Owning rental properties is a challenging business, and mistakes can quickly lead to financial devastation. That’s why it’s so important for new or less experienced landlords to do their due diligence in research and sticking to good business practices. That isn’t to say a new landlord has to strive for perfection—small mistakes will happen, even with the experienced. But there are some possibly dire mistakes that can be avoided with fairly minimal knowledge or research. The following are a few mistakes every landlord should know how to avoid when starting their business.
This is a bad mistake in any situation. Having either the wrong type of insurance or lacking the proper coverage can be disastrous for a landlord or anyone else. When it comes to insurance plans needed by landlords, they boil down to two basic types: property insurance and liability insurance.
There are different kinds of property insurance, but the basic idea is that they cover you in case of damages caused to your property by things like fire and flooding. Liability insurance, on the other hand, covers you in case of an incident occurring on your property. Think things like personal injury. The general rule of thumb is that one should be covered for $1 million per incident. There are some less common forms of insurance, like terrorist insurance, but these are typically only purchased under specific circumstances.
Failure to screen tenants
Vacancies are essentially just lost money, and it can be tempting to rush ahead with a prospective tenant to clear that vacancy. This can become a costly practice in the long run, however. It’s best to always be thorough, especially since you can perform a tenant background check free. Be thorough in checking each prospective tenant’s background for things like their credit report and past renting history. Prepare questions for every tenant to ensure they are the kind of person you want living on your property. This can dramatically cut down on the amount of evictions you have later — a process that can be costly.
Failure to enforce penalties
Speaking of the possibility of evictions, it’s important not to be lax with any troublesome tenants. If you have written policies in place for things like late rent or pets, as you should, make sure to enforce the policies and their penalties. Failure to do so will likely lead to more tenants disobeying your rules.
Also, if you believe you need to evict a tenant, begin the process as soon as possible. It can be a lengthy one, and failure to follow through quickly can lead to wasted time you could have used bringing in a new tenant.
When planning your budget, it’s important to take the cost of repairs into account. You’ll need to charge enough in rent to cover ongoing and routine repairs. These are things include minor damages, changing carpet between tenants, or dealing with faulty appliances. Having to pull from your own pocket is, unfortunately, a real possibility in the case of a major repair. There are several formulas for estimating annual maintenance costs, but it’s important to bear in mind that there are exceptions to every rule. It’s always best to assume your maintenance cost will be higher than your initial estimate.
Lastly, it’s imperative to always keep up to date with landlord and tenant laws and regulations. At the very least, not following code can give a tenant grounds to break their lease. At the worst, violating the law or neglecting tenants can give them grounds for legal action against you. Make sure you’ve studied your state’s procedures for all situations.