Becoming a DIY Landlord? 10 Mistakes to Avoid

Key Takeaways

• A strong location sets the stage for success, but profitability still depends on how well the property is managed.
• Choosing the right business structure, creating a detailed lease, and screening tenants carefully helps avoid legal and financial problems.
• Consistent communication, proper record-keeping, regular market analysis, and tracking KPIs keep the property running efficiently.
• Budget for maintenance and emergencies, and don’t hesitate to hire professionals to help manage the property effectively.

For any property investor, the most consequential decision on the performance of their investment property is its location. Location defines everything that governs the success of an income property.

The economic health of the area where the property is located determines the kind of renters it will attract, as well as the rental rate.

But as important as location is, it does not guarantee rental property success. A good location is only a promise to the property owner that if they do the right things, their investment property will be profitable.

The challenge for new investors is to identify the right steps while avoiding fatal mistakes that can derail their investment.

In this post, TrueNest Property Management will discuss ten of these mistakes and how you can avoid them.

10 Mistakes New Landlords Make and How to Avoid Them

Using the Wrong Business Structure

Using the wrong business structure for your rental property will impose severe limitations on the investment before it has even taken shape. Holding the property in your personal name exposes you to tax liabilities and legal risks.

The most common business structures for an investment property are LLC (Limited Liability Company), a Corporation (S-Corp or C-Corp), and a partnership. For new property investors, an LLC offers the best combination of benefits.

Treating the Lease Agreement as a Formality

This legally-binding document outlines the terms of the landlord-tenant relationship. It defines the scope of each party’s responsibilities, rights, and roles.

The lease must be precise and complete, avoid generalizations, outdated forms, or vague terms. The lease agreement provides the premise for the rental’s operations and gives the landlord the authority to enforce the lease terms.

Failing to Run a Thorough Check on Potential Renters

How can you tell how a prospective tenant will behave if you eventually rent to them? The answer lies in having a detailed tenant screening process.

Good tenant screening looks at a potential renter’s credit and rental history to find patterns that provide clues on how they will behave if you rent to them.

Irregular Tenant Communications

Tenant communication systems have the biggest influence on the quality of the landlord-tenant relationship. Effective tenant communication begins at the application stage with a pre-lease discussion to help prospective tenants understand the rental’s operations.

It includes comprehensive onboarding for new tenants. It also features multichannel communication systems that make it easy for tenants to report repairs and access vital information.

Overlooking Your Annual Rental Analysis

A rental property does not exist in a vacuum. It is part of an ecosystem that determines many aspects of its operations and its profitability. How much a landlord can charge for their property is determined by the rental demand in their area.

Rental demand, in turn, is a function of supply and demand dynamics. Landlords need regular rental analysis to understand the direction of the rental market in their location and ensure that they are charging a competitive rent.

Improper Record Keeping

Good record-keeping underlies every aspect of a rental property’s operations and profits. Landlords must maintain proper records of lease agreements, communications, rent payments, owed rent or fees, rent payment dates, etc.

These records are essential for the efficient management of a property. Detailed and proper records serve as strong evidence during disputes or in the face of a lawsuit. Without proper financial records, a landlord can't take advantage of available tax deductions.

Not Maintaining an Emergency Account

Smart landlords put money aside every month for emergencies. They know that major problems don’t always announce themselves, and in those situations, having a reserve account can make all the difference to the continued operation of the property and the happiness of their tenants.

These landlords also understand that there are months when they will have vacancies. When there is no rental income, the money in their emergency account can cover rental expenses like taxes, mortgage, insurance, and interest.

Underestimating the Cost of Property Maintenance

Many new landlords fail to accurately estimate a rental’s maintenance expenses when buying their property. Others, in a bid to attract tenants, don’t check if they are charging enough rent to cover the cost of maintenance.

Some landlords try to cut their maintenance costs by delaying repairs or using substandard materials and untrained workers. A landlord may also fail to update the features and amenities in their property. All these mistakes lead to unhappy tenants and high tenant turnover rates.

Not Tracking Key Real Estate KPIs

Experienced landlords know to track key metrics that offer insights into the health of their rental property. These metrics, known as KPIs or Key Performance Indicators, cover various aspects of rental operations, and they give landlords a complete overview of their property.

KPIs ensure that landlords are solving the right problems in their rental property by helping them see how various factors affect the performance of their investment. KPIs ensure that landlords are not flying blind.

Not Hiring the Right Experts

Many new landlords underestimate the amount of work it takes to make a rental property succeed, and the range of skillsets that work entails. As a result, they try to go it alone, instead of hiring professionals who can guide them through the different issues in their property.

Investment property success depends on the power of the team supporting the landlord. Some of the experts landlords need include a lawyer, an accountant, an estate agent, a reliable contractor, or a handyman, among others.

Conclusion

If this sounds like a lot of work, that’s because it is. However, there is a way to get around these steps and get your property to start making money almost as soon as you purchase it.

Hiring a professional property manager is one of the best decisions a new landlord can make. Property managers already possess the skills and systems to make a rental property work. They just need to plug your property into their existing processes.

Contact TrueNest Property Management today for more information.