And how you can avoid making the same mistakes!

If only we had the ability to see into the future and prepare for things we couldn’t anticipate under ordinary circumstances. But life doesn’t give us this loophole, and instead we have to do our best to roll with the punches and adapt to every situation.

There is a silver lining, of course. Experience offers wisdom, and those who are more experienced than we are often pass down the knowledge they have gained. So let’s learn from their mistakes!

Being a landlord is challenging, but it’s also incredibly rewarding (and not just in a monetary sense). To get started on the path to success, here are five things experienced landlords wish they’d done differently, and how you can learn from their mistakes:

1. ALWAYS Screen Your Tenants

Even if it’s a friend of a friend. This isn’t about mistrust; it’s about covering all your bases. If you had a friend who you knew never returned things they borrowed, how likely would you be to loan them something of yours? It’s the same concept, but in real estate the stakes are even higher. It’s an unfortunate truth, but you can’t rely on instinct alone or your belief in the goodness of others when you’re renting out your property. Instead, you have to look at the data and draw your conclusions from there. 

There are a few common practices when you’re screening tenants. These include:

• Using a Good Rental Application Form
• Asking about employment both past and current
• Verifying income
• Looking at previous rental experience
• Inquiring about evictions and/or late rent payments
• Running a background and credit check
• Optional: contact previous landlord(s) and employer(s)

Not every landlord will feel the need to go through all of these points, but if you want to have the most informed picture of your tenants and any possible hiccups that could occur down the road, each one is necessary. It might be more work in the beginning, but if you find out something that you only would have known through a thorough screening process, you’ll save yourself a lot of headache and expense in the future. 
If you’re not sure where to start with tenant screening, visit our tenant screening partner Avail here.

2. Make Sure You’re Prepared for Vacancies

As optimistic as you might feel, you should always be prepared to have vacancies. When you’re first renting out your property you’ll have a vacancy period of course, but many more can happen and they’re not always planned out. Unexpected move-outs, little to no notice, and evictions can all lead to longer periods of vacancy that you aren’t ready to deal with. 

Unless, of course, you prepare beforehand.

During a vacancy, not only will you not have rental income, you will also be responsible for utilities and upkeep if you weren’t already. See if you can find out the average vacancy rate for your area to get an idea of the potential yearly cost. This is part of budgeting for a rental property; if you can’t afford vacancies, this form of investment might be too high risk. 

To prepare for vacancies, set aside a separate savings account that acts as your emergency fund specifically for rental-related issues. You should already have this for general repairs and such, but keep enough in there for at least a three month vacancy. 

You can also look at things you’re doing that might extend the vacancy period, such as not including adequate pictures in online listings or charging too much. It’s all well and good to hold out for the right tenants, but if you’re charging way more than other landlords in your area, you’ll end up losing more than you could potentially make.

3. Read the Fine Print, Even if You Wrote the Rental Agreement

No matter what type of contract you’re signing, ALWAYS read the fine print. There is almost a 100% guarantee that something in there could come back to bite you. This applies to rental agreements as well, even if you’re the one who drew it up. If you have an issue with a tenant and they exploit a loophole you didn’t realize was there, you’re going to wish you had paid more attention. 

This is especially common when you find a template online to create your rental agreement from. Depending on the source, there might be a lot of legal jargon that you’re not sure you understand, or provisions you think will never be applicable to your situation. If you’re not sure what it means, do not include it. 

Reading the fine print also has an opposite point you should consider too; don’t let your agreement be too sparse. A one page rental agreement that says, “You’ll use this property and in exchange you’ll pay me this much in rent” is not a well thought-out document. At the very least, your rental agreement should cover:

• The agreed upon rental amount
• Late fees and on which date the fees will be applied
• Total move-in costs and how much of that is refundable
• Conditions for which the refund is applicable (what kind of damage will result in deposits being withheld, how the value will be assessed, etc.)
• A severability clause
• Rules regarding pets
• Rules regarding visitors and overnight guests

There are so many more important points to include, so do your research. We have an entire article devoted to lease agreements that you can check out for more information.

4. Don’t Rule Out a Property Manager

To make the most profit, you will probably decide against a property manager or property management company, at least early on. Many new landlords go into the process confident that they can handle a single rental property with ease, but sometimes it can turn into more of a day job than a side project. When this happens, don’t dig your heels in and refuse to even consider a property manager. 

There are factors to consider when deciding if one is actually necessary or just a convenience, and everyone will come to a different conclusion based on their situation. You might not mind a little stress and have more free time than other landlords to devote to your rental(s). Or, you might be a mess of anxiety and nerves desperately wishing you had never entered into real estate. 

If you fall into the latter category, a property manager might be exactly what you need to make real estate fun again. You will have to meet with a few property managers to find the right fit, and you want to ensure that the people you choose will represent you well and take care of your tenants just as you would. Many potential renters shy away from homes that are managed by companies because there are so many nightmare stories out there. If you choose the right company, however, you can potentially keep tenants for longer because their problems will be dealt with right away. 

So, if it can save you time, money, and mental health, a property manager can be a smart choice.

5. Rentals Are Businesses

There are a lot of activities that make good hobbies: reading, knitting, making model airplanes, etc. Owning rental properties is not one of those activities. If you want a side project that doesn’t take up much time and never leads to surprises, real estate is not the game you want to be in. When you commit to becoming a landlord, you’re essentially starting a business. 

This means you need to be keeping track of profit and loss, evaluating to determine how you can increase profit, and managing your customer service end (whether you’re customer service or a property manager is). If you treat it as a hobby, you will quickly be overwhelmed by all the details and could potentially lose a lot of money if you don’t work to find and keep tenants. Sure, you’ve probably heard stories about landlords who put in 10 or so hours upfront to get their property ready and find good tenants, then after that it was pretty much hands off other than minor repairs. These are the lucky cases, and they’re not all that common. 

As a landlord, you’re in charge of three areas: tenants, the property, and your finances. Each of these pieces can take up a lot of your attention, but they require balance. Don’t focus so much on finances that you lose tenants due to ridiculous costs, and don’t try so hard to please your tenants that your finances take a hit. Decide how much to put into each area to maximize benefits in all three, and you’ll have a successful business that brings in the money for years to come.

You can also take advantage of Online Property Management Software tools such as Landlord Studio, which helps you keep track of finances, set reminders for specific properties, and even screen tenants. 
Entering into the real estate realm is like stepping into a foreign country without a guidebook. You don’t know where to go, and you probably don’t even speak the language. In both cases, others are your greatest resource. By listening to advice and following the tips of those that are more experienced, you can continue on, confident that what you seek is right around the corner.

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