If you have some extra money on the side, investing in an additional property is probably the smartest financial move you could possibly make. A well-situated property will pay for itself diligently once you give it a facelift and rent it out. However, don’t be fooled. While a lot of people think that being a landlord is an easy way to obtain a passive stream of income, nothing in life comes easy. Finding the right tenants for your property is a lot of work, and your work does not end after they have moved in; on the contrary.
In this process, there are naturally many potential pitfalls landlords with little experience can walk into. And while it’s okay to make mistakes, in the beginning, some mistakes can cost you a fortune and can even be detrimental to your business. To spare you from some trouble, here are 7 common mistakes new landlords should watch out for. Learning from others’ mistakes is always the better option.
Picking the wrong tenants
When you’re just starting out, your goal may be renting out your property as soon as possible so that you can start seeing some returns on your investment. However, rushing this process may not be the best idea. Firstly, you should remember at all times that this is a business and your personal feelings should not play a role in selecting the right candidate. Picking the wrong tenants will not only give you headaches but can even lead to financial issues down the line. This is why it’s immensely important to do a thorough background check on your potential tenants before making your decision.
You need to verify the identity of your candidates. In addition, your tenants need to be reliable and responsible people who will keep the property clean and in good shape as well as pay rent in a timely manner. If your tenant is located in Berlin and looking for apartments in Berlin they will potentially find you through the website of Rentberry if your apartment is listed there too. So, make sure you do all the paperwork to get the information you need. A credit check will give you some insight into the financial situation of your candidate. You will get to learn the candidate’s credit score as well as whether they have a history of late or non-payments. Previous landlords and employers can verify this information.
Not taking it seriously
Another common mistake among inexperienced landlords is treating this occupation merely as a hobby. As said in the beginning, being a landlord is far from just having a passive income. This is a business and should be treated as such. You should open a separate bank account for its finances and most definitely take bookkeeping seriously – if necessary, even contact a professional to do this for you.
Needless to say, the same goes for taxes. If you are not sure about them, seek outside help – it’s a much better option than finding yourself with a fine later on. It is recommended that you educate yourself before diving into property ownership so that you can make more informed decisions, too. For instance, keeping track of changes in the real estate industry is the only way to know the current trends and make the best investments.
Not putting it all to paper
When the time for renting comes, make sure you do it seriously and by the book. One of the biggest mistakes you could make is using merely a verbal agreement with your tenant. New landlords are sometimes simply happy to have found their first tenant and fail to consider all the possible consequences such a move could lead to. A rental agreement is a proper way of doing things and it must not be skipped or else you will pay the price for your easygoingness. A contract is the only way to guarantee that your tenant will make their payments as they should.
In addition, make sure you actually remember and enforce the terms of your contract. Some landlords fall into the mistake of being “too nice” to their tenants. Don’t be lenient when tenants break the rules you have set. The contract is there to keep things in order, after all. Late payments should be dealt with as well and when the time for eviction comes, you mustn’t delay it. Doing so is a sure way to just lose a lot of money.
Issues with laws and rules
As we just mentioned, when it comes to renting, rules should be followed for the sake of both parties. Beginner landlords can easily find themselves in trouble for simply not knowing the laws associated with this profession. This is why seeking out the advice of a lawyer is a good idea. Knowing your rights and obligations as bound by the contract you have your tenant’s sign is paramount.
Besides, there are more inconspicuous ways in which you can find yourself in legal trouble as a new landlord who is just seeking their first tenants. While it is true that thorough background checks are necessary, there are certain questions you cannot legally ask from your tenant candidates. You should also be aware of privacy laws that might limit when you can pay a visit to your property. All in all, there is a lot to cover but it’s vital that you are informed on this front.
As a landlord, it is your responsibility to make sure the property is in good condition. A mistake that many new landlords make is thinking that once a property is done and moved into, it does not require further attention from them. This could not be further from the truth. Above all, you must ensure that everything is in line with your local housing codes. Safety and security standards should all be met, both to protect your tenants and to protect yourself.
In addition, every property requires maintenance, and neglecting this fact is a big mistake. When tenants contact you and require you to get something fixed, delaying it is a sure way not only to acquire a bad reputation but also to create bigger problems for yourself. Unless you react in a timely manner, chances are, the problem will become more expensive to deal with. If your property is within a strata scheme, you should be aware of what falls within the scope of your responsibility and what maintenance tasks will a strata management company take care of.
Pricing and other money issues
Finances are a complicated matter, so it’s no wonder that new landlords often struggle in this department. The first potential mistake you can make is pricing your property incorrectly. This can happen especially after making some renovations to your property. Naturally, you want your investment to pay off as soon as possible, but increasing the rent might be counter-effective. Charging too much will make it more difficult to find tenants, which might mean more vacancies in the long run.
On the other hand, you may underprice your rental if you fail to make the appropriate calculations, which will slow down the returns. The first thing to consider in order not to underprice your rental is the costs of maintenance that you can realistically expect. This is something that often escapes the attention of new landlords. Unless you maintain the property, you cannot expect to charge more for it, but the rent should still cover some of the expenses involved. You should have an emergency fund for costly repairs in any case. Additionally, another thing that you should expect is a vacancy. It is simply unrealistic to think that your property will have tenants at every moment. Your cash flow should not be interrupted in these instances.
Doing it all alone
Finally, an honest mistake anyone can make is thinking that they got this. New landlords may be overconfident and try to navigate these new waters by themselves. However, trying to do everything alone is not the best decision. To begin with, it should go without saying that trying to save money by DIYing maintenance issues that should be tackled by professionals can do more harm than good.
However, there is more to this topic than that. You should keep in mind that there is a learning curve to this profession and you might not see ideal results right away. You should account for this financially, but also try to mitigate the obstacles as much as you can. In fact, seeking out a property manager might prove more productive than struggling alone, especially if you have more than one property to keep track of. They have better insights into the property market and can help you with pricing as well as with finding reputable tenants. They can also manage taxes and payments more effectively, allowing you more time to get the hang of things.
Being a landlord is by no means just sitting back and collecting payments. There is a lot one should learn in order to become a good landlord, but even then, mistakes are inevitable when one is new to something. Contact professionals when needed, allocate enough time to inform yourself and make sure you follow all the laws. Once things are in motion and you gain more experience, you will feel empowered to manage even more properties and make a comfortable living.