Are you new to managing a rental property? Get started with some tips to help you avoid common mistakes.
Becoming a landlord has never seemed easier. With resources like AirBnB, Craigslist, and Zillow, it seems like it’d be a breeze to find tenants to rent out your property. This is a pretty common thought among newer rental property owners, and can lead to some unpleasant surprises down the road. Read on to learn how to avoid some common pitfalls:
1. Learn Your Local Rental Laws
This part may seem boring, but can save you from legal headaches later on. Take some time to get to know the federal, state and local rules, regulations and building codes for rental properties. This can help you understand what accommodations you may need to make for tenants, and if you have questions you can reach out to your municipality’s administration office for help.
2. Charge the Right Rate for Your Property
Getting the right rates for your rental property will help you get tenants that are a good match, and quickly. New landlords however will sometimes only look at what similar rental properties on the market are charging for rent, without considering all the factors, leading to them not charging enough.
Things to consider when calculating your rent rate:
- What are similar properties charging for rent in this area?
- Does this property have a mortgage?
- How much will the maintenance cost?
- Are there any HOA fees for this property?
- How much do you estimate to pay in taxes?
- How much does the average vacancy period cost?
- If you’re using a property management company, how much do they cost?
- What is the demand for rental properties in your area?
Once you have a number in mind for your rent, you’ll want to make sure it’s enough to cover the above while also making you a profit. If after crunching the numbers you realize that you will be in the negative, you’ll want to consider an increase in the rent to make sure you earn a profit.
3. Carefully Consider Potential Tenants
While it may be tempting to go with the first people who show interest in the property, or people you naturally get along with, choosing a bad tenant can lead to missed rent payments and even property damage over time. Protect your investment by checking these objective qualities about applicants:
- Steady Income
- Positive credit report
- References from past landlords
- History of making payments on time
- No prior history of eviction
- No dangerous criminal record
You can learn the above by conducting a background and credit check. You should also call any recent landlords the applicant lists to see what they have to say about the tenant.
4. Keep Records of the Property
Once you’ve found a tenant for your property, make sure you conduct a move-in inspection. Take photos of everything in the property before the tenant moves in, and refer to those photos when they move out. This is the only way you’ll be able to know for sure that a tenant has damaged things in the property and use their security deposit to cover the cost of the repairs.
Along with that, keep track of everything and stay organized! Maintain clear records of revenue and expenses so that you understand if your property is profitable or not. Many rental property owners lose track of important documents that end up losing them money over time.
5. Do Not Befriend Your Tenants
Keep in mind that you are in a business relationship with your tenants, and while being approachable is important, avoid becoming friends with your tenants. This can make it more difficult to collect their rent payments (which is your income!) and in the worst case, deal with legal issues. Set clear boundaries on when and how they can contact you, and keep contact with them strictly to issues relating to the property.
6. Protect Yourself with Landlord Insurance
Protect yourself from catastrophic loss with landlord insurance. Landlord insurance will help you with certain expenses that may come up from property damage, such as lightning damage or theft. Without it you’ll be forced to pay out of pocket in worst-case-scenarios, and lose any income you may have earned from this property.