List of Mistakes Every Landlord Should Avoid
Becoming a landlord sounds easy on paper – you buy a home, make a few choice upgrades to the place, and find a tenant to generate monthly revenue. But this line of work requires a thoughtful strategy to prevent problems. You’ll make a few mistakes along your journey as a landlord, but you’ll learn with time.
Here are six common mistakes that should be avoided at all costs.
Not Checking Your Tenant’s Background
Trusting a stranger to live in your home requires you to take a leap of faith – but you don’t have to trust someone blindly. Most landlords take their chances to not deal with the hassle associated with a background check – but this crucial step can save you a world of nightmares later on.
For starters, you should take the time to verify your tenant’s references, including former employers and landlords. Ask them to provide their pay stubs for the past six months as proof of employment. As a rule, their monthly salary should be at least three times the monthly rent. If the salary is too low, they may find it difficult to cover the monthly rent.
Asking the Wrong Questions at the Interview
While it is important to learn as much as possible about your prospective tenants, it is important to know when you are crossing the line. Being polite and tolerant should be your go-to principle when interviewing candidates. Moreover, it is illegal to turn down applicants based on their race, beliefs, gender, and other distinctions.
If you know how to conduct an interview, you can hire a property manager to handle this for you.
Underestimating the Cost of Repairs
As mentioned earlier, becoming a landlord has the same hassles as any part-time or full-time job. You have certain obligations to your tenant, including property maintenance and making sure the place is safe to live in. Also, make sure you have enough money saved up in case of major one-time repairs (such as repairing structural damage after a hurricane).
Not Minimizing Liability
The work of a landlord should be treated like a business – and it is legally useful to keep it as such. Open up a business bank account for collecting rent and making expenses. You’ll need to use a bookkeeping system to stay on top of all your tax requirements. Hire a tax professional to handle the taxes for you.
Pro tip: Establish a Limited Liability Company so all payments are made into the business bank account. That way, if anything goes wrong, your personal assets will not be held liable in a suit. Consult a lawyer for actual legal advice.
Taking a Tenant’s Word For It
Allowing a tenant to stay in your property without a lease agreement is a major red flag that could become a big problem later on. It is extremely important to document everything in a written contract. That way, if you ever run into problems with the tenant, you can seek help from the local courts to make rulings in your favor. It also pays to learn your state’s laws about renting.
Assuming You’ll Always Find a tenant
This approach is problematic because most have mortgages to pay and depend on the steady rental income to cover the expense instead of a more reliable paycheck. This is a bad idea on various levels. You’re making assumptions on three things that can change at the drop of a hat:
- You’ll find a tenant for your home.
- Tenant will pay their rent consistently and on time.
- The tenant wouldn’t leave in just a few months.
Real estate conditions are prone to swinging from one extreme to another. Desperate times call for desperate measures. If you’re difficulty finding a new tenant, you can lower your rent price and soften your pet policy. Other measures include major renovations to the house, providing free rent for one month, and a few other measures.
If you haven’t hired a property manager already, click here to learn more about our services and how an experienced property manager can share some of your burdens.