The Most Common and Costly Mistakes Homeowners Make

It’s no secret that owning a rental property can be a rewarding endeavour. At first glance, being a landlord seems like a good deal – you can sit back and earn money passively.

But as any seasoned landlord will tell you, supervising rental properties isn’t all it’s made out to be. There is a lot of work and effort behind the scenes. In addition, owners must avoid many pitfalls to avoid wasting money, time and sleep.

So, in this article, we list the most common mistakes landlords make and how you can avoid them in your own search for success in the rental market.

1. Not being strategic with your prices

Sophisticated property investors will try to maximize the rental income they can get. However, to be successful as a landlord, it is crucial to stay reasonable when setting your price.

For example, the city where your rental property is located currently has a weekly median rent of $450. It can be tempting to list your property ahead of price expectations, but it can be a risky strategy.

Typically inquiries from potential tenants within the first few days your property is listed – if you’ve set a rental price too high, they may not take a second look, or they may even choose to completely ignore.

If your property is unoccupied for even two weeks, you will technically have lost around $900 in rental income.

If you set your price just $10 below average, but your property is rented out immediately, the small discount will actually save you money in the long run – costing you just $520 on the fiscal year. .

Another mistake landlords make is not being flexible with the price of their rent.

As a landlord, you should review the rent on your investment property as often as possible and decide whether you want to raise the rent or leave it at the current rate. You must also be up to date and react to all major changes in the rental market.

For example, it’s a good idea to accept discounted offers in a slow rental market and raise prices slightly during warm season periods. This way you will get the most out of your property.

2. Choosing the wrong property manager

Not all property managers are created equal. A good and experienced property manager (or property management company) will take the time to understand your financial goals and will actively communicate and work with you to ensure that you will get solid returns and see low vacancy rates.

They will ensure that there is always a good tenant in your property and will collect rent, pay bills and take care of repairs and maintenance. They will also take care of monthly and annual accounts so that your accountant can prepare tax returns during tax season.

Moreover, hiring one is not particularly expensive and their services are tax deductible.

A good property manager will save you time, money and effort by making owning a rental property simple and rewarding.

While a good property manager can be a lifesaver, a bad one can cause more trouble than it’s worth. So be sure to check out our guide on how to find the right property manager for you.

3. Having insufficient insurance

No matter how long you’ve been in the rental property business, you must have seen the tenant horror stories. You may have read stories online of tenants causing major damage to their property or instances where it got really ugly and even resulted in a long-running legal battle between tenant and landlord.

That said, prevention is better than cure. Your rental property is an important asset and it is important to insure it well.

Landlord insurance can cover the risks that a real estate investor faces as a landlord. It is also adapted to include aspects not covered by other types of home insurance policies. Common features of homeowner’s insurance include:

  • Malicious or intentional damage to the property by the renter or his guests.
  • Loss of rent if the tenant does not pay his rent.
  • Liability, including for a claim against you by the renter.
  • Legal fees incurred to bring an action against a tenant.

As a bonus, because payments for homeowner’s insurance are a capital expense, your policy premium is also tax deductible.

4. Not staying on top of repairs or maintenance

A common landlord mistake that tenants hate is postponing repairs or maintenance to their properties. It can be tempting to put off repairs and maintenance issues on rental properties when you don’t have to deal with them personally every day.

However, this can be a costly mistake that can make tenants dissatisfied and eventually push them to move, which can consequently hurt your pockets. Also, you should know that a small repair problem today can snowball into a hefty repair bill if you don’t check it.

Minimize the risk of upsetting your tenants by instantly addressing maintenance issues. Work out your numbers to make sure you’re charging enough rent to at least help cover some of the ongoing maintenance costs like painting, cleaning, and carpet cleaning between tenants.

Plan to have to withdraw money from the company or from your own pocket in case you do not have the money to carry out major one-time repairs, including repairing structural damage, replacing appliances, etc

Additionally, accurate estimates of your home repair costs are essential when checking your cash flow and investment situation.

5. Postpone an eviction

One of the costliest mistakes a landlord can make is not starting eviction proceedings as soon as legally possible. If you’re having trouble with a tenant and aren’t sure how to proceed, it’s best to contact a legal professional as soon as possible.

Another common mistake homeowners make is not performing entry and exit inspections. Without detailed inspections when tenants vacate or occupy a property, you’ll have to deal with all damages and emergency costs, and you won’t be aware of mold leaks, pest issues, etc., which can cause damage. significant damage to your rental property.

6. Not Enforcing the Terms of the Lease

If you added in your rental agreement that late rent payments will result in a penalty, charge it. If you have indicated that there are no pets and your new tenant recently wanted a dog, apply the penalty.

If your tenants realize that you are not following the terms of your tenancy agreement, they will also be lax about following it. Remember to set and enforce the standard you want to meet.

7. Do not count vacation periods

If you have taken out an investment loan to purchase your rental property, it is important that you do your financial due diligence and ensure that you can pay a mortgage during vacation periods. Don’t make the mistake of not doing a simple cash flow analysis and make sure you have enough funds to cover mortgage payments when tenants are scarce.

Plus, there’s a list of things you can do to increase your chances of renting fast. First of all, as we mentioned, you can be flexible with the price of your rent. Second, you can relax your pet policy to expand your target audience. Third, you can slightly relax the restrictions on the terms of your lease on the results of tenant screening.

8. No Proper Tenant Screening

Many landlords make the mistake of failing to properly screen tenants. As anxious as you may be to get a tenant to move in and start paying rent, it’s not worth rushing to sign on the dotted line of a rental agreement without checking a potential tenant’s references and other documents.

To avoid being locked into a nasty tenancy agreement with a problematic tenant, it pays to do a good, thorough screening process. This will save you the stress, the headaches, and not to mention the expenses that a bad tenant can cause.

Besides credit and reference checks, be sure to ask the right questions to determine if your potential tenant is a custodian.

To help you get started, here is our step by step guide on how to properly screen tenants.

9. Not correctly claiming tax deductions on your rental property

Rental properties have unique tax deductions that some investors (especially new owners) are unaware of (eg. depreciation). These tax breaks can be significant and can often distinguish between negative cash flow and positive cash flow.

Before claiming everything tax deductions on your rental propertybe sure to seek advice from your accountant or a property manager to ensure you don’t have any issues with the ATO.

10. Don’t treat it like a business

One of the biggest mistakes some landlords make is viewing investment property ownership as a hobby rather than a business venture.

While there’s nothing wrong with profiting from what you’re doing, some people forget to take the business side of rental property ownership seriously and fail to get the maximum return on investment.

To avoid this, it is essential that you have a business plan and strategies in place. Stay on top of what’s going on with your property and work with professional advisers like accountants and financial planners to ensure you get the most out of your rental.

RELATED TERMS

Real estate

Real estate is a type of real property that refers to any land and its permanent improvement or accompanying structures, whether natural or man-made.

Tenant Screening

Tenant screening is the process used by landlords and property managers to check the background of potential tenants and assess their compliance with the tenancy agreement.

The Most Common and Costly Mistakes Homeowners Make



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Last update: November 08, 2021

Posted: November 09, 2021