Becoming a landlord can be a profitable investment, but it is one which is loaded with challenges and pitfalls which can put your bank account in the red. If you are considering becoming a landlord or are already one, we have compiled a list of costly landlord mistakes to avoid in order to make the most out of your investment.
Landlord Mistakes to Avoid
Underestimating The Costs
Owners of rental properties who have not done their homework are in for a bit of a shock when it comes to how much money it actually costs to maintain a property. There are the basic costs, such as the mortgage, any taxes and the insurance. But there are other expenses which you must be prepared for, including:
- Landscaping (unless you plan on doing the bulk of it yourself)
- Regular repair and upkeep
Many investment pros suggest that property owners plan for their annual costs to be around 40% of their yearly rental income, excluding your mortgage costs. That way you will always be financially prepared.
Not Raising Your Rent
Arguably the most common of the landlord mistakes to avoid is to not raise your rent. Landlords are afraid that if they do raise the rent anywhere from $10 to $100 per month that they will immediately lose tenants. A loss of tenants means an increase in vacancies, and that can be even more costly.
Do not let yourself to become intimidated by the thought of losing your tenants. For the most part, a small increase in monthly rent will not result in a loss of your tenants. In fact, many landlords will never hear a single complaint about it.
Raise the rent to an amount which is competitive in your area. When your tenants become looking around for a new home to move into and calculate the costs and stress of the move, they are likely to stay put.
Some landlords feel that losing out on 1 or 2 months rent is not a big deal, but that can result in thousands of dollars lost. Not only that, but not having someone living in the home may negate your home insurance coverage.
The moment your current tenant informs you that they will be moving, it is time to get down to business. Depending on the amount of time and capital you have available to advertise your property, you should:
- Create an online listing on a free classified website
- Put a sign in front of the property stating that the property is for rent
- List your advertisement on Zillow
- Hire a real estate agent who shows rental properties
Breaking The Law
Zillow recently quizzed landlords from all across the country about basic rental laws, and the results were sub-par. The average respondent missed more than half of the questions, and sometimes on even the most obvious laws which their tenants would be sure to know.
Breaking any laws can mean missed rent, repairs, renovations or penalties and fines. Staying on top of these rules and regulations is never easy, which is why many landlords are now joining property owner associations. These networks will keep you informed of any changes and help address any questions you may have.