Becoming a landlord is a challenging but rewarding endeavor. However, landlords that opt to manage their properties hands-on and become DIY landlords should proceed with utmost caution.
Whether you’re a seasoned or first-time landlord, it’s essential to learn the common pitfalls of becoming a DIY landlord to avoid unnecessary stress and optimize your rental business.
Top 10 Mistakes to Avoid as a DIY Landlord
1. Lack of Written Lease or Rental Agreement
Landlords should always use a written lease or rental agreement that outlines the rights and obligations of both the landlord and tenant, including rent amounts, payment due dates, and policies regarding maintenance and late fees. A legally binding written lease is key to enforcing lease terms, as well as protecting yourself and your investment.
2. Property Neglect
Regular property inspections help identify issues like structural damage or maintenance needs and show tenants you’re invested in maintaining a high-quality living environment. This can foster positive landlord-tenant relationships and encourage long-term tenancies.
3. Being Unprepared for Vacancies
Landlords should prepare for vacancies by saving funds for expenses related to preparing, repairing, and marketing the property. Effective marketing and maintaining a desirable living environment are key to minimizing vacancies.
4. Delaying Evictions and Legal Actions
Don’t delay necessary evictions or legal actions, always maintain a professional stance, and adhere to legal and ethical guidelines. In complex situations, seeking assistance from a seasoned property manager or lawyer can be invaluable.
5. Inadequate Market Knowledge
Understanding your local rental market is crucial. Mispricing units can lead to financial loss or prolonged vacancies. Stay informed about local rental rates, tenant demands and trends to position your property competitively.
6. Ineffective Tenant Screening
A thorough screening process, including credit and background checks, is essential. This helps find responsible tenants who are likely to pay rent on time and adhere to lease terms, contributing to a harmonious living environment.
7. Underestimating the Value of Time
Real estate management is time-consuming. If managing the property interferes significantly with your personal or professional life, consider hiring a property manager. They can handle maintenance and tenant interactions, allowing you to focus on strategic growth.
8. Legal Unfamiliarity
Learn about and stay compliant with legal requirements, like lead-based paint disclosures for properties built before 1978, proper eviction procedures, proper handling of security deposits, and adherence to the Fair Housing Act.
9. Not Preparing for the Learning Curve
Managing rental properties involves a steep learning curve. Continuous education and help from property management professionals are crucial to avoid mismanagement, legal troubles, and financial losses.
10. Neglecting Insurance and Financial Management
Ensure your property is adequately insured and keep your financial records organized. Different properties require different insurance coverage. Landlords should maintain a clear account of their income and expenses to make informed financial decisions.
Other Important Things to Consider
Landlords should operate their rental property as a business, ensuring professionalism and customer service-oriented practices. This includes setting clear processes for tenant selection and property maintenance, creating a comprehensive lease, and building a solid support team.
Moreover, it’s vital to build substantial cash reserves for unforeseen circumstances and keep documents, photos, and records organized for each property. This is vital for smooth operations and legal compliance.
Why Hiring a Professional Property Manager Is the Better Choice
While managing a rental property on your own can be feasible, there are reasons why hiring a professional property manager may be a better choice, especially for those with multiple properties or anyone new to the rental scene.
- Expertise in Legal Compliance: Property managers are well-versed in the local and state laws that govern rental properties. This includes fair housing laws, lease requirements, eviction processes, and property standards. Their expertise can help landlords maintain legal compliance, thus reducing the risk of legal issues.
- Efficient Tenant Screening and Management: Professional managers have thorough tenant screening procedures in place, which include credit, criminal background, and rental history checks. Managers are also adept at handling tenant concerns, lease negotiations, renewals, and difficult situations like evictions.
- Maintenance and Emergency Handling: Property managers typically have networks of reliable, vetted contractors to handle repairs and maintenance work, often at a lower cost due to the volume of business. They also handle emergencies, taking the burden off landlords who may not be available 24/7.
- Optimizing Rental Income: Experienced property managers are knowledgeable about the rental market and can help set competitive rent prices. They can also provide advice on property improvements that maximize rental income and keep the property competitive.
- Reducing Vacancy Rates: Property managers know how to market rental properties to minimize vacancies. Their marketing reach and expertise often result in quicker tenant placements compared to DIY landlords.
- Time and Stress Management: Managing rental properties can be time-consuming and stressful, especially for those with other full-time commitments. A property manager handles all aspects of property management, from tenant issues to maintenance, giving landlords peace of mind and freeing up their time.
- Professional Distance: A property manager acts as a buffer between the landlord and the tenant. This professional distance can help you make unbiased decisions and enforce lease terms more effectively, which can be difficult when landlords develop personal relationships with tenants.
- Record Keeping and Financial Reporting: Property managers provide detailed records of expenses, incomes, and maintenance requests. They also offer regular financial reports, making it easier for landlords to monitor their investments and prepare for tax season.
- Handling Multiple Properties: For landlords with multiple properties, a property manager becomes indispensable in efficiently managing all the properties, ensuring each one receives the necessary attention and maintenance.
- Market Knowledge and Networking: Property managers have extensive knowledge of the local real estate market, which can be invaluable for landlords in terms of market insights and opportunities for future investments.
While being a DIY landlord has its merits, the benefits of hiring a professional property manager are significant. With the right property management partner, you’ll minimize risks and improve your investment’s income-generating potential. Call Bigham & Associates today to learn more about our services!