Common Landlord Mistakes

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common landlord mistakesWith the housing market still recovering from the 2008 crash, many homeowners have turned into landlords because they cannot sell their underwater home. Depending on your outlook, becoming a landlord is either a good thing or a bad thing. For me, becoming a landlord was a good thing as I always wanted to give it a shot. For some readers, you might be dreading being a landlord.

Regardless of which camp you are in, there are some very common landlord mistakes that you have to avoid making. In this post, I am going to highlight the most common ones and what you need to do to not make these mistakes.

Common Landlord Mistakes

Settling On The First Potential Tenant

Many new landlords get excited when someone shows interest in their rental. The possibility of a monthly rent check suddenly becomes a reality and they rent to this first person. In some cases, this is OK to do. But in many cases, you are better off waiting to see other potential tenants.

For one thing, money can blind you. You will be more apt to overlook the red flags of a tenant if they are the first person holding money in front of you. You want to make sure you get the right tenants so that your life as a landlord isn’t one to regret.

One of the first people to look at my house was an older lady. She came with her adult son and his 3 kids. They ran all over the house. The first thing out of her mouth was a complaint about the stairs leading to my front door. (I live in a condo and can’t do anything about the stairs, but she still asked about getting rid of them.)

She then complained about the stairs to the second floor as well as the bathtub/shower wall height for climbing in and out of it. I don’t think there was one positive word that came out of her mouth. The entire time though, her son was talking her into the house.

At the end of the walk-through, they took an application. I wanted nothing to do with this woman as I knew I would be getting a call about a complaint every hour for the next year. Luckily, another tenant (my current tenant) viewed my house and put in an offer before this woman could.

The point is, I could have easily just taken the money from this woman, but I knew my life would be hell. Don’t jump at the first person that shows interest. Give it time.

Not Completing A Background Check

Many rookie landlords simply take a potential tenant for their word when they say they have a job and are able to afford the rent. Big mistake. You have to do a background check on your tenant. With technology, it is easy to complete as well.

For roughly $30, I did a check on my tenant. For security purposes, before the company would give me her private information, she had to OK things. After she did, I verified her history and saw she was a good, stable person to rent to.

Don’t skip the background check. You may not want to pry, but you have to. Renting to the wrong tenant can cause you more trouble than it is worth. And it’s not just the phone calls either. In many states, tenants have more rights than the landlord. This means as a landlord you have to follow the law exactly when trying to evict your tenant. Even then, the process can take a few months time. In other words, you’ll be not only paying the mortgage each month while someone lives in your house for free, but you are also going to have to deal with the legal process and pay the fees along with it. (And don’t think you’ll get that money back from your tenant – they aren’t even paying rent!)

Underestimating Costs

Things break. You have to take repairs and maintenance into account for your rental. Too many landlords ignore this and then when a large repair comes up, they suddenly go from cash flow positive (making money each month) to cash flow negative (losing money each month). The sad truth is, the property always was cash flow negative, you just never accounted for repairs.

You need to have some money set aside for these repairs and other maintenance items. For me, I take a portion out of my rental income each month and put it in a reserve fund. This fund is simply another savings account at my bank. It doesn’t earn a ton of interest, but it is there for things that will go wrong or that I’ve overlooked. Take it from me, having money for these things is a huge weight off your shoulders.

Not Protecting Yourself

Once you have a renter, getting that monthly check is awesome. But don’t overlook insurance costs and keeping yourself protected. If your tenant, or someone else gets hurt on your property, you are liable and will most likely get sued. You want to make sure you have adequate coverage for personal liability.

Some argue that putting your rental into an LLC is a smart thing to do to protect yourself, but the costs and tax implications make this a tough sell for the one and done landlord. Your best bet is to get an umbrella policy from your insurance company. I have one that covers me up to $1 million and the annual cost is very reasonable. Don’t make the mistake of looking at the cost of the policy and think you don’t need it. One insurance claim against you can wipe you out financially.

One additional point is to require your tenant to have renters insurance. By making sure they have this insurance policy, it lessens the burden on you. Plus it shows they are smart tenants. The policy only costs around $20 per month.

Final Thots

Avoiding common landlord mistakes will make your life as a landlord much easier. You still will get calls from your tenant and things will still break. But not making these mistakes will put you in a much better place, both financially and mentally.

Readers, what common landlord mistakes would you add to this list?

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3 thoughts on “Common Landlord Mistakes”

  1. I agree, plenty of landlords get too agitated about the money they are going to earn. They should also think of the possible risks they are committing before doing an action.

    1. While turning a profit is the goal, you have to take into account all of the headaches you might encounter along the way.

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