Being a landlord might sound like an easy job, however, it comes with a lot of responsibility you may not be expecting. Property management isn’t exactly rocket science, but to succeed you’ll need to have the mindset of a business professional. As a new landlord you might be lacking in experience, so learn from the mistakes of those who came before you. Make sure you don’t lose money, time, or sleep by checking out these common mistakes landlords tend to make!
Not Crunching Your Numbers
The main reason to rent out a home is to make money, but you can’t put just any price on a home and call it good. Be sure to calculate your expenses before putting a price tag on your rental; you want to make sure your rental income covers your monthly rental expenses after all. Be sure to factor your mortgage, taxes, insurance, HOA costs, maintenance, unit turnover cost, and cost of a property manager into your calculations. The math may be a bit of a pain, but your profitability will make it all worth it.
A guideline to use when pricing your property is the 2% rule of thumb. It states that if your rent is 2% of the purchase price, you’re more likely to generate a positive cash flow. Be sure to check the market prices for similar rentals in your area by consulting with property managers, real estate agents, and rental ads. You want to make sure you don’t rent under the market value or too high over it, as these could tank monthly profit or lead to vacancies.
Choosing a Bad Location
Unless you’ve inherited property, it’s likely that you can purchase a home to rent out wherever you’d like. If that’s the case, then you need to make sure to consider the area around your home. Perhaps you’ve heard the saying “Location, location, location.” This is the number one rule in real estate, meaning that identical homes can vary in price just due to location. Having a rental in an undesirable location can lead to a struggle to find renters and a need to charge less for rent.
You don’t want to lose profit, so when you’re planning to choose a property to purchase be sure to consult with a real estate agent that knows the area. They will be able to point out some of the better neighborhoods and amenities that will draw in tenants.
Not Solving Maintenance Issues Immediately
Part of a landlord’s responsibilities is fixing any maintenance issues that arise in your rental properties. As soon as your tenants report a problem it is crucial that you reply quickly. Not only do you have an ethical responsibility to your tenants to fix these issues, but state and local laws require landlords to act on maintenance requests within a specific timeframe. Make sure you abide by the law, your relationships with your tenants will thank you for it.
Not Treating Your Rental as a Business
Considering a rental property as passive income is one of the biggest mistakes a landlord can make. Changes in the rental market, rental law, maintaining your properties, and keeping in touch with your tenants all require that you think of being a landlord as a part-time job or even a full-time business. You should be using accounting software or a spreadsheet to keep track of income, expenses, and your return on investment. You might also find it beneficial to establish a business plan, consult with accounting and tax professionals, and establish a separate bank account for anything associated with your rentals.
Treating the Property Like Your Own Home
Though the property is technically your home, the person living in it isn’t going to be you. You won’t know their tastes in home design and shouldn’t assume that it is the same as your own. Personally, you may be a fan of bright colors and retro style furniture, but that only meets a very specific taste. Decorate your property so it meets a variety of tastes; you can’t go wrong with neutral colors and classic or modern furniture.
In personal dealings promises can mean the world, but a handshake in a business dealing means nothing. To protect yourself legally, it’s necessary that your tenants sign a physical leasing agreement. Any problems that may arise in the future necessitate written, binding documentation. Be sure to familiarize yourself with the laws regarding leasing and the appropriate forms. You also need to make sure that your rental is up to housing code standards for health and safety. Keep up your end of the legal bargain to make sure you won’t be found legally entitled to compensation for damage or injury resulting from neglect.
Not Knowing When to Hire a Professional
Being a successful landlord requires leveraging skills in customer service, marketing, accounting, and maintenance. If you don’t believe you have enough skills in these areas, you should consider utilizing the services of a professional property manager like Iron Eagle Property Management. Property managers will reduce the time, effort, and work involved with being a landlord, leaving you with plenty of opportunity to simply relax and enjoy it’s benefits.
We’ll take the time to go over any questions or concerns you may have regarding renting out your property. Start your journey as a landlord and contact us today!
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