25 BIG Mistakes that Cost Landlords Thousands

It takes a certain mindset to be a landlord and own rental property. It is a wonderful idea to invest in real estate and save for your retirement. However, there are certain mistakes that many property owners make over and over again. Being aware of and avoiding these mistakes beforehand is the surest way you can save money in the long run and be a successful property owner. Our property management teams and Real Estate Advisors are seasoned professionals that specialize in teaching property owners how to run their rental property businesses more profitably and efficiently. Ultimately YOU (the landlord) are in charge. By making the right decisions, you can easily avoid these common pitfalls and save thousands of dollars along the way.

It is the Property Manager’s Job, so I don’t have to Worry About it

You are correct in the first part of your thought; yes, it is the property manager’s job to manage your property. However, you will determine if your property is managed very well, okay, or poorly. Your involvement in finding a new tenant, questioning and understanding repair charges, and setting target dates for the property to be made rent-ready in between tenants will show your property manager that you care about your rental property and every dollar is important to you. Your property manager will notice if you are an absent landlord and do not care about the performance of your property. A good property manager will not neglect your property; however, it will just not be their highest priority because they have other landlords that they have to answer to. The squeaky wheel always gets the grease!

I am Right, They are Wrong

Pat your ego on the back for proving that your property manager was in the wrong about forgetting to winterize your pipes that burst and flooded your house over winter. The rental business is not about you being right in an unpleasant situation; it is about being proactive to prevent these situations from happening through reminders. Rather than dwelling on the problem and whose fault it is, deal with the solution. All that matters is that your rental property is making you money. Once the tenant is happy and paying you to rent, you can go back and find the root of why the problem occurred and decide how to prevent it from happening again in the future.

Not Doing Background Checks and Verification of Earnings on Tenants

The screening and selection process is best left to a professional property manager. By running background screenings, you can easily see if someone has a history of criminal activity as well as see their history of paying their bills. Background checks are easy to run through a variety of websites. It is simple to have prospects fill out the application form that the screening service provides, and you will usually have a report within minutes. These reports typically cost between $15 and $40, and the applicant can pay the expense. Avoiding tenants that have not paid their rent and other bills in the past will have a higher probability of missing their payments when they rent from you. Avoid renting to people who abuse drugs or are frequently in and out of jail because they seldom become stable tenants. A property manager will already have screening software in place, along with other verifications and checks that go beyond the standard background and credit check. However, it is your job as the landlord to give the ultimate approval. Learn

how to avoid renting to poor quality tenants in my other BiggerPockets article.

Slowly Turning Over Vacancies Yourself to Save Money

Many owners brag about how much money they have saved in preparing a vacant unit to be rented but take four to eight weeks to complete the work. If it takes you six weeks to do the work yourself and you save $1,000 in labor expenses but lost five weeks of rent from the unit being vacant, did you save money? Most professionals can paint a unit and replace flooring in just a few days, and then the unit can be rented. The majority of the time landlords lose money due to lost rent by the vacancy taking longer to fill by doing the rehab and repairs themselves. Not to mention, most of the do it yourself projects are sub-par work because you are not a skilled professional laborer.

Overpaying Contractors

Most contractors can be flexible and can charge you the amount you are willing to pay for a job. It is always advisable to get multiple bids for a project to ensure you get a fair price. If you want a guaranteed fixed price set in advance for a job, most contractors will have to overbid to account for the possibility of unforeseen expenses slightly. To get the best value with contractors, it is best to agree on an hourly rate ahead of time and agree to pay a cost for the materials. Look for these on your final invoice. In not itemizing materials and labor, you could potentially be paying $200 per hour for something that could be done for $50 per hour.

Trying To Save Money by Hiring Unskilled Workers

You get what you pay for. Paying someone $15 an hour that takes 10 hours to complete a job costs you $150, but there’s that chance that it wasn’t done properly and that you may need to go back and redo the work in 2 years. Paying an expert $50 per hour that takes two hours to complete the same task not only costs $100 but you will get the quality of work that they will stand behind if a future issue arises. It’s about quality over quantity.

Forgetting That the Tenants Are Your Customers

Although some tenants can be difficult and demanding, it is essential to remember that they are your customers. If you treat your property managers well, they are likely to treat your tenants well you too. This could lead to them staying longer and taking better care of your property. It can be easy to forget that they are paying you for a service and deserve to be treated well.

Deferring Maintenance

Maintenance is an inevitable expense for property owners. Some have the mentality of “If it is not broken, why fix it?” Maintenance that is deferred will cost more in the long run, as well as lower your property value, quality of tenant, and neighborhood. Also, rents will tend to be lower in buildings that have obvious areas that need improvement. Many tenants will move if their landlord will not fix things or keep their units up to date. We recommend budgeting and setting aside a percentage of the rent collected to cover both planned and unexpected maintenance expenses. The amount you choose to set aside will depend upon the overall condition and needs of your building. As a good rule of thumb, set aside at least 8% of your rental income every month to ensure you have funds for unexpected expenses and issues.

Renting To Family and Friends

If you own rental property in an area where a friend or family member lives, you may be approached by them to rent from you. Whether or not you cut them a deal, this scenario almost always damages relationships. They will expect you to give them a significant discount because of your personal relationship with them, and no matter what you give them, it will never be enough. Any future rent increases will cause hard feelings towards you, and if they have disputes with neighbors or other residents, they will expect you to take their side. Friends and family expect preferential treatment even if you make it clear that they will be treated like any other tenant. If you have a friend or relative in need, you are better off renting to a tenant you don’t know and letting your friend or relative borrow the money from your rental income than becoming their landlord.

Believing Every Story and Excuse You Hear

I am a huge believer in helping people, which is why I encourage everyone to donate a portion of their income to non-profits or their religious affiliations. People always come up with great excuses for why the rent is late. While many stories are valid, there are some people who flat out lie. While most of us were raised to give people the benefit of the doubt, we have to be discerning in our rental business. It is honorable to show people grace who fall into hard times, but your tenants are not people to help out because involving your emotions into it will only cause them to take advantage of you.

Not Charging and Enforcing Late Fees

For most people, their significant bills charge and enforce late fees. Seldom will a late car payment, credit card payment, or utility bill waive a late fee. Late fees ensure that bills are paid on time. If you do not charge and enforce a late fee, your bill will get paid last. Set precedence with your rent collection.

Lowering Your Rental Criteria to Fill a Vacancy Quickly

When a vacancy takes longer than expected to fill, it is tempting to lower your rental criteria for minimum income and credit score. Do not do this! If you are in a hurry to fill a vacancy, then consider reducing the rent. A property with below-market rent will attract a high number of tenant applicants, which will allow you to choose a quality tenant and increase your rents gradually over time. This method will always be more profitable in the long run than compromising and lowering your rental criteria.

Buying Investment Property in the Wrong Areas

Purchase properties in undesirable areas will create endless problems. Marshall Reddick Real Estate chooses areas very carefully based on a long list of criteria. Low-income areas may look good on paper, but in reality, vacancies will take longer to fill, crime and vandalism will cause high repair costs, and property values will never appreciate. Become familiar with an area before you purchase property, and be aware of cites with local rent control ordinances that cap rent increases and make evictions difficult.

Not Inspecting Properties Regularly

Having had a long term tenant (5+ years) move out only to find extensive damage that could have been easily prevented is the worst expense. It is essential to inspect units at least annually if not semi-annually so that routine repairs can be done before further damage is done to your building. An ounce of prevention is worth a pound of cure. Deferred maintenance can often escalate and create more extensive damage if left unrepaired. Some tenants are reluctant to report maintenance issues out of fear that their rent might go up as a result. Finding and repairing a leak before it does structural damage is in everyone’s best interest.

Paying Too Much For Insurance

Shopping for your insurance every three years can save thousands of dollars over the life of your property. I get multiple bids for each property and usually a 20% to 40% savings on my annual premiums. We see wide ranges in premiums for the same amount of coverage between different companies. Talk to a Real Estate Advisor who can connect you with several insurance referrals that Marshall Reddick Real Estate recommends.

Not Making Repairs Quickly

Few things frustrate tenants more than landlords who do not respond quickly to service requests. People get fed up and move out of places when their landlord does not make prompt repairs. The tenants that do put up with it are usually paying way below the market on their rent. If it is 120 degrees outside and the A/C unit in your home breaks, how long would you wait to fix it? Use that same level of priority with your tenants.

Not Buying More Property

We regularly consult with many people who regret that they did not buy more property while they had the chance. It is a fine line to make sure you grow your portfolio without overleveraging yourself. Our recommendation is to buy quality properties at least once a year for the rest of your life that are well located, in good condition, and generate as much positive cash flow as possible.

Managing Your Own Property That Is Too Far Away

If you manage your own property, it must be close to you. If you live more than an hour away, you need to hire a property management company. Otherwise, it is draining on your time and gas to drive out every time a vacancy or maintenance request arises. Also, this will take away from your career, which is your primary source of income. You need to look at the opportunity cost in managing a property yourself, and many times, you will find it not financially wise.

Not Staying Current on Rental Laws

One of the many benefits of using a property manager is to ensure you are current with rental laws. Rental laws are continually changing. The legislation is always being updated, and new laws are being written regularly. In some situations such as evictions, not following proper legal procedures can cause months of delays. Not knowing the law inside and out can expose you to excessive liability.

Poor Recordkeeping

It is vital to keep good records for taxes, legal reasons, qualifying for loans, knowing the return on your investment, and much more. Save all your files electronically and stay well organized. You should scan and save every document pertaining to your rental property ranging from your leases, insurance, property management agreements, monthly statements, pictures, property taxes, mortgage statements, walk-through inspections, and receipts from repairs and improvements. Most property managers will keep most of these documents uploaded on your web portal for you, make sure you know where and how to access them.

Allowing Tenants to Do Repairs Themselves

It is a horrible practice to allow your tenants to do repairs for so many reasons. It exposes you to great risk if they get injured during a repair job. Also, keep in mind they are most likely not an expert at the work they are performing.

Not Appealing Property Taxes

The appraisal process is subjective and includes factors such as the income a property produces, comparable sales in the local area, and the cost to replace the structures. These variables change often, and your tax bill can be negotiated with county tax assessors or the board of appeals that resolves differences between owners and assessors. We do not see this regularly, but if the market has declined since the time of purchase, this can be cost-saving, and you should take advantage of it.

Paying Utilities for Your Tenants

If you own a multi-family property that is not separately metered depending on the number of units it may be inevitable that you will need to pay for your tenant’s water, lawn care, pest control, electricity, gas, and garbage expenses. If you can avoid this and make these expenses the responsibility of your tenants, you will save thousands of dollars per year on each unit. People always consume more utilities when they are not responsible for paying the bill. Research shows that tenants would prefer lower rent without these perks than a high rent that is all-inclusive. From a marketing perspective, you will have a clear advantage if you can keep your advertised rents low as a result of not paying your tenant's utilities. If you cannot afford to install individual meters, you can divide the monthly expenses between the tenants each month if the building is four units or less.

Not Monitoring Every Expense

“When the cat is away, the mice will play.” If you do not provide your property manager with the accountability that you study every expense that occurs on your property, you may begin incurring unnecessary expenses or overpay for repairs. Adequate checks and balances need to be in place to ensure accountability.

Automatically Going To Court

Going to court to settle your disputes should be a last resort. Legal fees are costly, and most tenants do not have the money, which is why they are renting in the first place. Do all you can to negotiate and settle with tenants outside of court. Most times, you will find it is cheaper to forgive the debt or refund the security deposit than it is to go to court.