11 Costly Mistakes First-Time Landlords Make When Renting Out Their Property
Being a landlord sounds easy – just purchase a property, make a few renovations, find a trustworthy tenant, and rent it out for a steady flow of monthly income. Simple. But while anyone with an investment property can be a landlord, it takes someone with a mindset of a business professional to be successful in this venture.
This is why it’s easy for first-time and inexperienced landlords to make mistakes that cost them money, time, and peace of mind in the long run.
If you’re thinking of renting out your property for the first time, here are 11 common mistakes you should avoid.
1. Skimping on insurance
Failing to obtain the proper insurance coverage is the first mistake you can make before you can even meet up with a potential tenant.
Experts suggest having property insurance and liability insurance. Property insurance is designed to protect you against the damage or destruction on your property caused by fire, wind, vandalism, and theft. Liability insurance, on the other hand, is designed to protect your property and your business in the event of a lawsuit.
2. Not screening your prospective tenants well
Being sloppy when checking your tenant’s credentials is one of the most common mistakes landlords make. Even if you’re renting your space to your cousin or a friend’s friend, you should properly check for possible red flags.
Have your prospective tenant fill up a rental application form to get every adequate information in writing. Obtain a credit report to see if they can afford the monthly payments and if they’ve had a history of late payments or criminal records. Take the time to verify references, including former landlords and employers.
Tenant screening can be a hassle but you’ll thank yourself later when you know you have good, then trustworthy tenants in your property.
3. Neglecting tenants
Just because you screened your tenants well doesn’t mean you can relax and leave the property to them. If you don’t check in with your tenants and on the condition of the property regularly, you’ll have no one to blame but yourself if anything goes wrong.
Just make sure you’re not violating any laws regarding tenant privacy before showing up at the property unannounced.
4. Relying on handshakes
Again, this is a business. And in business, you can’t rely on promises.
For your legal protection, it’s a must to get everything in writing. Have your tenants sign a lease agreement to reside in the property and make sure they understand the terms of the contract. Should you run into problems with your tenant, the binding documentation will be necessary for the judge to make a ruling.
5. Thinking that the monthly income will be steady
What if you’ll have months with no tenant paying rent? Whether your tenant decides to move out or your tenant can’t repay due to a global crisis, like COVID-19, make sure you can still pay the mortgage. Do a simple cash flow analysis and obtain sufficient funds to cover the mortgage payments to avoid risking foreclosure and financial ruin.
6. Underestimating the cost of repairs/property maintenance
A rental property is no different from your own home – it wears over time and needs maintenance. Ensure you’re charging enough to at least help cover a portion of repair and ongoing maintenance costs, like repainting, cleaning, plumbing, and carpet cleaning.
7. Viewing it as a hobby or a passive income
Here’s another misconception: Owning a rental property is a side project – a form of passive income where you can just focus on your 9-5 day job, relax at home, and make additional profit every month effortlessly.
A rental property is a business, and must be treated as such. You should be establishing separate bank accounts for deposits and expenses, to begin with.
8. Asking your family and friends for advice
Yes, you may count on them for solid relationship advice, but they’re not the best people to seek answers from when it comes to property issues.
Problem with taxes? You should be consulting a tax professional to make sure you’re correctly handling and paying taxes on your business. Problems with running your rental property business? Therefore Consult with a real estate agent, like a property buyer’s agent to see if you’re taking the right path.
9. Not understanding the landlord-tenant law
There’ll be certain policies for how landlords must collect and store security deposits, as well as the maintenance responsibilities you have at a property. The law also states the reasons you can enter the tenant’s apartment as well as the procedures for evicting tenants.
Not being familiar with the landlord-tenant law can get you into big trouble if you don’t follow certain procedures or fulfill responsibilities.
10. Asking discriminatory questions
Don’t run the risk of giving a potential tenant enough grounds to sue you for discrimination during the interview. The law states that you shouldn’t turn down a tenant’s application based on race, religion, color, national origin, disability, sex, marital status, or family status.
11. Doing everything on your own
Landlords sometimes try to do everything themselves, forgetting how valuable their time is. For instance, some are willing to drive to their rental property just to repair a broken water heater instead of calling a skilled professional. Others would want to solve property-related issues themselves without consulting a property agent.
Author Bio: Carmina Natividad is a resident writer for Bridge to Bricks Property Buyer’s Agent, a leading property buyer’s agent in Sydney. Her fondness for architecture, interior design, and real estate make it easy for her to write inspiring pieces of content.