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.
When you hand off the keys to your property, you want to make sure the person you have rented your investment to is reliable, trustworthy and financially stable. Gut feelings and sixth senses may be valid decision-making factors when choosing a flavor at the ice cream shop, but when making a financial decision that affects your bottom line, hard data is often more reliable.
Once that For Rent sign goes up on your front yard and calls start coming in from prospective tenants, make sure you have a reliable online tenant screening company you can depend on to provide you with criminal background checks, evictions records and other valuable information about an applicant. So what are some things you can expect from a tenant screening company?
1. Thorough research: Tenant screening companies have access to various national and local databases in order to obtain the most accurate and up-to-date information on an applicant. Most counties report to the National Database of Criminal Records on a regular basis, so you can obtain localized records on an applicant from one source. In addition, a tenant screening company is also able to provide state and county records.
2. Fast results: Tenant screening companies have access to records that can be released instantaneously. You no longer need to wait days to review a potential tenant’s credentials. Instant results mean you can make a decision about an applicant much quicker, thus cutting down your vacancy costs.
3. Easy to understand reports: There are tens if not hundreds of databases containing an applicant’s background information. Tenant screening companies will comb through the various databases including national databases for criminal records, FBI records, OFAC searches, national sex offender registries, eviction records and more, and place the results in an easy-to-understand report. All the information, in one place, for you.
Your rental property is one of your most valuable assets, treat it as such and make sure every potential tenant undergoes a thorough tenant screening so you can make an educated and informed decision about them.