Want to effectively and profitably rent out real estate? Make sure you are aware of these common landlord mistakes, and how to beat them…
Being an income property owner is one of the best ways to generate more income and create more wealth. It’s also a fast way to lose everything you’ve got and pile on the stress if you don’t know what you are doing.
It’s really sad to see some newer landlords really blowing their financial futures for the sake of these basic blunders. Make sure you are not one of them.
- Failing to Understand True Rental Potential Before Making an Offer
This is one of the biggest risks facing new landlords today. If you don’t really know how much it will rent for, then you can’t make an accurate offer and secure a profitable price. Then you could be losing money every single month and have a hard time reselling.
Ignore local asking rents or average rents in the city. Look at what rental rates are in that neighborhood on leases being signed right now. Make sure you factor in the time it will take to lease. In a high demand neighborhood and with a good system you can have tenants in on day 1. In other markets and with poor management it could take 3 months to land a tenant, meaning your annual returns and net cash flow is much, much lower. Know what is typically included in the rent. Having to include water, electric and WiFi can make hundreds of dollars of difference each month. Calculate the cost of having to offer lease deals to new tenants. Know how much you can reasonably get if you have to stick with an annual of off season tenant versus peak season short term rentals. Be tuned into rental rate and demand trends. If the market is declining you need to build in more cash flow cushion to account for lower rental rates on lease renewals.
- Not Filling Units Quickly
Ideally you’ll have a tenant moving in on the first day you take ownership of the property. If it needs rehab, then it should be the day the renovations are complete. Extended vacancy times not only ding your returns and cash flow, but will lead potential renters to think there is something wrong with your property. It changes the perception of the market for competitors and renters. Once you have a few rentals sitting empty in a neighborhood for a while, tenants want to pay less, and landlords can get into a price war and begin slashing their asking rates.
- Nickel and Diming Tenants and Rental Applicants
No one likes to be nickel and dimed to death. Not mobile phone plan customers, not car shoppers, not mortgage borrowers, not landlords or tenants. It’s a huge turn off. It always makes the consumer feel like they are getting a raw deal and are being taken advantage of. Having 3 sets of application fees to make it look cheaper on the surface can bite you back hard. So, can a bunch of miscellaneous fees at the signing of your lease. It can cause a lot of fall out, and then much more paperwork and time consuming activities for lower returns on your time. Don’t you prefer a simple flat price so that you know what you are getting? You just want people to say what they do, and do what they say, right? So, do the same.
This especially becomes an issue when landlords try to nickel and dime their tenants after a lease is agreed to. Some landlords realize they didn’t do the math well and need to make more money. Going back and trying to add fees and costs onto the rent can be a serious mistake. It doesn’t matter if it is $10 or $10,000, tenants are going to feel you are doing them dirty. You’ll instantly lose trust and respect. They will only be able to assume that you’ll keep doing more of the same. They could make extreme moves to try and protect themselves or get even. The amount of your change doesn’t matter, it’s the principle.
If you made a mistake in your math or being clear on the terms, go back and explain first. Let them know what the issue is, why you need more money, and try to work something out fairly. If they still like and trust you, there’s a good chance they will go out of their way to help you.
Make sure you are mastering these items if you want to generate the best profits and really enjoy your time in real estate. Now check out the next 4 common landlord mistakes in Part 2 of this report.
- Bartering with Tenants
This can seem like a really attractive idea in some cases. Executed with great skill it can create a lot of value and win-win solutions for both renters and landlords. Like trading rent for contractor and rehab work, or regular landscaping, or even housing team members. There are pros. There are also a lot of potential pain points if you get it wrong.
Too often these arrangements blur the lines of friendship, employer-employee relationships, and landlord-tenant laws. That can lead to many fierce disagreements, stress and negative branding.
Done poorly it can even devalue your real estate assets. At a minimum, make sure you keep your rental rates at market value on paper. Any bargaining should be done as temporary discounts, and rents showed be kept separate from work traded. For example; giving them back a rent credit or rebate, instead of accepting a lower lease rate. Whatever, you do, have clear boundaries and clear and well defined agreements. A basic “help me, and I’ll help you,” deal sound great, but too often ends up in disaster before long. Someone always feels they are getting the short end of the stick or misinterprets the deal.
- Not Putting Everything in Writing
The above usually falls apart because things aren’t clearly put in writing. Everything in real estate should be in writing and signed in order to be legal and defensible in court. That includes leases, even month to month leases, and addendums or temporary adjustments. At least keep an email papertrail (not text messages).
- Assuming Your Message Got Through
Many more landlord-tenant disputes and outrageous situations arise from other breakdowns in communication. Often because people aren’t getting each others’ messages. Never, never, never, ever just assume the other party got your message. Just because you sent it doesn’t mean they got it.
You might be trying to text them on a Skype number that doesn’t accept text messages. You email may have gone to spam, they might never check voicemail messages, some neighborhood rascal may have stolen the note you left. Always ask for confirmation of receipt. Some text and email services will let you know when messages are read too. Have your property manager take photos with a timestamp if they post a notice on a tenants door.
- Failing to Pay People on Time
Nothing crushes trust or sours relationships like failing to pay people, or being late on paying them. As a landlord this can apply to contractors, deposit refunds to tenants, remote marketing staff, and more. It doesn’t matter if it’s $30 or $30,000, it’s about the principal. Plus, on those days you think you are struggling to balance money, you can bet they are struggling even harder.
So much relies on relationships and online reviews today. You just can’t afford to burn people for a few dollars. Know how much your brand, name and reputation and future finances are worth. If the number you owe is less than that, you can’t afford to drag your feet on paying them. You’ve got to fight the temptation to just head off on a long holiday weekend before making sure everyone is paid. You can bet that one person who was relying on the check to cover their kids’ birthday or anniversary that weekend is watching your Instagram feed. If they see you posting photos of dining out, and their fridge is empty, that $30 might as well be $3M to them.
Fortunately, the reverse is true too. If you are fast and consistent about paying people on time, you can bet they will go above and beyond for you and become some of your best referral sources and brand ambassadors.
- Not Supervising Your Property Managers
It’s just smart to have a professional property management company handling your rental units. The good ones can do a far better job than the average individual landlord, and can create a lot more value and profit. Yet, some will know when you aren’t paying attention, and will take advantage of that. Make sure you are supervising and holding them accountable. Make sure they know you are.
AND NOW that you know what NOT to do, learn more about mastering being a landlord online in the REWW Academy.