How to destroy your landlord business with these 12 mistakes?
Being a landlord can be your silliest mistake if you run into the landlord business by an accident. By accident means; you bought a house and rented it to get some extra perks. Or, you are inherited with property and rented it thinking money will come every month anyway. Or maybe, you just bought an investment property and put it on rent for some time until you can flip it for profit. This is not the way how a landlord business works.
The inexperienced individuals who just view landlord business as a way of making quick money can fall on the face. A landlord business is a full-time affair and you can`t run it as a side business. Failing to comply with what a landlord business demands, you will destroy it in no time. Your efforts will go waste. Your time and money will be eaten up. The business that can be an asset now becomes a liability.
12 Mistakes Every Landlord Business Owner should avoid
· Not running it as business
I`m a landlord and I don’t need anything more than tenants that make rent payments every month. Being a landlord, I can just sit back and relax until the next rent date of the tenant comes. Isn`t it is all about the landlord business? Do I need anything more? Certainly yes, and if you are operating your business in this way, you are sure to be going to fail terribly.
The rental business requires a lot more if you pursue it as a full-blown business and not a hobby. It is far more than just renting your property and collecting rents every month. Being a business, it has to operate as a business. A rental business requires a systematic approach in order to turn it into a profitable business.
>>Read: How to do a landlord business?
· Overpriced Rents
Being a landlord, I can charge high and overpriced rents from my tenants. After all, I am a landlord and am giving a nice house to my renters for living. Most landlords often commit this mistake. They are unaware of their locality and the competition. Such landlords often suffer high vacancies in their rental units. You may have a nice house and that is why you are attracting more prospective tenants.
But, if you keep on quoting high rent rates, you will be going to have a hard time renting your place. You must survey the rates in your neighborhoods and can even hire a rental management company. Try to walk the lane in tenant`s shoes and see whether you are offering a value for money deal for tenants. Also, you should stay a bit flexible with your pricing according to the trends. A stubborn landlord can easily lose out profits.
· Discriminate Prospective Tenants
I`m running a landlord business and I need to be sure who I am renting too. So, l can ask questions based on religion, race, and nationality to prospective tenants. It is my decision to whom I rent my place. I am a white landlord and will rent to white tenants only. If this is how you are operating your rental business, then certainly you have to face consequences under the law. You are breaching the Fair Housing Laws; you can be sued and run out of the business anytime.
A landlord business doesn’t discriminate against any prospective tenant. You must abide by the laws and allow equal access to everyone irrespective of their caste, religion, color, and ethnicity. However, you can deny any prospective tenant rental application if you don`t see them the right fit for your property. But it is to be sure that the denial is out of discrimination.
· Lack of Financial Management
I get cash flow every month in the form of rent from my tenants. It is my money, I can spend it any way I want. Yes, it is true that this is your money. But the whole amount you are getting out of rent payments is not your profit. If you see this cash flow as your net operative income, your landlord business is at risk. The net operative income or the net profit comes only after deducting operative expenses from the revenue you make.
Some portion of your revenue will go in taxes, landlord insurance, repairs, future maintenance, and legal fees. You have to keep aside the amount for these expenses. Set up multiple accounts in this respect to managing your finances smoothly. Moreover, you should also consider the vacancy costs. Vacancies can occur and even a good rental property sees 80% tenancy rates. So, you should include the vacancy costs in your expenses and deduct them from your net profits.
· Skipping Tenant Screening
What can possibly go wrong in my landlord business if I don’t screen my tenants before renting? Yes, there is nothing much I need to worry about. I have their security deposits and I can cover damages from it. I am getting a tenant immediately and he is willing to pay the rent every month. Let me rent my property to them. Think before you commit this common landlord mistake.
There are n number of things that can go wrong in your landlord business if you don`t screen your tenants properly. You can suffer deep damages on your property and can have delays in rent payments. A legal hassle can be on your way as you might have rented to a bankrupt tenant or a person with a criminal background. You can have trouble vacating your property from such tenants and may bear huge eviction costs in removing them.
· Relying on HandShake Agreement
Who will get into the hassles of making the rental agreement with the tenants? It will be going to have certain responsibilities. We have to abide by the terms of the contract and have to behave accordingly. Let`s leave the things on mutual understanding and go with just a handshake agreement. Mr. Landlord if something goes wrong, this can become your worst mistake. The handshake agreements are not documented and can lead to tenant-landlord conflicts easily.
The Pro Landlords always warn the inexperienced landlords against the handshake agreements. You should always use a formal and legal rental agreement which states the terms and the conditions clearly. A rental agreement bounds both the landlord and the tenant to behave in a certain way. The issues can be resolved in a much better way and it will also help you improve your landlord-tenant relationship.
· Renting to Friends and Family
Let me rent my property to my friends or my family member. They will be a great fit for my property. I know them personally and they are good people. They will surely take care of my business and my rental property. Even I don’t need to do tenant screening or make any agreement with them. Renting to friends or family may seem to be a good idea but in the end, it is you who will regret committing this mistake.
You might feel you are saving a lot of your effort initially renting to friends. But this arrangement can land you with ruined business and spoiled relationship. Business and Friendship should not be mixed together and are better when kept separate. Also, renting to family or friends not only can cause spoiled relationships, but can even affect the profitability of the business if you don`t stay careful.
·Using a Free Lease
Why would I make efforts on drafting a custom lease agreement when there is an abundance of free lease agreements available online. I can simply download a free rent agreement from Google and get it signed from my tenants. Hey you the Rental Owner, you are going to regret this later as a free lease makes only matters worse. It is even worse than the handshake agreement.
Remember, using a free lease can land you in trouble as most times the lease is not enforceable. The clause on the lease is state-specific. A lease might be enforceable in one state but in other states, there is a chance it doesn`t work at all. You should always use a custom lease in this regard and have your lease reviewed by a lawyer before getting it signed by a tenant. If ever you are required to enforce your lease and it fails, you are stripped of using your valuable landlord rights.
· Not making inspections
Why do I need to make inspections into my property? I have rented my property to the tenants. They will take care of it. And if anything gets wrong or gets damaged, I can deduct the cost of that expense from the security deposit. Let me conserve my energy for other things and skip this task for a time when my tenants will move out. Certainly, you are at the wrong place and not handling the landlord business the right way. The regular inspection is an important aspect and shouldn’t be ignored.
It is true that it is your tenant`s responsibility to keep your property free from harm and damages. But, what if they are not doing it properly? What if, a minor water leak that they are ignoring now can lead to a much bigger problem later? A faulty staircase that you failed to repair causes injury to a tenant. You can be sued and occur to costly liabilities. Also, making regular inspections shows your concern for tenants that you will provide a better place for them to live.
· Not acting on Tenant complaints
I got a call from the tenant again. They always call to complain. I have given them a place to live and what else they need from me now? It is not my responsibility to hear their concerns or act on their complaints. They should take care of those things by themselves. My job was done after the point I get them the place to live. Think again or you are going to ruin your landlord business this way.
Remember you are into a business and the tenants are your clients. You need to provide service to your clients and a hassle-free stay on your property. However, it doesn`t mean you start brushing their shoes. But good after-sales service is their right. Do not fall short on your duties and fail to provide what you both have agreed in the agreement.
· Becoming a dictator for tenants
I m a landlord and they are tenants. They need to respect me like a king and I can still treat them with a dominating authority. They are the creditors who are liable to pay me the rent every month. Tenants are living on my property so I can enter the premises anytime. What if it annoys them or it is hurting their privacy? Having such a landlord, your tenants will hate you and vacate your property in no time.
You are a landlord; you do need to have some authority over tenants. But it doesn’t mean you disrespect them or interfere with their privacy. They also need to treat well. After all, it is only because of the tenants that you are a landlord. Tenants are the king of your business. And, if you don`t know how to behave with them, you can lose your landlord business.
· Being a Greedy Landlord
Pay the rent or else leave the house. Are you the kind of landlord who just has profits on your mind? Are you the landlord who is greedy and never listens to your tenants? You don`t like to hear stories but you need your money that too on time. You too have endless streams of expenses to pay and you have to stay disciplined with the payments.
Sure the landlord business is about making profits and staying soft heartened to your tenants can ruin your business. But there is a thin line between being a greedy landlord and being a successful landlord. He who understands it reaps the maximum profits in the landlord business. You can run your business with profits in mind but always have an attitude of a kind and a considerate person.