Landlording Mistakes To Avoid At All Costs
By JD Esajian on October 27, 2018
There is a very fine line in any business between success and disappointment. If you talk to ten buy and hold investors, five will rave about how much they love rental properties and five will tell you how much they want to get out. In most cases, their actions directly influence their success. There are a handful of things you do, or don’t do, that have a huge impact on tenant retention, finances and everything else with the property. You cannot simply find a tenant, give them the keys and wait for rent checks to pour in. You need to run the property like a business and stay on top of every aspect. Here are five items you need to avoid if you want to enjoy a successful rental.
- Renting to the first interested party. Whoever you rent to is going to occupy your property and be responsible for paying their rent for at least a year. If rental payments stop coming in, everything else with the property comes to a screeching halt. It cannot be stressed enough just how important finding good tenants is. Landlords who usually struggle ignore the tenant screening process and rent to the first interested person. They don’t want to waste time going back and forth showing the property, so they commit to the first party without doing any diligence. They may ask some basic questions, but they avoid any application, credit check or landlord references. What generally ends up happening is things may go smoothly for a few months and then slowly checks take longer to come in until eventually they stop all together. This changes everything with the property. While you can never fully guarantee any tenant, a little due diligence at the outset often prevents much of the unexpected.
- Spending all cash flow. There is no question that having some residual money left over every month is a great feeling. However, the reality is that unless you allocate it wisely it will dry up over time. Cash flow shouldn’t be used to pay for a few nights out or fund your online purchases. Sure, you can use the money any way you like but if you want prolonged success with the property you need to be smart. Rental properties have a way of throwing you unexpected curveballs. In every lease you can expect at least one maintenance request, if you are lucky. Individually, it may not break the bank, but it must be accounted for. In a perfect world you would allocate your cash flow to a mix of savings, debt reduction and mortgage paydown. You should almost consider the money like it is not even there. At the end of every lease you can evaluate where you are with the property and maybe take a small draw but if use the cash flow as it comes you will not get anywhere with the property.
- Ignoring maintenance requests. A simple rule of thumb for rental property success is to treat your rental like your primary residence. You cannot reasonably expect your rental to run efficiently every year without seasonal maintenance. Just because your furnace & HVAC are running fine today doesn’t mean it will stay that way. Spending a little money every year will keep these items fresh and running as smoothly as possible. They will not prevent the inevitable, but they will extend the useful like of many items by years. There is always something you can do with your rental at the change of every season. In the fall you should clean the gutters, cover the central air and prepare for winter. In the winter you should update the furnace, clean the oil tank and line up a snow removal company. In the spring you need to clean the yard, lay down mulch and improve curb appeal. Finally, when summer rolls around you need to check the HVAC, look at appliances and clean the fireplace. There is always something preventative you can do with your rental. Whether you do it is up to you.
- Making unexpected visits. Just because you own the property doesn’t give you the right to show up whenever you like. There is a basic amount of curtesy and respect that successful landlords show their tenants. They may make do a quarterly inspection, but they give their tenants plenty of notice. They never just knock on the door and ask what’s going on. If you have doubts about what your tenant is doing in your property send them an email, so you have something on record. If the concern escalates give them plenty of warning before you stop by the property. If you don’t let your tenant enjoy the rental, they will surely look to get out as quickly as possible.
- Using generic lease. It is amazing how many landlords use the first lease they find online. The lease is one of the few things you can use to settle any disputes. Using a generic template will leave you without any recourse to deal with tenant issues. By spending often just a few hundred dollars you can have an attorney craft a custom lease you can use for the foreseeable future. Hopefully, you won’t have to whip out a lease if a tenant has a problem, but the odds are you will.
Rental property success is as much about the landlord as it is the property. Learn from the mistakes of others and avoid these five common errors.