11 Mistakes Inexperienced Landlords Make

By Katie Adams | September 08, 2009 AAA
11 Mistakes Inexperienced Landlords Make

With the housing market collapse many investors who have been fortunate enough to preserve their cash, or maintain access to credit, are snapping up incredible deals on residential properties to try their hand at real estate investing. (Find out how to stop chasing the market and start leading it. Check out 5 Things Every Real Estate Pro Knows.)

While it may sound easy enough - buy a home, make a few renovations and rent it out for more than the monthly mortgage payment - successfully managing your own investment properties requires the mindset of a business professional. Without experience, it can be easy to quickly lose money, time and sleep by making these common new landlord mistakes.

  1. Not running adequate checks on a potential tenant.
    As anxious as you may be to get a tenant in and paying rent, it's not worth rushing ahead without checking your tenant's credentials first. Use a rental application form that will provide you with adequate information, pay the money necessary to obtain a credit report (to check on a history of late payments, delinquent accounts, etc.) and take the time to verify references including employers and former landlords.

    Even if the tenant is "desperate" to move in and can make the deposit amount immediately, check out their background first. Don't allow yourself to feel rushed or pressured into making a potentially costly mistake.

  2. Thinking the property will always be rented.
    Before closing on a property you need to do your own financial due diligence and ensure that you can pay the mortgage (if you're taking on a loan) in the event that you have months with no tenant paying rent. Don't risk potential foreclosure and financial ruin because you failed to do a simple cash flow analysis and maintain sufficient funds to cover the mortgage payments when renters are few and far between.

  3. Underestimating the cost of repairs or ongoing property maintenance.
    In order to keep tenants interested in (and paying for) the property you will need to maintain it. Make sure you're charging enough in rent to at least help cover a portion of ongoing maintenance costs (i.e. painting, cleaning and carpet cleaning between tenants).

    Also plan on having to pull money either out of the business or your own pocket in the event that you don't have the cash needed to make major one-time repairs (such as repairing structural damage, replacing appliances, etc.).

  4. Viewing it as a hobby.
    Owning rental properties is a business and in order to turn a profit you'll need to operate it as such. That means establishing separate bank accounts for deposits and expenses, using a bookkeeping system and consulting a tax professional to ensure you are correctly handling (and paying!) taxes on your business.

    If you don't set yourself up with the necessary resources and relationships you will most likely end up losing money. (Learn how fixing a few pipes can be more profitable tax-wise than adding a new roof. Read Tax Deductions For Rental Property Owners.)

  5. Relying on a handshake.
    In business you can't rely on promises. For your own legal protection it's essential that your tenants sign a lease agreement to reside in the property and ensure that he or she understands the terms of the contract. If you run into problems with your tenant you will need written, binding documentation (i.e. a lease) in order for the judge to make a ruling. Know your state's laws regarding leases and ensure that you use an appropriate form for your state. FindLaw.com has compiled a state-by-state listing on lease and rental agreement laws.

  6. Asking illegal interview questions.
    You don't want to run the risk of giving a potential tenant sufficient grounds to sue you for discrimination by asking the wrong questions during the screening interview. The Fair Housing Act of the Civil Rights Act of 1968 requires that you cannot deny a tenant's application based on race, color, religion, national origin, sex, marital status, handicap or family status (i.e. if they plan on having children). Learn more about federal and state fair housing laws through the Office of Fair Housing and Equal Opportunity website.

  7. Neglecting tenants.
    The home(s) you are renting out are your responsibility. If you do not regularly check in with your tenants and on the condition of the property you will have no one to blame but yourself if something goes wrong. However make sure that you are not violating your state's laws regarding tenant privacy before stopping by the property unannounced. You may inadvertently give them the right to sue you or be released from the terms of your lease agreement.

  8. Not meeting state and local housing codes.
    As a landlord you're required to make sure the property meets health and safety standards. If you don't take care of your end of the legal bargain your tenants may have grounds to break the terms of your lease agreement, potentially sue you and even to be legally entitled to compensation for damage or injury due to your neglect.

  9. Delaying an eviction.
    Not beginning eviction proceedings as soon as legally possible can be a very costly mistake. If you run into problems with a tenant and are unsure about your rights or how to proceed, contact an eviction attorney as soon as possible. (Want to learn more? Read Tips For The Prospective Landlord.)

  10. Not enforcing lease terms.
    If you outlined that late rent payments would incur a penalty, charge it. If you noted that no pets are allowed and your new tenant buys a Great Dane, enforce the penalty. If your tenants realize that you lax about the terms of the lease they will likely follow suit. Set - and enforce - the standard you want upheld.

  11. Not writing it down.
    It's essential that you keep written documentation of interactions with your tenants in the event that you ever need to take him/her to court. Note phone conversations and keep copies of emails, voicemails or text messages, etc. to be able to support your allegations.

If you are unsure about how to successfully start your career as a landlord, or fear that you may not have the time necessary to perform the job well, consider working with a professional property management company. Interview several companies, check out their backgrounds and references and ensure that, like your tenants, you understand and agree to the terms of a contractual relationship.

Find out what factors you should weigh when searching for income-producing real estate. Check out Top 10 Features Of A Profitable Rental Property.

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