When you invest in a rental property, investors usually think of one thing: ROI (Return on Investment).
And rightfully so, the goal of many real estate investors is to generate passive rental income.
But, to be successful, it’s important to have the necessary skills, knowledge, and experience to effectively manage the property.
Are you thinking of owning and managing an income property? Are you already doing so?
If so, then you need to learn about the common mistakes you need to avoid.
Avoiding these pitfalls will help make your rental business a money-making machine as opposed to a money pit.
1. Self-managing your property.
This is a common mistake many new landlords make. They end up finding themselves with many more responsibilities on their hands then what they thought they had signed up for.
Managing a rental property isn’t just about collecting rent at the end of the month.
Not just anyone can become an effective property manager. Property management requires experience and a team of professionals to support a rental property’s needs.
Not to mention time.
Before you decide to manage your rental property on your own, it’s important to ask yourself a few questions.
- Do you know how to handle repairs and maintenance?
- How will you collect rent from your tenants?
- Will you have the time to dedicate your responsibilities as a landlord?
- Are you well-versed with the federal, state and local landlord-tenant laws?
- Do you know how to screen a tenant?
- Can you handle tenant’s 2 a.m. calls?
These are just some of the questions you should ask yourself to determine your suitability to manage your own property.
If you answered “yes” to most of these questions, then it’s likely you’re up to the challenge of self-managing your property.
However, if you answered “no”, then are better off hiring a professional to manage your property.
2. Hiring a property management company that doesn’t offer comprehensive services.
Property management companies aren’t all created equal. Some offer select services while others offer comprehensive services.
For example, if you hire a management company that offers only leasing services (a select service).
This option could appeal to you because it looks like a cost-effective option. But, this is usually a bad decision for one main reason.
And that is, the management company may not be able to help you find the right type of tenants.
After all, their job is only to find a tenant to fill your vacancy. The tenant, from then on, becomes yours to handle.
On the other hand, hiring a company that offers comprehensive services can help you handle every aspect of the management process.
They can help you advertise your property, screen potential tenants, and conduct property repairs and maintenance among other responsibilities.
3. Overcharging or undercharging tenants.
Overcharging or undercharging tenants is often a recipe for disaster.
When the rent is too high, you may have difficulty filling your vacancies. And, when it’s too low, it may mean leaving money on the table.
Neither of these two scenarios is good for your rental property business.
When setting the rental price, you want to find the “Goldilocks” level of “just right”. This is the kind of rent that attracts the right type of tenant that will keep you rental occupied.
If you are just starting out, then setting the right rent amount may seem daunting.
That’s why many new rental property owners often turn to professional property management companies for help. Determine if you need a property manager to help you with this.
4. Failing to draft a detailed lease agreement.
A lease agreement is an important legal document that specifies the rules and responsibilities of each party to the lease.
When it’s properly drafted, it can go a long way in minimizing issues between a landlord and a tenant.
Unfortunately, not many landlords are motivated when it comes to drafting this important document. More often than not, this leads to unfavorable consequences.
Among other things, a properly drafted lease or rental agreement should detail important rules such as:
- Landlord entry rules
- Occupancy limits
- Responsibilities on property maintenance
- Pet rules
- Rent and security deposit rules
- Subleasing or subletting
- The term of the lease
5. Doing property maintenance and repairs by yourself.
We understand that every investor’s goal is to maximize their rental income as much as possible. But by attempting to perform property maintenance and repairs yourself can lead to disastrous consequences.
This is especially so if you lack the necessary skills. A YouTube tutorial can only take you so far.
Left unattended, small repairs and maintenance problems can morph into bigger and much serious issues down the road. Consequently, the issues can end up costing you much more to fix.
Besides, the repair and maintenance problems could potentially cost you a tenant in addition to ruining your reputation.
You should look to mirror what property managers do, which means working with contractors who are experts in what they do.
6. Forming an unhealthy relationship with your tenant.
A good landlord-tenant relationship is the foundation of any successful rental business. A good relationship can ensure:
- Your property is taken care of
- Rent is paid in a timely fashion
- That tensions are reduced when it comes to repair and maintenance requests
- There is better communication between you and your tenant
- There is mutual respect that may lead to more lease renewals
Sadly, some inexperienced landlords end up creating an unhealthy one with their tenants. They either become too friendly or overly transactional with their tenants.
Consequently, the tenants become lax in regard to the lease terms or stops caring all together. That’s why you need to make sure that you remain professional at all times to strike a balance and have a healthy relationship with your tenants.
7. Failing to get proper insurance.
Being protected with the proper insurance is always desirable when managing a property. More so, if your investment property is located in a disaster-prone zone.
Sadly, some new investors often take this for granted.
By doing so, they risk getting their investment reduced to nothing if/when disaster (such as flooding or fire) strikes.
Thanks to their experience, a good property manager understands this. He or she will advise you on which cover to take in order to safeguard your property against potential calamities.
These are the 7 common rental property owner mistakes you should avoid. These mistakes are very common with new property investors.
So, if you are just getting started into the world of real estate investing, consider hiring a professional property management company to help and teach you the ropes.
Would you like help managing your rental property? Call Bigham & Associates, LLC to find out how we can help you!