The Top 5 Landlord Mistakes

[Joshua Dorkin]

I'm looking to see if we could compile a list of the top 5 mistakes made by landlords. I'll throw out a few and hopefully we can come to some kind of consensus.

Note - to all who participate, we're going to give you all a plug in an upcoming blog post on the subject. Thanks in advance!

My Short List:
- Overpaying up front - paying too much for the property, resulting in diminished cash-flow
- Failure to understand financial management of a property
- Leniency - not going after late paying tenants immediately
- Failure to address problems with your rental units ASAP. Small problems often explode into huge ones when ignored.
- Overcharging / undercharging rent

Add your own or expand upon this list and we'll start to narrow things down to a list of 5 (10 if we must).

[Harrison Painter]

1. Not Putting a Dollar Value on Your TIme

One example is this: If you have over 4 properties, my advice is to hire a good management company. One of the biggest mistakes I see investors make is that they try and do everything for themselves. Spending hours marketing, showing properties and doing handy work to save a few hundred dollars. Your time is worth money, and you need to figure out that equation for yourself. I would rather play with my kids on Saturday than snake a toilet to save $200.

2. Not being in Touch with Reality

We see too many Investors trying to sell properties based on false rent rates and/or showing higher cash flow than what will really happen. In return, we see too many buyers fall for it over and over again. I know, as folks come to me often to clean up their mess!!!!

I can show investors cheap properties in sub par neighborhoods with $500 a month cash flow too, on paper! However, collecting the rent in the real world is a different story!!!

Our focus is to buy and sell in neighborhoods where we have the odds of collecting rent in our favor. We might only cash flow $150 to $200 a property, but we actually get the rent every month! The other folks might hit for a couple of months, but the vacancy and repairs will only out them in a negative situation.

3. Not Realizing that here is more to cash flow then the money that you physically put in your pocket each month.

As most of you know, I do not live and die by the 50% and 2% rules that are so often discussed in this forum. I have been beaten up pretty good over disagreeing by folks in here, but hey, if I followed the rules of others, I would probably be working for someone else right now. :wink:

While i am not going to give accounting advice here, there is so much more to this than the money you put in your pocket at the beginning of each month. There are no simple rules, or easy paths in real estate.

Make sure you find a solid accountant and understand pre and post tax cash flow, depreciation, how to deal with expenses, equity, ect......

4. Not Understanding Risk

Real estate investing involves risk. Period! No way around it folks. You need to keep some reserves, and plan ahead.

Also, plan your exit strategies. If you get in trouble, can you sell that inner city dupex or quad quickly? Will a lender approve a loan on the property? Do you have enough equity?

Keep these things in mind. The reason why my company puts a focus on single family homes in solid blue collar neighborhoods is all based on exit strategy. We have enough equity to sell them to investors for cash flow, and enough reserves to try and sell them on the traditional market while vacant for 60-90 days for showings.

5. Not Having a Business Plan

This should probably be #1, as this is the most common of all mistakes. However, my experience is that folks usually remember the last thing they read, so I put it here since it is so crucial to your success.

If you own rental properties, you own a business. Please treat it as such. Create a business plan and evaluate it as necessary. This is not a hobby, hobbies cost you money, they do not make you money.

These are just a few issues to think about.....there are many more.....but look at these concepts, plan ahead, and it will give you a good foundation to get started, or back on track.

Good Luck!