While it is clear that rental property is a smart financial investment, all too often, investors do not realize the complexities of managing that investment. Here at Specialized Property Management, we love to help rental property owners improve cash flow, efficiency, and stability. We often see new landlords and even experienced investors make the same costly mistakes over and over again.
Today, we’re talking about the most common and avoidable mistakes that we see. Hopefully, this discussion will help you avoid them.
Extended Vacancy and Leasing Days
Vacancy is expensive, and leaving your home unoccupied on the rental market for long periods can also cost investors a lot of money. Make sure you’re limiting your vacancy times with excellent marketing, accurate pricing, and a responsive showing and application process. You want to provide a high-quality rental home as well. Don’t list the home until it’s rent-ready. It should be clean, functional, and appealing to prospective tenants.
Poor Rental Property Selection
One of the biggest mistakes we see occurs even before a tenant is in place. This mistake is choosing a property that won’t earn you as much as possible as an investment. When you’re looking for the right real estate investment, you should be thinking about how it will perform on the rental market. Evaluate how much rent you think you’ll be able to earn before you buy it. Consider how long it will take you to rent it out and whether a lot of work will need to be done to it before it’s ready for a tenant.
Talk to professional property managers before you buy. Your real estate agent will undoubtedly be an excellent resource during the purchase process, but most real estate agents are focused on finding homes that owners will occupy. When you’re looking for an investment property, there are a different set of priorities to consider. A property manager can help you avoid buying the wrong property. Purchasing something that won’t rent right away will only cost you money.
Inadequate Property Preparation
A mistake we often see is not preparing the property before putting it on the rental market. Good tenants are smart and they have a lot of options when it comes to choosing a rental home. If you don’t pay attention to curb appeal, cleaning, and fixing up the home so it’s attractive to great renters, you’re going to lose money on vacancy costs and you’ll run the risk of renting to a bad tenant. Make some minor upgrades and updates so that you’re able to attract the best possible residents. If your home isn’t clean or it still needs repairs, good tenants will be turned off when they come to see it.
Poor Tenant Screening
Choosing the wrong tenant for your rental property is a huge liability. We’re always surprised at the number of landlords who have lax screening processes or who don’t screen at all. Make sure you’re checking an applicant’s identity, past rental history, criminal and eviction histories, employment and income, and other background details. You want to have an idea of what type of tenant you’re renting to. Don’t be afraid to call prior landlords. Talk to employers and compare salary information to your monthly rent. Make sure they can afford the rent.
Another mistake that’s related to screening is not understanding the fair housing laws. It’s extremely important that you know what you can and cannot use as criteria to approve or deny a tenant. There are seven federally protected classes, and you need to know what those are. It’s important that you understand you cannot deny a qualified tenant who needs a service animal, even if you have a no-pet policy. You cannot refuse to rent to a tenant who has children, and you cannot make a decision based on religion or sex. Screen thoroughly and in compliance with all fair housing and anti-discrimination laws.
Negative Tenant Interaction
Some landlords have a hard time remembering that your tenants are your customers. They are paying the rent and they are contributing to your success as an investor. If you’re not treating your tenants well, you’re making a huge mistake. One of the best ways to increase your ROI and earn better income on your property is by taking good care of your tenants. Show them that you care about your property and their rental experience. Respond immediately to maintenance and check in with them once in a while to see how everything is going at the home and to ask if there’s anything they need.
Small gifts can also make them feel special, especially at lease renewal time.
High Tenant Turnover
Just like vacancy, tenant turnover will crush your ROI. Keep your good tenants in place.
Tenant turnover can be reduced by providing a great rental experience for your tenants. When you can demonstrate that you’re accessible and communicative, you respond to maintenance needs immediately, and you work hard to keep your tenants happy, you will achieve more lease renewals. This will save you a lot of time, money, and effort that’s often lost between tenants.
Inadequate Rent Collection
Chasing down late rent isn’t a good use of your time, and it also hurts your ability to earn a consistent cash flow on your Orlando investment property. If you don’t have a documented rent collection process in place, your tenants aren’t going to feel motivated to pay on time. Your lease must specify exactly:
- When rent is due
- How much is due
- How it should be paid
- What the consequences are when it’s late
You need to be consistent. If you have a late fee listed in your lease, make sure you charge that fee every time that rent is late. Hold tenants accountable so you don’t have to worry about growing expenses and potential evictions.
Legal and Regulatory Violations
It’s very easy to make legal mistakes when you’re managing your own property, and they can be expensive and debilitating. Florida has specific requirements about where to hold the tenant’s security deposit and how to return it. You need to follow all fair housing laws and pay attention to important federal laws such as the Americans with Disabilities Act and the Fair Credit Reporting Act. Even an unintentional and minor error can cost you thousands of dollars.
Neglecting to Conduct Property Inspections
Routine property inspections are important for two reasons: they allow you to look for unreported maintenance items and they give you the opportunity to ensure your tenants are following the terms of your lease. They will also create an ongoing system for documenting the condition of your property. If you don’t inspect your property, you could find extensive damage after a tenant moves out, evidence of pets that were never authorized, and major maintenance issues that could have been handled easily if they were reported in time.
Deferred or Insufficient Maintenance
A well-maintained home is worth more on the rental market and as it appreciates in value. One of the biggest mistakes a rental property can make is not maintaining the investment. You need to respond to routine and maintenance issues reported by your tenant, and you need to take care of preventative maintenance items such as cleaning the gutters, servicing the air conditioning unit, and checking the roof for sticks, branches, and debris. While Orlando is inland, it can still be affected by hurricanes and tropical storms, and you need to be prepared. Keep the property in good condition.
Cash Flow Problems
Cash flow should never be a problem if you’ve chosen a smart investment property and you’re collecting rent regularly while you maintain the home. We do see investors and landlords make mistakes by setting up financing deals that are unwise, not charging high enough rents, and over-spending on things like unnecessary improvements. You need access to good vendors who do outstanding work for affordable prices; otherwise, you won’t earn the cash flow you anticipate. There are many causes of poor cash flow and many fixes.
Choosing the Wrong Property Manager
Failing to choose a property manager carefully can cause you a number of problems. Most investors and landlords rely on their property managers to increase profits and decrease expenses. But a bad property manager will end up costing you more and creating additional headaches.
When you’re looking for a property management company, focus your search on companies with a lot of experience and a proven record of success in placing tenants, enforcing leases, and maintaining homes. Look at customer reviews and talk to current clients. Make sure you’re getting a good value for the management fees that you pay.
Residential rental property can be an excellent financial investment if managed well. New investors often do not realize the complexities and risks of managing tenants and properties, and it can impact their bottom line.
We are uniquely able to help rental property owners avoid these common headaches, hassles, and mistakes. Put our experienced team and proven process to work for you. Contact us at Specialized Property Management if you have any questions.