Owning rental properties can be tricky and full of pitfalls. We’ve been doing this a long time, and over the years we’ve just about seen it all. But there are definitely those few mistakes, that seem to consistently trip owners up, costing money, hassle and stress.
We’re going to share the top ten mistakes we see investors make, so you can avoid making them yourself. There’s a lot of information here, so we’re going to break this one into two parts.
Part 1
- Not knowing the market. If you’ve been in the world of property investing for more than fifteen minutes, you’ve probably heard someone advise you to only buy in areas you’d want to live or travel. While we understand the premise of this idea, it can get you into hot water pretty quick. Often, those trendy or touristy spots come with hefty taxes, HOAs, and big price tags. As the short-term rental market has boomed, many of these cities are putting restrictions on short-term rentals or creating tax laws for them. Unless you are savvy in short-term or vacation rentals and want to focus your business in that niche, our best advice is to broaden your horizons. The swanky areas of Austin are often too expensive to make a good return on your investment. You could be missing out on thousands by overlooking that cookie cutter neighborhood on the skirts of town. Remember that what you are doing is a business venture. Let the math do the decision making, not your “gut”. Look at all the surrounding areas with an open mind. Get to know what homes are selling for and renting for the area. Find out that the average days on the market is and how many other rental properties are in the area. Scope out your competition to see what potential renters will be seeing.
- Not knowing the law: From Fair Housing laws to ADA requirements, landlord and tenant laws, eviction procedures, tax laws, short-term rental restrictions and zoning laws, it’s vitally important to understand what is legally required of you before you buy an investment property or try to put a resident in one. Not understanding the law could cost you serious money and even land you in the courtroom. So do your research, and keep in mind that the law is always changing. Make sure you stay up to date. You can find information on your local government websites. A couple of these in Austin would be https://statutes.capitol.texas.gov/ and https://guides.sll.texas.gov/landlord-tenant-law
- Properly vetting tenants: When it comes to choosing a resident, be objective and outline very clear approval requirements. We’ve seen so many landlords take on headaches, liability, and expenses because they let a friend of a friend move in without vetting them. It doesn’t matter who wants to move in, run a full background and credit checks every time! Pay special attention to large debts, like unpaid cars loans or credit card bills, and criminal offenses of a violent or financial nature. Ask for photos of pets, vet records, and verification of ESA status. Require prospective residents to provide references and call them. It does take experience to get the process streamlined and build your discernment skills, so be patient with yourself as you find what works and what doesn’t. If you don’t know where to start, or you’d like to give your vetting process a fine tuning, you can use our Application Guidelines to help you. Be especially careful because there are many laws surrounding the tenant approval process. For example, it is illegal to ask for verification of service animal registration. A service animal is not the same thing as a ESA. Also, students are a protected class in Austin. To protect ourselves from liability, NRPM does not consider student or medical debt as part of our decision in the approval process. This is why, as I said before, you need to know, the law!
- Allowing the wrong pets: Most landlords tend to be wary of dogs. You should know which dog breeds are typically considered aggressive/viscous breeds. In many cases, insurance companies will have coverage restrictions for dogs on the aggressive/vicious dog breed list. For this reason and others, NRPM does not allow any dog that is included on this list into our properties. But that doesn’t mean all other pets are fair game. Any animal that can cause property damage or safety concerns should their cage break or they simply escape should be considered with care. Among the top concerns would be fish, boa constrictors, parrots, and rabbits. If you decide to allow these pets, which we strongly advise against, be sure that you include very clear restrictions in your pet agreement. Limit the size of the tank, and the size and number of animals. Be sure to include language that makes each additional pet subject to your approval.
- Unclear Maintenance Policies: Maintenance concerns are, without question, the most common cause of conflict between landlords and residents. Happy residents are more likely to pay rent on time, report property damage, and cooperate with vendors. It’s in your best interest to reduce the possibility of tension as much as possible. Explicitly outline your maintenance policies and procedures, so your residents know how to handle a variety of maintenance scenarios. How do residents respond when the toilet stops working in the middle of the night? What if the toilet isn’t just broken, but is leaking onto the floor? How do they report a broken HVAC system? Is that a different procedure than if they started a kitchen fire (aside from the obvious 911 call)? How will you respond to them and update them? What types of maintenance issues will result in a charge to the resident and how much will you charge? As the expression goes, good fences make good neighbors. Take the necessary time to think though all the potential maintenance issues that could arise and decide in advance how you will handle them. No doubt, you’ll still end up with some occasional curve balls; but residents should have a basic understanding of their responsibilities to you and vice versa.
We’ve covered the first half of our list. Next week, we’ll visit five more of the most expensive mistakes property owners make. If you’re interested in purchasing an investment property, or you’d like to put your current portfolio in expert hands, Neighborhood Realty and Property Management has been one of the top-producing rental property management companies in the Austin area for more than 30 years. We’d love to help you reach new levels of success!