Being a landlord sounds easy enough: you buy a home, fix it up, and rent it out, charging more than your monthly mortgage payment. While becoming a landlord can be profitable, it can also be costly; avoid potential pitfalls and unnecessary expenses by being aware of the most common mistakes made by landlords.
Not conducting a thorough screening
In your hunt for a tenant, it’s not just about getting your vacancy filled as soon as possible. You wouldn’t trust your property in the hands of a total stranger, so avoid potentially troublesome residents by vetting them first. The only way to find out if prospective tenants are as responsible as they claim is to perform proper background, credit and reference checks. Verify that renters have paid the rent on time and have not caused problems for their previous landlords or employers.
Underestimating maintenance costs
Be prepared for the possibility that your property won’t always be occupied. If you aren’t able to fill a vacancy right away, do you have enough cash set aside to pay for the mortgage, utilities and other maintenance costs? Maintaining a rental property comes with unforeseen expenses, such as damages and unexpected repairs, and the bills still need to be paid. Complete a cash flow analysis and establish a budget so you’ll be able to cover these potential costs.
Incomplete or inaccurate leasing paperwork
A lease serves as a binding, legal agreement between you and the tenant. As such, you’ll want to make sure it thoroughly addresses the rules, responsibilities and conflict resolution procedures for living on your property. Remember to put everything down in writing: A handshake or verbal agreement won’t hold up in court. There are many generic leases that can be found online, but you’ll want to have the paperwork examined by a legal professional to ensure that the terms protect your interests and comply with local and state regulations.
Ignorance of fair housing laws
Familiarize yourself with federal and state fair housing laws from the get-go. Don’t give renters sufficient grounds to sue you for discrimination due to a poorly worded rental listing or a biased interview question. According to the Fair Housing Act, it’s illegal to reject a renter based on his or her race, color, sex, ethnicity, religion, handicap, marital status or family status. You can learn more about fair housing laws on the U.S. Department of Housing and Urban Development’s website.
Neglecting property maintenance or service requests
Once the lease is signed and you’ve handed over the keys to your new resident, you’re done, right? Wrong. As a landlord, it’s your job to meet your terms of the lease agreement: Check in with your tenants, keep tabs on the condition of the property, complete regular preventative maintenance, and make sure your property is a healthy and safe place to live. Neglecting your residents and your property can result in higher turnover, more vacancies, or even lawsuits, all of which will negatively affect profitably.
Reduce the risks that come with being a landlord by educating yourself, networking with other experienced landlords or joining local or national landlord associations to keep up with changing rules and regulations.