Property rentals are among the most popular and one of the most profitable real estate investment types. It is relatively easy to manage and does not require expert investment or real estate investing skills to become successful. However, there are still significant things to do and mistakes to avoid for every landlord to maximize profitability.
Landlords are the people that own the property being rented to tenants at agreed terms. So, in a nutshell, landlord basically waits for the time until the tenant settle their monthly obligations (depending on the agreement of both parties). But then again, landlords are bound to commit mistakes that at some point could affect the property’s profitability. Larry Alton of BiggerPockets shared to us the most costly mistakes landlords are committing that limit their profitability. Read the article below to learn more.
4 Expensive Mistakes Landlords Must Avoid
Image Source: BiggerPockets
Successful landlords aren’t cheap, but they are definitely cost-conscious. In other words, they understand that costs add up over time, so they make smart choices to maximize revenue.
For example, a $100 mistake might not seem like a big deal in isolation. But if you’re making a $100 mistake every month on three different properties that you own, you’re costing yourself $300 per month—or $3,600 per year!
This can create cash flow issues and prevent you from being able to accomplish your long-term goals.
There’s a time and place for spending money to set yourself up for success. However, there are also ways you can limit your expenses to maximize your revenues. Here are some expensive mistakes to avoid.
1. Investing in the Wrong Properties
You make your money when you buy a property. Repeat that out loud: You make your money when you buy a property.
The biggest profitability problem landlords have is created by investing in the wrong properties—or overpaying for the right ones. If you make either of these mistakes, you’ll find it nearly impossible to generate a profit that’s worth your time and energy.
Bad properties have slim margins and a tendency to need lots of work. While you won’t find a perfect rental property, you should practice greater patience and seek out ones that have the opportunity for greater gains. This will provide more margin for error.
2. Poor Tenant Screening
After selecting the right property and making a smart investment, nothing matters more than tenant selection. And if you don’t have the right screening processes in place, you could seriously impact your long-term profitability.
A bad tenant will cost you in multiple ways, including:
Late rent checks and/or missed payments
Lack of care for property (frequent maintenance issues)
Violation of lease agreement terms
High turnover
Failing to leave the property in good condition upon moving out
The list could go on and on. If you aren’t carefully screening tenants, then you’re taking a major risk.
Should you end up with a bad tenant who has financial issues and a lack of regard for your property, it could cost you thousands of dollars. By enhancing your tenant screening, you’ll minimize these instances and maximize profitability. See full post here…
It is no denial that the landlord often commits mistakes in screening their tenants. They must have an established tenant screening process. Remember that a bad tenant will affect your profitability in multiple ways. Missed payments, maintenance issues, and other issues add to the landlord’s cost. Better avoid all of these by properly screen tenants first.
Lindsey Schober of Zillow also shared the most common mistakes landlord makes that are commonly observed by the experts over the past years. Want to know more about these mistakes? Read the article below.
Top 10 Mistakes Landlords Make
Image Source: Zillow
People enter the landlord business for many different reasons. Maybe you’re an “accidental landlord” who decided to rent out your former residence, or you gained a property through an inheritance. Or, maybe you diligently researched properties for sale and chose to purchase one (or more) as an extra source of income. Regardless of how or why you entered the business, being a landlord can be a profitable endeavor — or a costly one if you stumble into some common pitfalls.
Here are 10 of the most common mistakes landlords make and how to avoid them.
1. (Not) Understanding your local market
The three most important words in real estate investing continue to be location, location, location. This is twofold: First, it means making sure your rental is in a desirable area so you can attract more potential tenants. Just because the price is right doesn’t mean that the location is. Get to know the neighborhood, including access to transportation, grocery stores, area features and businesses. Second, understanding your location means learning about the dynamics of the local market, researching area taxes and determining what you can charge for rent — all of which are key to estimating the return on investment for your property so you can predict your monthly rental income.
2. (Not) Understanding fair housing laws
Before you start looking for tenants, you need to understand fair housing and discrimination laws; otherwise, you risk getting into legal trouble. Fair housing laws are federal statutes that ensure equal access to housing for everyone. It is illegal to discriminate against anyone on the basis of race, color, religion, national origin, sex, familial status or disability. Many local and state governments have additional protections that you’ll want to become familiar with. A general rule of thumb is to focus on the property and amenities in your advertising and conversations — not on who you think the ideal tenants would be or features geared toward a specific group. The bottom line is to treat and communicate with every applicant and renter in the same way.
3. (Not) Conducting a thorough tenant screening
While speed is important in filling your vacancy, you still want to choose a highly qualified renter. Create a documented process and criteria for finding, screening and securing your tenants. Make each potential renter fill out an application and verify everything from employment to past addresses (and get landlord references while you’re at it). You’ll want to perform a tenant background check and run a tenant credit report. Confirm that renters have paid the rent on time and have not caused problems for their previous landlords or employers.
Some landlords failed to understand their target market, ending up finding a very bad location for their property rentals. As a landlord, it is very vital to know and understand your market very carefully; whether you’re going to rent your property to students, workers, entrepreneur, etc. Understanding your market will bring you a long way as a successful landlord.
There are also the biggest mistakes that kill profitability, but still, a lot of clueless landlords are doing them. Andrea Collatz of My Smart Move compiled these mistakes so that they can be avoided.
The Biggest Mistakes Landlords Make That Kill Profit
When you first started looking into purchasing a rental property, you likely had dreams of a profitable return on your investment. After all, no one goes into business to lose money. But what if you were losing money in ways you didn’t even realize? Below are some the mistakes landlords make that eat into their rental profits.
1. Not properly crunching your numbers
When looking to buy an investment property, it’s crucial to first calculate all your expenses and what you can reasonably expect to get in rental profit. If you skip this step, you could wind up in trouble when you realize that your monthly rental income only covers part of your monthly rental expenses. Doing the math may sound like a pain, but it’s worth it when you consider your bottom line.
Image Source: My Smart Move
Once you know your expenses you’ll be better able to set a rent price to help make a reasonable monthly profit. In terms of profitability, one guideline to use is the 2% rule of thumb. It reasons that if your rent is 2% of the purchase price, you are more likely to generate positive cash flow. But the market drives rental prices, so you’ll have to do your research to determine what you’re able to rent for in the neighborhood. Renting for under market value risks tanking your monthly profit, but so will vacancies. If an asking price is too high, you could be left with an empty apartment for several months, and you’ll likely end up renting for whatever the going market rate is.
2. Choosing a bad rental location
Location is a highly influential factor as to why renters choose to rent where they do. If you’re a new investor looking for a rental property, work with a real estate agent who is familiar with the area and can point you to some of the better neighborhoods for rentals. In general, tenants look for areas that are close to public transportation, dining, shopping, schools and universities.
If the location of your rental is undesirable, you’re going to struggle to find renters. This means your unit will take longer to turnover, you won’t be able to charge as much in rent. Plus, you’ll end up with a smaller pool of renters to choose from because it might take longer to find someone who’s a good fit for your rental. All of these factors can cause you to lose out on income, therefore, location is a key factor in choosing a successful and profitable investment property. Click here to read the rest of this post…
Always remember that the main goal of renting a property and becoming a landlord is to earn profits from the property (a house) rental. However, committing errors and huge mistakes will limit your capability to profit. Follow the above expert tips, and completely avoid the mistakes in order for you to maximize profitability.
If you plan to rent a property and is looking to purchase a house to achieve it, then Dependable Homebuyers can help you find the right house to rent. Become a successful landlord in no time. To learn more, visit https://www.dependablehomebuyers.com and let’s get started.
