What can be so hard about owning investment property? you buy a house, you stick a Fore Rent sign on the front lawn, get a tenant and charge more than what your expenses are and you are done. Right? Wrong!
Owning an investment property is a business (passive for the most part, but a business nonetheless) and it should be treated with the seriousness a business deserves. Some of the most common mistakes landlords make can cost you plenty.
Here they are, summarized, so you can be aware and try to avoid them:
1. Not screening properly. Every tenant seems like the perfect tenant when you have a vacant property that's costing you money, but make sure you vet each tenant properly to avoid future issues that can cost you thousands in unpaid rent, evictions and property damages. The best way in which you as a landlord can find out if the prospective tenant is as responsible as they claim to be and has been a good tenant in the past, is by conducting a thorough background check including criminal background searches, eviction record searches, verification of employment and previous landlord, etc.
2. Under-budgeting for vacancy costs. Do you have enough cash set aside to pay for your mortgage, taxes, utilities, insurance, etc while your property is vacant? check with a local Realtor to find out what the average vacancy rate is in your area to make sure you can carry the property until you find a tenant.
3. Underestimating maintenance costs. Maintaining a rental property comes with unexpected expenses, such as damages, repairs and normal wear and tear. Analyze the condition of the property for potential repairs, budget for maintenance items such as A/C cleaning or potential leaks and set money aside for painting and carpet cleaning when the tenant vacates.
4. Improper paperwork. I always say that when things go well, nobody needs a contract, but when things go wrong, that's when you need them. A lease agreement is a legally binding contract and as such, it should be prepared skillfully. There are fill in the blank versions, which have been prepared by attorneys, that are a great resource. Make sure that you fill them out thoroughly, specifying all the terms and have it checked by a professional (a Realtor and/or an Attorney).
5.Not being aware of the Fair Housing Act. Not knowing, or ignoring fair housing laws can cost you dearly by opening you up to potential discrimination lawsuits. Make sure you word your advertising and conduct tenant interviews free of bias. Visit the US Department of Housing and Urban Development website for information about protected classes.
6. Neglecting tenant's requests. Failing to maintain your property and address tenant's requests will not only make your tenant unhappy, but it means you are breaching the lease. What's more, a small failure that goes unaddressed, can turn into a bigger issue over time. Keep in contact with your tenant to make sure the property is being maintained in good condition and send repair personnel promptly when repairs are needed.