There are several ways to become a landlord, from inheritance to investment, but regardless of how you come to acquire your property, the ability to rent it out is always positive; your asset has the potential to continuously generate income.
It might sound easy enough; simply put home up rent and start earning money from it right away. But the reality is quite different. There are a few mistakes that new landlords often make which can quickly result in a loss of income.
Let’s take a look at a few common mistakes that new landlords, make and how to avoid them.
Not Staying Properly Insured
Typical homeowner insurance covers the property and contents of the said property, but if you decide to turn your property into a rental unit, standard insurance may not give you proper coverage. For rental properties, you need niche specific Landlord Insurance. Many newcomers to the rental industry skip this small but essential step. Always get a niche specific landlord protection insurance for your property; when the time comes, you’ll be glad that you did.
A very common error made by new property owners is just after buying or renovating a rental property, they increase the rent; a lot. It’s true that after renovation you should expect higher rent, but there is a limit. Be sure not to cross that line.
Instead, compare your rental property to others in the local area; get an idea of how much they are charging their tenants and set the rent of your property accordingly. Experienced landlords will often set their rent a little below average. They might get a little less money from their investment in the short term, but their properties never stay unoccupied for long.
Underestimating your Involvement
Owning and maintaining a rental property is not just a hobby. It’s a business, and you need to treat it according to if you’re planning to turn gain profit from it. Requirements such as opening a dedicated bank account solely for rental deposits and expenses, preparing a bookkeeping system, consulting professionals for handling and paying taxes are all necessary. You will also need a good understanding of the government rules and regulations which concern renting a property.
Getting Complacent with the Property
Don’t get complacent. You may be having a good run with tenants, but that doesn’t mean the property will stay leased indefinitely. It’s likely that at time times your property will face a drought in terms of tenants and the money will stop flowing in for some time.
If you have taken out a bank loan in the process of acquiring the property and you’re dependent on incoming rent to make your repayments, you could find yourself in trouble. Don’t take rental income for granted, and don’t expect that your property will always be occupied without you need to put in an effort. Have a contingency plan ready instead.
Not Keeping Written Documentation in Order
This is a common mistake – one made by newcomers and experienced owners alike. It’s essential that you keep important documentation between you and your tenant in written format. You never know what’s coming your way, and in court, almost nothing is accepted except written documents. So, be sure to keep payment copies, conversations, e-mail, voicemail or text records in order to support your allegations if you ever need to.
Not doing Thorough Tenant Background Checks
Finding the right tenant can make all the difference as a landlord. On the other hand, a tenant who is a poor fit can be a huge headache. Inexperienced property owners will not give this vital point due attention, but it’s important to check your tenants’ rental history. Verify their credentials; you’ll need information ranging from employment, income or credit history. You might want to call their former landlords. Don’t forget to have a face to face meeting with them as well.
Real estate is an excellent business, but there are always stumbling blocks. The key to success lies in learning from your mistakes.
About the Author: Emma Sneddon, a freelance writer, and an independent blogger. I'm a polymath who is enthusiastic about anything related to tech, trend, travel, and minimalistic lifestyle. I mostly write about sustainable and alternative living solutions. You can follow me @EmmaSneddon90
If you liked this article, subscribe to Rentometer's email newsletter to stay up-to-date on the latest trends in rental housing.