If you want to accumulate wealth, almost no strategy is more solid than real estate investing. We join others in the know in recommending you invest in rental properties to generate steady monthly income.
But before you dive in, make sure you understand what you’re getting into. Several common mistakes can swiftly put you behind the proverbial eight ball and leave you in a compromising situation (legally, financially, or otherwise).
In this article, we’ll discuss some of the top errors landlords sometimes make . . . and how you can avoid them.
Are You Making These Landlording Mistakes?
Landlords often get a bad rap for being greedy, opportunistic, and mean. In reality, a few bad apples give the rest of the industry that bad name.
The reason landlords suffer a bad reputation has more to do with the mistakes they make, often unintentionally. If you can manage to avoid these pitfalls, you’ll be much more successful (as well as appreciated).
Here are the top six mistakes you should avoid.
1- Assuming the Property Will Always Be Filled
When you purchase a property, it’s easy to be idealistic and assume the space will be rented 12 months of the year. However, this often turns out not to be the case.
Between turnover and vacancies, you ought to plan for at least four to six weeks of no rental income each year. Take the trouble to factor this into your cash flow projections. If it turns out not to happen, you haven’t lost anything.
2 – Asking Illegal Screening Questions
You can and cannot do certain things when you screen prospective tenants. Make sure you study the Fair Housing Act of the Civil Rights Act of 1968 before you ask potential renters the qualifying questions. For example, you’re not allowed to ask questions or deny applicants based on such factors as race, color, sex, religion, national origin, disabled status, or family status.
3 – Trying to Do Everything Yourself
Don’t stress yourself unnecessarily by tackling everything on your own! As surprising as it might be, 99 percent of the tasks you handle as a landlord can be outsourced to someone else, and there will be little to no loss of quality.
In fact, your business will probably run more smoothly. Just hire a property manager to manage your properties for you. That will make it easy for you to focus on big-picture functions like identifying new investment opportunities.
4 – Not Having an Emergency Fund
If the COVID-19 pandemic showed us anything, it’s that emergencies can strike suddenly and close to home. And, as pretty much every landlord discovered during the pandemic, income is never guaranteed.
This is just one big reason you should have ongoing financial backup. An emergency fund is a dedicated checking account that contains enough cash to cover three to six months of expenses for each property you own. (This includes the mortgage, taxes, insurance, etc.)
By keeping this money on hand, you can be confident you’ll stay afloat for several months, even when there’s little or no money coming in. It also gives you an account from which to draw for unexpected repairs.
5 – Failing to Hold Tenants Accountable
It’s human nature to want to be liked. When a tenant turns in a rent check 24 hours late, you might choose not to implement a late fee.
Or say you catch a tenant smoking on the property and decide to give a warning, instead of issuing a fine if that’s a term in the lease agreement. These might seem like small, innocent decisions – but they could create serious problems for you over the longer haul.
Holding tenants accountable is one of the only ways you can garner respect and get people to follow the rules in the future. Letting things slide may seem kind, but it undercuts your authority. Follow through with the consequences and you’ll have a stronger business.
6 – Being Disorganized With Finances
In most areas of life, disorganization is frustrating. When you’re a landlord, though, being disorganized could actually place you in danger of breaking a law or giving up potential income.
Every landlord has his or her own preferred methods, but it’s a smart idea to maintain one central location to store all your financial documents, receipts, income statements, etc. One option is to create a cloud drive for your rental property business.
Inside the drive, develop a folder for each individual property. Inside each folder, you could save all income and expense documents. If you choose to do this, you’ll need software to track your accounting.
Put it All Together
If you want to be a successful landlord, it’s essential to plan ahead and develop a concrete strategy. It’s just as much about what you do as what you don’t do. Let this article serve as a starting point for doing bigger and better things. Good luck!
Guest Author Bio
Jamie is a freelance writer who covers trends in business, technology, and health. She loves to go skiing, camping, and rock climbing with her family.
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