Avoid these landlord and property manager pitfalls, and feel more confident in your rental investment.
People enter the landlord business for many different reasons. Maybe you’re an “accidental landlord” who decided to rent out your former residence, or you gained a property through an inheritance. Or, maybe you diligently researched properties for sale and chose to purchase one (or more) as an extra source of income. Regardless of how or why you entered the business, being a landlord can be a profitable endeavor — or a costly one if you stumble into some common pitfalls.
Here are 10 common mistakes landlords make and ways to avoid them.
1. (Not) Understanding fair housing laws
Before you start accepting rental applications, you need to understand fair housing and anti-discrimination laws. Fair housing laws ensure equal access to housing. It is illegal to discriminate against renters and rental applicants on the basis of race, color, religion, national origin, sex, familial status or disability. Many local and state governments have additional protections that you’ll want to become familiar with. A general rule of thumb is to focus on the property and amenities in your advertising and conversations — not on who you think the ideal tenants would be or features geared toward a specific group. The bottom line is to treat and communicate with every applicant and renter in the same way.
2. (Not) Understanding your local market
You’ve probably heard that expression about the three most important words in real estate — “location, location, location.” As a landlord, that means finding a rental in a desirable area that can attract more potential tenants. Just because the price is right doesn’t mean the location is. Get to know the neighborhood, including access to transportation, grocery stores, area features and businesses. It also means learning about the local market, researching area taxes and determining what you can charge for rent — all of which affect the potential return on investment for your property and help you predict your monthly rental income.
3. (Not) Putting your best marketing foot forward
While advertising a rental property may not seem as sexy as advertising a hot new car, there are many similarities. Just like the best product ads, you’ll want to feature high-quality photos of your rental. It may be worth the expense to have professional photos taken during the spring and summer months so your property looks its best. You can also capture a virtual tour of your property for free using the Zillow 3D Home app. You’ll also want a clearly written, accurate and error-free description of the property and amenities. Consider posting your property on Zillow Rental Manager to reach as wide of an audience as possible.
4. (Not) Conducting a thorough tenant screening
While speed is important in filling your vacancy, you still want to end up with a qualified renter. Create a documented process and criteria for finding, screening and securing your tenants. Ask each potential renter to fill out an application, and verify employment and residence history. It’s a good idea to perform a tenant background check and run a tenant credit report. Check landlord references and confirm renters have paid the rent on time. If you use Zillow Rental Manager, you can easily enable online applications with tenant screening for your rental.
5. (Not) Completing accurate leasing paperwork
A lease serves as a binding, legal agreement between you and the tenant. As such, you’ll want to make sure it thoroughly addresses the rules, policies and conflict resolution procedures for living at your property, and clearly defines tenant and landlord responsibilities. Remember to put everything down in writing: A handshake or verbal agreement won’t hold up in court. You can find many generic leases online, but you’ll want to review the lease requirements specific to your state or municipality and incorporate them into your rental agreement. Have it examined by a legal professional to ensure that the terms protect your interests and comply with local and state regulations.
Tip: Zillow Rental Manager offers state-specific, customizable online lease agreements for free. This feature is currently available in select locations.
6. (Not) Knowing your landlord responsibilities
Securing a tenant for your property is a huge milestone. But, your work is not done. As a landlord, it’s your job to meet your terms of the lease agreement: Check in with your tenants, stay aware of the condition of the property, complete regular preventative maintenance and seasonal maintenance, and respond quickly to requests. Make sure your property is a healthy and safe place to live, and keep up on your taxes and financial reporting. Neglecting your tenants and your property may result in higher turnover, more vacancies, less rental income or even lawsuits.
7. (Not) Anticipating maintenance costs
Be prepared for the possibility that your property won’t always be occupied. If you aren’t able to fill a vacancy right away, do you have enough cash set aside to pay for the mortgage, utilities and other maintenance costs? Maintaining a rental property comes with unforeseen expenses, such as damages and unexpected repairs, and the bills still need to be paid. Complete a cash flow analysis and establish a budget so you’ll be able to cover these potential costs, then track your expenses to ensure you’re staying in the black.
8. (Not) Knowing when to hire a professional
If you live in the area, are handy around the house and have the time to quickly respond to requests, you can maximize your rental income by handling some of the general maintenance and management of your property. However, if you don’t want that much responsibility, you may be better off enlisting the services of a professional property manager. Also, depending on your experience and the condition of the rental after your tenants leave, you might want to hire a contractor to make significant improvements or repairs.
9. (Not) Managing your time efficiently
For many landlords, managing even one investment property can be a full-time job. Between securing a tenant and keeping up the books, you should understand that any investment property is a big time commitment. No matter how much you love what you do, make sure to take time for yourself and create a list of people you can rely on for backup. Having a network of people who can help in a pinch is important for the maintenance and safety of your property.
10. (Not) Treating your rental like a business
However you got into landlording, your rental property is a business and an income source — and you need to treat it that way. Consider using accounting software or a spreadsheet to keep close track of your income, expenses and ultimately your return on investment. Document all of your procedures and communications with applicants and tenants, and make sure to stick to your procedures.
Successful landlords leverage skills from many different areas, including customer service, marketing, accounting and home repair. Reduce the risks that come with being a landlord by educating yourself and networking with other experienced landlords and related professionals. Join local or national landlord associations to keep up with changing rules and regulations, and share your experiences, so you can avoid the most common landlord mistakes.