For some, it may sound easy to be a landlord, just acquire a property, make necessary repairs and rent it out to tenants. As long as the rent covers the mortgage, tax, and insurance, you can make cash flow each month. However, the truth is that to successfully manage a rental portfolio, it takes more than doing the math right during the acquisition, it also requires you to be professional and have business thinking during the management process.
Underestimate the cost of repair and maintenance
When tenants rent the living space from the landlord, there are certain expectations of the quality of the living space as well as ongoing maintenance support. There are expenses that occur at a regular frequency, such as trash, public electricity and etc, that are easy to account for when doing deal analysis. There are also expenses that are less frequent but very expensive, such as mechanical replacement, structural repair, and certain appliances. It’s important to account for those expenses when doing a deal analysis so as not to underestimate the cost of repair and ongoing maintenance.
Do it as a hobby or side hustle
Owning rental properties is very much like running a miniature business. You will have to manage people (tenants and contractors), do the bookkeeping, and manage the marketing (advertising and showings). So, treating it like a hobby or side hustle is unlikely to make you succeed in the long run. Instead, it’s important to treat it as a business, be professional in all your dealing with others, and maintain good records of everything. There is landlord software, such as PortfolioBay that can help you to automate a lot of payment, accounting, and turnover communication tasks. So, you can be professional in all your dealing with others and bookkeeping while spending minimum time managing the properties.
Not enforcing the lease term
The lease agreement is not just for reference, it’s actually a legal document that’s enforceable by law. But having a lease enforced through the court, such as eviction, can be quite expensive and the situation got that bad usually because the landlord wasn’t enforcing the lease enough to start. Many landlords failed to enforce the lease terms because people don’t like to have hard conversations. However, if tenants don’t get timely feedback for any violation, either noise or late payment, it’s only going to get worse over time. And before you know it, you might be out for two months’ rent and have to go to court for an eviction. It’s very much recommended to use an online payment method that automatically enforces late fees. This way, tenants get immediate feedback whenever they are making a late payment and reinforce positive behavior over time.
Not having important things in writing
Often, the communication between landlord and tenant is informal, like a text message or phone call. For certain small issues and questions, this is perfectly fine. But for things such as notice to vacate, late payment reminder, or change of occupants, it’s important to have all information documented in writing and signed, if necessary. For example, when a tenant verbally notifies the landlord of vacating the unit in 60 days and the landlord does not put it in writing. The tenant may refuse to move if his/her next step fell through and have nowhere else to go. Then the landlord may have a hard time reconciling between the new tenant and the current tenant who refuses to move. Having the notice to vacate in writing gives the landlords the necessary support to show the current lease ending.
Asking illegal questions
Either in the rental application or during a showing, it’s better to refrain from asking questions related to race, color, religion, national origin, sex, marital status, handicap, or family status (i.e., if they plan on having children). Because the Fair Housing Act of the Civil Rights Act of 1968 requires that you cannot deny a tenant’s application based on that information. And to minimize the risk of fair housing violation, it’s better not to ask those questions explicitly in the rental application or during showings.
Last words
To succeed in real estate investing as a self-managing landlord requires two things: finding good deals and managing the portfolio effectively. By avoiding the above 5 mistakes while managing your properties, you’ll be much more likely to succeed in the long run.
