Being a landlord doesn’t mean sitting around and waiting for the cheques to come in. While it might sound relatively easy, owning rental properties and managing tenants is like any other business. You have to plan, do your research and learn from the mistakes of others. Here are a few common mistakes that new, and even seasoned landlords make.
Underestimating the Amount of Work
Rental properties do not run themselves. I repeat, rental properties do not run themselves! While a secondary suite in your home can certainly be considered passive income, you still have responsibilities to your tenants. You need to keep the property safe and clean, be available when there’s a problem, and you need to get any issues resolved quickly – whether it’s a broken appliance, or something more significant.
Monthly costs can quickly add up, so you need to understand what they are before you get in over your head. Make sure you calculate everything, from the monthly maintenance costs, to the fixes you might have to do, to the potential profits. Crunch all of the numbers and if at the end you don’t see a plus sign, don’t do it.
Overpricing the Property
Some people try to make up for poor budget planning by pricing the property a little higher than they should. A great idea in theory, but not so much if you can’t find a tenant. A rental unit, like a house that’s for sale, should only be priced as high as the market will bear. If people can find comparable units nearby for less money, why would they choose yours? As a result, yours can sit empty, and the financial consequences can be disastrous.
Read more about Scott’s tips for running vacation rentals.
Not Having a Robust Application Form
The idea of an application form is to get as much relevant information as you can so that you feel confident you’re going to have a great tenant. An application form should include:
- Employment details
- Salary and banking info
- References, including names of previous landlords
- A list of everyone who will be living there
- Whether the applicants smoke
- Whether they have pets
Not Checking References
Having people fill out an application form is important. But you know what’s even more important? Following up! Over and over again I hear stories of people who got references and never actually checked them. This is your business and your investment, so take the time to do your due diligence and verify the application details.
Not Welcoming Tenants
Great tenants aren’t found – they’re made. So on move in day be sure to welcome your new tenants with some sort of welcome gift. It could be a bottle of wine, a gift card for a home decor store, or a welcome basket with some essentials. It doesn’t have to be grand or expensive, just a little something to set the right tone for the relationship.
Not Getting Things in Writing
Any good business owner knows that you need to have things in writing. Even if you’re renting to a friend or family member, I highly recommend having them sign a lease that details all the rules regarding the unit, the property and payment. Remember that this is a business and you must protect your investment at all times. A handshake deal is not enough.
A landlord who wants to have happy tenants who pay on time needs to be a good communicator. Not only does this mean keeping your tenants informed of what’s going on with the property and the unit on a regular basis, but also answering their calls and emails when they come in – even if they feel unimportant or unnecessary. A tenant who feels ignored can quickly become difficult to deal with – and that’s the last thing you want.
Click for Scott’s tips on how to deal with nightmare tenants.
By avoiding these common mistakes, you’ll be on the right path to running a successful income property!
Feature image courtesy of Credit Skit Inc.