Mistakes happen when someone lacks knowledge, understanding, and experience. Unfortunately, it's common for us to talk to property owners who have had a problem with a resident. Most of the time, it could have been avoided if, you guessed it, they had more knowledge, understanding, and experience.
Mistake #1 - Trusting too much
Owning a rental property does have risks. Getting a good resident is your best way to reduce that risk on the front end, but you must be legally choosy. You can't take a resident's word about their identity, character, income, and history. You have to develop rental criteria that you apply to everyone and screen each of your residents based on that criteria, so make sure to avoid landlord mistake #1 and trust your rental applicant too much.
Mistake #2 - Taking Shortcuts
Repairs and maintenance can be very time-consuming. You've got to assess the problem, decide what vendor to use, and get them out there. You have to schedule it with a resident, and then once that's done, you must make sure the repair is done right. Because it's so time-consuming, many rental property investors will pass this off to the resident. The resident says they can paint; they're a self-proclaimed handyman, can fix the faucet, and do repairs around the house. You could discount the rent, which seems like a good arrangement, until it's not. You usually don't know that your residence is not doing good work, or they didn't even do the repair until it's too late, until they've already moved out, or something else that's happened that's caused a lot more damage. It usually doesn't end well. Don't make mistake #2 and take shortcuts.
Mistake #3 - Not Accepting Pets
I will throw you a curveball for mistake #3, not taking pets. Should you allow pets in your rental property? Most landlords don't. They're afraid of damage, fearful of their carpets being torn up. They're worried about the hardwood floors being damaged, their door trim, and their window seals being chewed up. They may also be concerned about the liability of having a pet; those are all legitimate concerns, but what they don't know is that 72 percent of renters have a pet. Let's reverse that. You cut your renter pool to 28% if you don't allow a pet. How many applicants of that 28% would not be good residents? I've already shared my thoughts on screening your applicants; having good application criteria. You must make sure that you do the same thing with pets. Ensure they have their shots and the correct insurance. You must understand federal fair housing laws regarding support animals and service animals. Mistake #3 is not taking pets and not having good policies and procedures when you do allow them.
Mistake #4 - Financial Fumbles
Each landlord we serve has different goals for their properties. Some people want the monthly income, the cash flow. Other rental investors are in it for the long game. They want the appreciation and plan to hold the property until they eventually cash out. Some homeowners rent their property short-term because they plan to return after a job change. Others are buying now because they plan to move here after retirement. We even see parents who buy an investment property as a college fund for their children. Regardless of the goal, no one wants to lose money. No one wants to look up in 10, 15, or 20 years and realize they didn't make as much money as they could have because of a mistake.
Here are a few financial fumbles that we see Property Owners make:
- Set the rent too high or too low
- Lease to poorly qualified residents
- Don't make improvements to the home
- Have poor financial planning
- Not planning for repairs
- Not setting reserves back for Capital expenditures such as a roof, flooring, or appliances
Those are just a few things you'll have to plan for because they will happen.
One final financial fumble is bad accounting practices. Rental property investors fail to track expenses accurately. In turn, they lose money because they're making blind financial moves or not getting all the tax write-offs because they haven't kept up with their expenses. This aspect of owning a rental investment property alone is a lot of work—mistake #4, making poor financial decisions. Don't make Financial fumbles.
We're coming to the finish line, but that doesn't mean that this topic isn't important.
Mistake #5 - Fair Housing Failures
Did you know that rental applicants have rights? Many landlords think they can choose whom they want to live in their property based on their personal preferences, but that's not the case.
The Federal Fair Housing Act protects residents from discrimination based on color, race, national origin, sex, familial status, and disability, but that's not it. Some laws protect residents while they're in their homes; they're related to property conditions, notices, the resident's privacy, and their security deposit—mistake #5, fair housing failures. Don't make them.
That was a quick look at these topics, but there is much more to discuss. Please keep checking back with us in the future. We'll dive deep into each one and give details on many things you'll need to know to avoid making these mistakes.