It seems pretty easy. You buy a property, make sure the appliances work, slap on some paint and boom—you’re in business.
The thing is… being a landlord IS a business. Just as you’d approach your day job like a professional, you should approach renting to tenants like one. But everyone is a new landlord at some point, and mistakes are part of the experience. It’s helpful to know what stumbling blocks others have tripped over so you can avoid them yourself.
Mistake #1 – Failing to screen potential tenants.
A sin of omission. You get nervous about a property that’s been sitting vacant and rush the tenant screening. Or worse, you go on gut instinct and don’t screen at all. You want the best possible candidates for your property, those who will treat it with respect and pay on time. Evictions are costly and time-consuming, so prevent them with good tenants. At the very least, check credit reports for late payments and delinquencies. But it’s a good idea to verify everything on an application, including past rental history and employer references. Don’t be tempted to rush things; it could be detrimental to your property and your wallet.
Mistake #2 – Not staying close to property and tenants.
You think everything’s fine because tenants aren’t making repair requests, and you decide to skip a scheduled inspection. But you could miss small problems that turn into big ones. That tiny puddle in the front yard that never quite goes away (which you might’ve noticed with just a drive-by) could indicate a leak in the water line. Let your tenants know that you’re keeping an eye on the property for their sake as well as yours. Schedule regular, announced inspections and enlist them as allies in property maintenance. Staying in touch also gives you the opportunity to build a mutually beneficial, longer-lasting relationship. Absentee landlords don’t hear about the squishy spot near the shower floor. And tenants who don’t feel at home move on sooner rather than later.
Mistake #3 – Poor record-keeping.
Landlords who are their own property managers need to keep good records. A business requires bookkeeping. You’ll need a solid system of recording rent, expenses, repairs and maintenance for your property. You’ll need at least a fancy shoebox for receipts, not to mention storage for application forms, move-in checklists and the like. And you’ll need a digital system for storing tenant correspondence in the form of texts, faxes and emails. Keep a log and notes of phone calls and save voicemails. If there’s a dispute, you’ll need them.
Mistake #4 – Failing to manage your money.
Renting to tenants takes money to make money, and you’ll need to budget for expenses. An inexperienced landlord may not remember that besides mortgage, insurance, taxes and maintenance, there are utilities… yard maintenance (if you hire out; if you DIY the mowing, you’re spending time as well as money on equipment)… pest control… HOA dues in some neighborhoods… cleaning costs between tenants… and major repairs. Think ahead: When was the water heater last replaced? Do you notice steady or large upticks in recent yearly taxes on your property? What about vacant periods? You’ll need to build in a cushion for the expected, the unexpected and lean times.
Mistake #5 – Ignorance of the law.
You’ll need a real estate attorney and/or a good property manager to help you avoid making blunders like asking illegal interview questions. Did you know that under the Fair Housing Act you can’t discriminate against families with children under 18? Or on the basis of race, color, national origin, religion, sex or disability? You’re also under legal obligation to keep the property safe and livable. Do you know your local and state housing codes so you can adhere to them? Don’t give your tenant grounds to break the lease or sue you for damages or injury due to your neglect.
Mistake #6 – Mishandling maintenance.
Unless you’re a qualified carpenter or plumber, don’t tackle repairs or maintenance unless you’ve done it multiple times before and you know how. When you go to school on your rental property, it can cost you in tuition. This rule applies to your cousin the handyman and your tenants, too. A tenant might be able to handle painting an interior wall, but if you have beautiful hardwood floors why take a chance on an inexperienced painting “contractor”? You’re better off hiring a pro, and your time is better spent on the rest of your business—like monitoring cash flow or tenant relationships.
Mistake #7 – Trying to do it all yourself.
Owning rental property is a business. Just like you shouldn’t attempt complicated maintenance projects on your own, you might not want to run this business by yourself. A qualified property manager, for example, can screen tenants, conduct inspections and tap an established network of contractors, lawyers and accountants to help with maintenance and repairs, legal matters and bookkeeping. With certain exceptions, property managers in North Carolina must maintain a broker license to ensure professionalism and familiarity with real property laws. So, if you decide to concentrate on your day job or simply enjoy your retirement, our property management team can help you maintain your property and keep it occupied with good tenants. Give us a call today!