Updated April 28th, 2020
Plenty of people are interested in investing in real estate, but not everyone has the experience to guarantee success. Becoming a landlord might seem as easy as purchasing a property and renting out space, but in reality, it's a bit more complicated than that. If you're hoping to invest in real estate and take the first step to become a landlord, make sure you avoid these common beginner mistakes that many first-time landlords make.
1. Ignoring Maintenance
When you own a rental property, you'll have to invest in it more than just the buying price. Every property, rental or otherwise, requires maintenance, and renters are going to notice if you fail to manage maintenance appropriately. Keep up with routine maintenance, particularly for large appliances or utilities like your water heater. A standard water heater only lasts ten to fifteen years before corrosion attacks the tank walls—budget for these extra expenses in advance to avoid profit loss later on.
2. Budgeting For Rental Expenses
One of the biggest mistakes first-time landlords make is not taking into account all of the rental expenses. Maintenance is not the only expense you need to budget for monthly. You also need to set aside funds for a vacancy, management (either for yourself or a hired company), utilities (if the tenant does not pay them), taxes, and insurance. Some new landlords think once the mortgage payment is made monthly, the remaining rental income can be counted as cash flow. This is not the case. By doing this, you run the risk of changing your lifestyle based on an influx of cash and having to scramble to pay for the items when issues arise, or bills are due.
3. Avoiding Technology
In the digital age, there's a seemingly infinite amount of resources available to landlords and renters alike. From landlord apps to online rental property listings and more, the twenty-first century has countless tools for you to use. These can significantly simplify the process of managing your property, and you should take full advantage of them if you can. Your renters will also be grateful for the convenience of being able to pay their rent online. Showings can be done via video calls and virtual tours in case you can't meet in person. Most contracts and rental leases can also be signed digitally and are regarded as legal signatures in most states. Consult your local real estate attorney for more information.
4. Properly Screening Potential Tenants
Unfortunately, like landlords, there are good and bad tenants. Trusting a potential tenant to pay you without adequately screening them is a bad idea. If a tenant falls behind financially, quite often, rent will not get paid because it is their most significant expense. When you first start as a landlord, you want to believe that everyone is trustworthy and will honor their verbal commitments. Ask any veteran landlord; this is not the case. Most folks mean well, but if they fall on hard times, rent payments will go by the wayside. Properly screen your tenants to ensure you are renting to someone who honors their commitments.
5. Stick To The Rules
The Fair Housing Act made it illegal to ask your tenant for specific personal information. This act was established to keep landlords from discriminating against tenants based on race, religion, color, sex, disability, national origin, marital status, or family status. To stay on the right side of the law, keep your rental listings and tenant questions property-related and not personal.
6. Part-Time Efforts
Being a landlord is not a hobby, it is a full-time job, and you should treat it as such. If you are not adequately keeping track of business expenses, receipts, and how you are handling the business funds, you could be out more than the rent owed. The IRS requires most businesses to have separate checking and savings accounts other than your accounts. This is to help you, and your accountant keeps track of the funds moving in and out of your business.
7. Ignoring the Eviction Process
Unless there has been a legal precedent for an eviction moratorium, first-time landlords need to learn and follow the eviction process. Review your state guidelines as to when you need to send out first and second notices before you file an eviction at the county courthouse. Cases will get thrown out of court if you don't follow the process correctly.
8. Pricing Incorrectly
Finally, while it can be tempting to price your rental as high as possible for the most profits, this can be a dangerous mistake for your investment. Renters will only move into your property if your prices are fair. Be sure to get a reasonable rent estimate with a landlord rent calculator before you put your property on the market. If you price it too high, your property could sit vacantly. Too low, and you may have to deal with housing payments and extra inspections. A landlord rent calculator can use rent comparison analysis to give you a range of rent prices that would be reasonable for your property.
Deciding to invest in your first rental property can be incredibly exciting, but many people make some of these beginner mistakes. Avoid these to profit as much as possible from your new rental property. For more information or to make use of a landlord rent calculator, contact Rentometer today.
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