What is your Home Worth?
Many property owners think renting out their residential property will be the easiest way to make money. It certainly can be the easiest way to make money so long as the transaction is handled professionally and thoroughly from start to end. Unfortunately for the landowner that opts not to use a property management company to handle the transaction, (s)he is in for a lot of traps. A new landlord cannot imagine how many tasks are at hand. These traps are both easy for new landlords to fall into but very easy to avoid.
The Top 10 Mistakes New Landlords Make:
10. Accepting Partial Payment
If your tenant is unable to fully pay the rent each month, do not accept partial payment. If you accept partial payment, your chances of being able to quickly evict a tenant who owes you back-payment will be greatly challenged. Only accept full payment by check or money order so that you never have to complicate any potential legal matters you may have with a tenant who is struggling to pay their rent.
9. Not Requiring I.D./Running a Credit Check
Do not trust a nice face in this business. People will always try to put their best foot forward when renting an apartment or house. Conduct this transaction with full professionalism and require a valid state identification card AND a social security card. You will have to pay about $30 or so to run their credit report but this can be covered with the standard application fee. Most landlords charge $50 or more for an application fee and future tenants expect this so don’t be shy to insist on it. When you run the credit report, beware of past debts to other property management companies. If the applicant has such a mark on their report, feel free to ask them about it. Call the property management company they are in dispute with and ask about your applicant’s rental history. Also, you can be a bit forgiving with credit card debt that shows up on a report. To be on the safe side, charge a two month security deposit.
8. Not Having Adequate Home Insurance
Be sure to not skimp on the amount of homeowner’s insurance you keep. Remember that you are not the person living in your house or apartment building. Rarely do people who rent treat a property with as much care as the owner of that property would. Safeguard yourself from potential plumbing problems and structural abuse that may occur as a result of your tenant’s lack of care. Also, be sure to suggest your tenant has renter’s insurance. Too often something can go wrong with either plumbing or interior leaks or such and a tenant will come after you for restitution. The problem may even be the fault of the renter but it probably won’t stop them from attempting to seek monetary compensation from you if their belongings are damaged. Renter’s insurance costs about $12 a month and will cover any of those types of mishaps.
7. Writing Your Own Lease
Unless you are a lawyer, don’t write your own lease. You can buy a pre-made rental lease agreement from many legal document services and such. Don’t consider yourself to be all-knowing when it comes to the legalities and necessary verbage used in the rental agreement. Use a professionally written, legally binding lease and do not allow a tenant to make any alterations to the lease. Give your tenant a copy and keep the original wet signature copy for yourself. Keep this on file along with the copy of their ID and Social Security Card.
6. Take Pictures Before and After
Before your tenant moves in and after you have completely cleaned and readied your property for their move-in, take lots of pictures. Be sure you well document the state of the property before they move in so you never have to hear “it was like that when I moved in.” Also, take pictures as soon as they move out and return the key to you. Well document the state of the apartment after they move so they can’t dispute any damage they have done to your property. Take out the cost of any repairs from their deposit before returning the remaining dollar amount to them. Do not allow yourself to be tempted to keep their entire deposit either lest you will certainly be fighting it in court. If you feel you are owed this money in full because of the damage done to your property, be prepared to prove it in court with all the photos you’ve taken.
5. Skimping On Repairs
Don’t try to cut costs by skimping on the repair costs of your property. Doing so will turn a landlord into a slumlord and this is just asking for trouble. Not to mention, it is a very unhealthy way to conduct business. If you have pride in your property and you should, spend the money on it that is needed to keep it in tip-top shape. Fixing plumbing or electrical problems with a band-aide could lead to a potential lawsuit against you in addition to being bad karma.
4. Handling All Business Yourself
Neglecting to sign up a property management company to handle your business is the same as taking on a second job for yourself. If you want the renting of your property to be easy and profitable, you have to put the property and the tenant in the hands of a property management company. Otherwise you might as well plan on being a landlord full time because it is an on-call sort of job. Let the tenants call a professional property manager when they need this or that. Professional property managers are trained in human relations and problem solving and are happy to take this burden out of your lap.
3. Befriending Your Renter
The relationship between the renter and the landlord can often start out as a love affair of sorts. The landlord is so happy to have found a good tenant and vice versa. However, this is a one-way relationship that will always benefit the tenant and almost never benefit the landlord. Although the intentions of the renter are rarely devious, inevitably something will go wrong either personally or otherwise and the tenant will need a favor or have a special request. The simple way to keep this from happening is to keep a good distance from the tenant personally. Be happy you found someone you like to rent your property but just don’t show it too much to the renter. A friendly healthy relationship is ideal while an actual friendship is impending doom. Sure there are exceptions to the rule, take Lucy Ricardo and Ethel Mertz for instance. But, that’s television and this is real life. Don’t befriend your tenant.
2. Requiring Too Little for Deposit
Don’t be ashamed to ask for a hefty deposit. Renter’s know that they will either be looking at one month or two month’s rent for their deposit. Don’t negotiate this money because this is the only money you will have to cover any damages they do during their stay. One option you can and should offer a potential tenant is the chance to pay partial deposit as soon as they decide they want the apartment/house and then the rest of the deposit on the day they move it. You can accept a check for the initial holding deposit but you must remember to only take a money order or certified check for the balance. Don’t take cash because there is no record of the transaction other than a hand-written receipt possibly.
1. Skipping the Background Check
Who are these people looking to rent your apartment? Are they pedophiles, convicted criminals or social deviants? You just don’t really know who they are until you run a thorough background check. It might sound untrusting but that is exactly what you must be in the beginning. You are opening your home and a small part of your life up to the renters. Take every precaution to make this relationship easier and successful. You may take pity on a person who has a bad background history but that doesn’t mean you should rent to them. Background checks are often offered by many credit report agencies for a slight additional fee. If you must, charge more for the application fee to cover this charge.
At the end of the day, you will be much happier and rested if you have a property management company to do this for you. As you can see from the list above, the responsibilities and risks of being a landlord are very extensive. Take the work out of renting your property and give it to the professionals.