What could be better than earning money each month while someone else pays your mortgage? Being a Landlord can be a dream come true for new real estate investors and with some work and expertise your dream can easily become a reality. We can help with the expertise, but the work you'll have to put in yourself! Check out our top five rookie landlord mistakes, and by avoiding these you will be on your way towards a successful career in real estate.
Top 5 Rookie Landlord Mistakes to Avoid
New Landlord Mistake 1: Over-Leveraging your Rental Properties
Borrowing as much money as you can when refinancing or buying rental properties may seem like a great idea. However, the problem is, you will then leverage yourself out of any monthly cash flow. This means you will be in the red as soon as you have a vacancy, or unexpected property maintenance.
Quick Tip: At the end of the year, you should show a profit if you keep your predictable monthly expenses (mortgage, taxes, and insurance) at no more than 50% of your month rent.
New Landlord Mistake 2: Using a Generic Rental Agreement
Using a generic rental agreement or lease form from the local office supply store is really a disaster waiting to happen. Why you ask?
Each state has special language that must be included within the lease, many states have special disclosures that must be attached to the lease, and national lead paint pamphlets. Additionally, states place limits on how much a landlord may charge for security deposits, how many days late the rent must be before a late fee can be charged, etc.
We suggest using an online landlord forms service that helps you through the process of creating a rental agreement for your state, consulting with your realtor or hiring an attorney.
New Landlord Mistake 3: Failing to Properly Screen Tenants
When it comes to locating tenants, there can be a lot of bad apples out there- especially with regards to lower income rental properties. People tend to be fundamentally responsible or fundamentally irresponsible with money; making tenant screening incredibly important.
Remember to verify employment, obtain current and past rental history and provide a thorough background/credit check.
New Landlord Mistake 4: Ignoring your Rental Properties
The roof is leaking, the washer is not working, and there are ants in my apartment – all of these are very common maintenance notifications that are easy to procrastinate but harder to ignore long term. Addressing tenant concerns and potential problems with your rental properties quickly and effectively, will save you financially and may prevent any possible law suits.
Send a handyman you trust out to the property to take a look, and more often than not, the tenant was merely overreacting – but you still have to check.
New Landlord Mistake 5: Failing to Serve Tenant Violations
While your heartstrings will tug, falling behind on rent is not an option. Patience is a virtue but investment real estate is a business. Serve the tenants quickly when their rent is not paid, and it will send a strong message.
Follow these steps, and you'll find that your rental business sails smoothly and cashflows each month effortlessly.