Since rental income is a form of “passive” income, new investors may view real estate as an easy money maker. But the day-to-day work of being a landlord involves complex tasks and considerations that are anything but passive. An inexperienced real estate owner can encounter challenges resulting in foreclosure or massive debt without adequate planning. Here are some tips for sidestepping the most common mistakes new landlords make.
Failure to screen tenants. Once a rental property is ready, a landlord will be eager to fill it. But signing a lease with the wrong renter can be much more costly than letting a property sit empty for a few weeks. Gathering information through an application, employment verification, and a credit report can mean the difference between an uncomplicated tenancy and an expensive eviction.
Poor communication. Once tenants are in place, an open line of communication is a must. Conscientious, responsive landlords’ tenants will likely take rules seriously and report problems. But don’t assume tenants will report every issue. Regular inspections, following proper notice to tenants, will keep a property in line with building codes and catch minor issues before they escalate.
Insufficient cash flow. A rental property is a significant investment, but the costs don’t stop there. Each unit requires proper maintenance to meet safety standards and appeal to prospective tenants. And landlords can’t count on renting a unit every month. Maintaining a healthy cash flow, including emergency funds, will help ride out the storm of broken appliances, property damage, or empty units.
Legal pitfalls. Landlords risk legal pitfalls if they don’t do their research. Federal law prohibits housing discrimination based on factors like race, religion, or marital status. State and local laws can touch on many subjects relevant to landlords, including tenant privacy, security deposits, building codes, and eviction proceedings. Staying up to date on relevant rules and regulations will prevent the hassles associated with fines or lawsuits.
Cutting corners. Cutting corners is tempting, especially as a rental property venture gets off the ground. But only solid business practices will prevent future complications and expenses. All agreements, including leases and amendments, must be in writing. And when questions arise regarding insurance, accounts, taxes, etc., professional advice will provide the most accurate answers and keep the property compliant.
Like any new venture, investing in rental property has a learning curve. And no landlord can avoid every hazard along the way. But a combination of planning, research, and the right mindset can help you avoid common mistakes and set you up for success.
About Rentals America
Rentals America provides full-service property management for residential rental properties. Our team is wholly dedicated to property management, and we’re here to help landlords navigate the rental market.
