The rental industry can be a fantastic business to be in, and becoming a landlord can be a rewarding endeavor. But similar to any industry you may enter without previous experience, there are mistakes to be made. When you own a rental property you have the opportunity to grow wealth while also being your own boss. The downside? The responsibility is all yours — any mistakes you make while managing your property will fall back on you. Running an apartment complex properly requires consistent energy and time.
There are a few common mistakes that first time landlords make that can break their chances of success. If you’re entering the rental landscape, taking the time to research the market and avoid these downfalls can save you time and ultimately money.
3 Common Mistakes First Time Landlords Make
1. They set the rent too high.
Many first time landlords purchase a building with the intention of renovating and increasing the rent. Often, new landlords expect to be able to increase the rent dramatically after fixing the place up. While it is the goal to increase the value of a building, you likely won’t be able to raise the rent as high as you initially expect.
If you’re new to the business, you’ve likely invested a lot of money and time into your new property. In order to keep up with the mortgage, your first priority must be to generate income. Consider the market in your region. First time landlords must ensure their investment is enticing to those who are looking to rent.
While keeping your property at or below market may not seem like the best way to generate revenue, a responsible renter who pays on time at a lower rate is better than a renter at a higher rate who is always late. If you’re over the market, you may experience greater turnover and vacancies, which can be very expensive. Avoid these common mistakes first time landlords make by setting fair prices.
2. They are too lenient with their tenants.
Many new landlords are so busy fixing up the building or renting new units that they don’t prioritize collecting rent from their current tenants. Like any other industry, without your main source of revenue, your business will fail. Set clearly defined rules at move in that make your expectations around payment clear to residents. Renters should not only be told their due date, but also how much time they have to pay and what the penalties are for being late. Enforcing these policies may feel strict to a first time landlord, but staying on top of your mortgage must be a priority.
3. They underestimate the cost of maintenance.
One of the most important things to consider when becoming a landlord is maintenance costs. It’s never safe to assume a building won’t require a lot of maintenance. High end properties can turn into unexpected money pits, and buildings you assume will need a ton of work may end up running smoothly.
When investing in apartment complexes, it is essential that you consider the expenses that may arise as repairs are required. Consider the potential damaging factors at each point along the way, from purchasing the property, selecting tenants, and creating resident policies. Do you want to allow animals in your building? Is the property prone to water damage? Could external factors cause need to replace elements of the structure? By evaluating potential maintenance needs, you can avoid pouring money into unexpected costs. — Steven Taylor