Property management seems straightforward to most people. You collect rent from your tenants and make sure they’re happy.
But is that all there is to it?
The truth is, there are a lot of skills and knowledge involved in running a successful rental property. The whole process resembles running a small business.
While you focus on maximizing your ROI, many blind spots tied to your rental operation could turn into costly mistakes. For this reason, many property owners decide that they need a property manager to take on some of the responsibilities.
In this article, you’ll learn how to avoid the common pitfalls that threaten rental property owners.
#1: Overcharging or undercharging
Setting the wrong rental price is a common mistake. Pricing can make or break your entrance to the rental market.
- Charge too high? You might find it difficult to find tenants willing to rent your property. Also, the resulting vacant units will create negative cash flow as you’ll still have to take care of the mortgage and maintenance.
- Charge too little? You could easily start losing money again. Plus, asking well below the market average sends a cautionary signal about the property’s quality. People would wonder, “Is it so cheap for a particular reason?”
Are you a new property owner?
Even experienced investors find that setting the perfect rental price is a demanding challenge. You might benefit from the services of a professional property management company.
#2: Setting unclear rules
When it comes to tenant rules, you can never be “too specific.” You should set clear guidelines to avoid financial expenses and lost time.
Before your new tenants move in, make sure you lay out all the rules and consequences in the lease agreement. Go over the rental agreement with your renters before they move in. Ensure that they understand all the details, such as late fees and no-pet policies.
#3: Self-managing from the start
Many new landlords fall into the trap of self-management. Soon enough, they discover that there are more responsibilities than they expected.
Owning a rental property involves much more than a monthly rent collection. You’ll face duties requiring experience, knowledge, and skills. Some of the skills demand an extended period of learning before you can properly put them into action.
Take a look at the following list of guiding questions before deciding to self-manage:
- Do you know how to screen your tenants?
- What do you know about maintenance and repairs?
- Are you well acquainted with landlord-tenant laws on local, state and federal levels?
- How do you plan to collect rent from your tenants?
- Are you fine with receiving calls in the middle of the night?
If you felt confident in answering these questions, you may be able to self-manage your property. In other cases, it may be beneficial to opt for a professional property manager who can offer you their skills and experience.
#4: Underestimating maintenance and repair costs
When you want to minimize your expenses, it’s easy to overlook the real costs of maintenance. Failure to hire professionals for maintenance and repairs may end up costing you more in the long run.
Don’t forget that postponing small repairs or using quick fixes found online may create issues that result in bigger expenses.
Regular maintenance is a legal requirement. There are many ways to budget for maintenance costs. A typical calculation is this: allocate a sum equal to 10% of your rental property’s value for annual maintenance expenses.
#5: Saying “no” to insurance
Insurance coverage protects your investment from flooding, fires, and other misfortunes. Sometimes, beginner rental property investors feel tempted to ignore insurance. It seems like a way to cut costs—at least as a short-term solution.
However, you can never be certain! It’s better to opt for an insurance policy that protects your assets.
#6: Seeing it as a hobby
Treating property management as a fun hobby could set you up for considerable expenses. Like any other business, renting out properties requires focus and discipline. Plus, you’ll need to have a proper accounting system.
Consult a tax professional to make sure that you handle and pay all the taxes on your rental business correctly. You don’t want to get any unexpected letters from the IRS because of improperly filed taxes.
#7: Getting too friendly with your tenants
You have to strike the right balance between being friendly and transactional with your tenants. When you’re too cold and distant, your tenants might not communicate openly about things that could concern you.
Nevertheless, there are dangers in being too friendly with your renters as well. You may find it more difficult to enforce consequences in the event of late payments. Preferential treatment often results in overlooking the lease terms.
Overly friendly relations with your tenants could make evictions more difficult as well. Things getting too emotional can lead to delays and financial losses. That’s why the best policy is to stay friendly but remain professional.
The bottom line: common rental property owner mistakes
Newcomers to the property management field tend to get surprised by the long list of responsibilities. Successful landlords do much more than ensure that their tenants pay rent on time.
Common mistakes of rental property owners include:
- Self-managing when they aren’t ready for it
- Viewing it as a hobby
- Overcharging and undercharging
- Setting unclear rules in the lease agreement
The easiest way to avoid beginner mistakes is by hiring a professional property management company. The experienced team will take care of your rental property while you focus on getting the highest return on your investment.