Being a landlord is a dream come true for many homeowners and new real estate investors, and rightfully so: what could be better than making money each month while someone else pays off your mortgage? It's a great dream, and can be a great reality, with some work and some expertise. The work you'll have to put in yourself, but the expertise we can help you out with, in helping you avoid the following rookie landlord mistakes.
New Landlord Mistake 1: Over-Leveraging your Rental Properties
It's easy to fall into the trap of borrowing as much money as you possibly can when buying or refinancing a rental property. The problem is, you leverage yourself out of any monthly cash flow from the rental agreement, which means you'll be in trouble as soon as you have a vacancy or three, or unexpected maintenance or repair bills pop up. Keep your predictable monthly expenses (mortgage, taxes, and insurance) at no more than 50% of your month rent, and at the end of the year you should show a profit.
New Landlord Mistake 2: Using a Generic Rental Agreement
No one wants to spend money they don't feel they have to, but using a generic rental agreement from the local office store is a recipe for disaster. Not only does each state have special language that must be in the lease, but many states have special disclosures that must be attached to the lease, not to mention national lead paint pamphlets. And, each state puts limits on how much landlords can charge for security deposits, how many days late the rent must be before a late fee can be charged, etc. Either hire an attorney or go through an online service that helps you through the process of creating a rental agreement for your state, and it will save you countless headaches down the road (see the Resource Box for examples of online services).
New Landlord Mistake 3: Failing to Properly Screen Tenants
There are a LOT of bad apples out there when it comes to tenants, especially for lower-end rental properties. Remember to advertise in a major local newspaper for tenants as well as Craigslist, pull credit reports, and pull eviction background checks to see if the applicant has ever been evicted before. People tend to be either fundamentally responsible or fundamentally irresponsible with money, and either way it will be reflected in their credit and eviction histories.
New Landlord Mistake 4: Ignoring your Rental Properties
It's no fun to get messages from your tenants wailing and moaning about the roof leaking, and it's easy to procrastinate calling them back or shelling out the money to make repairs. But you need to address both tenant concerns and potential problems with your rental properties quickly and effectively, or you'll set yourself up for lawsuits and larger repair bills. Send a contractor or handyman who you trust out to the property to take a look, and oftentimes it will turn out that the tenant was merely overreacting, but you still have to check.
New Landlord Mistake 5: Failing to Evict Quickly when Tenants Violate the Rental Agreement
Many tenants will fall behind on their rent, and ask for your patience in catching up on the rent. While your heartstrings will tug, remember this: the eviction process is long and tedious, and they will have AMPLE time to bring their rent current between when you first serve them a notice to pay or quit and when the sheriff actually goes in to make sure they're out. Serve the tenants quickly when their rent is not paid, and it will send a strong message: your rental business ticks like clockwork, and is simply that: a business.
These five tips may make sense when you're reading them, yet many landlords fail to put them into practice until after they've already learned the hard way what happens when you sign an unenforceable rental agreement, or lose six months worth of rent over a bad tenant. Follow these steps, and you'll find that your rental business sails smoothly.
About the Author:
Brian Davis (AKA The Traveling Landlord) and photographer who owns several rental properties. He contributes to online real estate publications such as NuWire Investor and EZ Landlord Forms, providers of real estate news and custom rental agreement contracts, respectively.
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