written lease to support your arguments in court if anything escalates that far.
Always use a state-specific lease drafted by an attorney, and skip the DIY lease packages you can find online. No matter how well-meaning the creators are, the agreements are often generic, not state-specific, and many contain unenforceable clauses. Your lease agreements should be specific to your state’s laws and detail the specifics of your terms, like the monthly rent, due date, pet policies, and consequences for breaking the rules.
- Underestimating maintenance costs
Maintenance and repairs are unavoidable, and it’s recommended to put aside at least 1% of your property’s value each year to cover the costs. As soon as something needs work, make it happen. Small repairs almost always get worse and more expensive with time.
- Ignoring landlord-tenant laws
In addition to federal laws, each state has different landlord-tenant laws that govern things like habitability standards, eviction procedures, deposit deductions and returns, and even how much notice is required before performing an inspection. Not knowing the law can cost you a lot of money if you get sued.
- Setting your rent too low
If you charge rent below fair market value, becoming profitable will be a challenge. If your tenant signs a year-long lease, you won’t be able to raise the rent for an entire year. If you’re not sure how to price your rental, talk to a real estate agent or property manager to get their input.
Be strategic about your rentals
Being a landlord can be rewarding when you treat it like a business. With the right systems and mindset, you can build a profitable investment while avoiding the pitfalls most landlords learn by trial and error.
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