Last week, we started a two-part series on the top ten mistakes landlords make managing their own rentals. Truth be told, there are a million missteps to make in renting property, we’ve selected the mistakes we believe cost landlords the most money and the most hassle. These are the big Kahuna mistakes. We’re sharing them to you to help you avoid making them on your investment properties.
5. Not performing inspections. We all know we need eyes on our property. With each new lease, we promise ourselves that this time we’re going to follow through. But then we get a resident in there, and it just feels a little awkward. We don’t want to invade their space or inconvenience them. Not to mention the inconvenience of working it into our own busy lives. Plus, we worry we’re going to make the tenant defensive or make them feel accused of something. So, in the name of avoiding bad blood, we tell ourselves that we trust the tenant and everything will be just fine. Folks, it’s not always going to be just fine. We’ve had landlords beg us to take over management for this reason alone. Tell the tenant up front, when and how often you plan to inspect the property. At NRPM, we perform inspections 6 months into each new lease (this includes renewals). This length of time gives the tenants the opportunity to settle in, and it prepares our office for the renewal process. If a tenant pushes back, we casually mention that an inspection is a requirement for lease renewal, so if the resident wants to say where they are, we must be able to perform an inspection of the property. If it feels too close for comfort, there are third party inspection companies out there that will schedule and perform the inspection directly with the tenant and provide the landlord with a polished photo-documented report. Most tenants are fine with an inspection, so long as you are friendly and firm. We’ve learned from experience that if a tenant is really pushing back, that’s a property you need to get in ASAP. Whatever system you want to set up for yourself will work, so long as you are actually doing it.
6. Not collecting rent. On the surface it seems a little crazy. What’s the point of renting out my property if I’m not collecting rent, but we see DIY landlords do this all the time. The first of the month comes around, and the tenant can’t pay rent because she lost her job, or she hasn’t received child support, or she got sick. One month turns into two and now you’re calling us on the phone asking for help get the tenant out.
Life is hard. As a landlord, you’re going to witness hardship. But if you allow your tenants to skip rent when life gets tough, you’re telling them that honoring your contact is optional. If they think they have a choice not to pay rent, most people are going to opt not to. Stick to your contract. Most tenants will figure out how to prioritize making rent. It’s hard in the moment because you want to be kind and reasonable. And even the pros need to be reminded of this lesson occasionally. A couple years back, we had a tenant who lost his job. He was a nice guy and convinced us to allow him to make payments rather than paying his lease up front. We all felt sorry for him. Skip and a few weeks later, one of our staff members got suspicious and went to the property to check on him. As our team member arrives, the tenant pulls up in his truck coming home from gym. Because we chose to be nice, we ended up having to evict him instead. Sometimes being nice isn’t being kind. Holding people to the commitments they agreed to is ultimately the more neighborly way to treat them.
If your tenant is asking for extra time or a payment plan, 99.99% of the time your answer needs to be a firm no. There may be some very rare cases that might require sensitivity and a willingness to cooperate with a tenant. Sometimes a true catastrophe happens, and tenants are people. But this should be extremely rare. A tenant should have to be experiencing something so horrendous, they aren’t even aware they missed rent because they don’t know what day it is and they’re barely hanging on, for you to consider a rent exception.
7. Offering too many concessions. Unless you got into real estate investing as a charitable venture, don’t run your rental property like a non-profit. Don’t agree to waive pet deposits, pet rent, or security deposits. Don’t agree to letting the new partner move in unless you’ve fully screened them and drafted a new lease to include them. While you want to provide the tenant with a safe place to live and make the experience good for them, never forget your number one priority is protecting you and your assets.
8. Not enforcing the lease. Don’t let lease violations slide. When you are performing your scheduled inspections or your routine drive by and you catch a violation, handle it promptly and predictably. Tenants should be told exactly what the violation is, with a citation of the lease included, whatever fees or consequences they are facing as a result (which again, should be clearly outlined in the lease and cited in your communication), and the steps needed to correct the issue. Failing to enforce the lease establishes a relationship with your tenant that is doomed to failure. Tenants should know that you mean what you say and you say what you mean.
9. Documentation: Keep records of everything. Take detailed photo documentation of the property’s condition before a tenant moves in, during the periodic inspection, and after move-out. Every time. File away every repair made, including the expense. If you talked to a tenant on the phone, recap the conversation in an email to them. We train our staff to think about documentation in these terms, “If something happened to you tomorrow, how quickly could a co-worker pick up the pieces?” Your paper trail should require as minimal sleuthing as possible from you or anyone. Keeping thorough records can be time-consuming and tedious, but your future self will thank you if you ever find yourself in any kind of conflict (which you will). 😊
10. Not planning for expenses. The general wisdom is that you need to have at least six months of your own living expenses saved before you start investing in real estate. So let’s say you’ve done that. You’re getting rent income, and it feels good to pad your wallet or maybe even start scoping out your next investment property. The trouble is that eventually the HVAC is going to break, a pipe is going to leak, the roof will need replacing. There are inevitable big-ticket expenses you are going incur. All landlords know this going in, and yet, shockingly few plan ahead for it. For the first year at least, it is best practice to put all your rent income in a separate bank account and just let it sit there. Don’t touch it unless you need to spend it on the property. Some investors even keep a separate account for each property, which allows them to track how much they are spending and prevents them from over extending themselves financially.
There you have it, folks. The top ten mistakes that cost landlords the most money and stress. This list was a tough one. There are so many things we could have added, but we all agreed knowing these pitfalls could keep you out of the most trouble. Stay tuned because maybe later we’ll do another top ten.
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!