Today we are going to look at the top 3 pitfalls that will cost Landlords dearly and what they can do to be successful.
Pitfall #1 – Tenant Application and Selection Process
The first pitfall involves the tenant application and selection process. Here the average landlord is basically rolling the dice. Normally most owners don’t have the time or resources to effectively evaluate a potential tenant and consequently aren’t looking too deeply into their qualifications. Occasionally the owner succumbs to family pressure and allows marginally qualified relatives to move into the property with less than average results. Other owners get desperate for rental income and completely ignore their entire approval process with the first applicant that happens to answer their ad. That of course could potentially lead to disaster. We’ve seen the movie “Pacific Heights” starring Michael Keaton,…thank you very much. You should have very stringent and clear qualifications that need to be assessed for every applicant, and you need to be able to verify all of the information on an application. In addition, an owner needs to know and abide by all state and federal landlord-tenant laws. Sticking to the entire application process is the best way to mitigate future unwanted situations.
Pitfall #2 – Setting Up A Maintenance and Repair Fund
The second pitfall involves not setting up a maintenance and repair fund starting the day you purchase the property. Owners need to understand that every property, no matter how new it is, eventually will have repair and maintenance issues. Many first-time investors will buy an older property because they are comparatively cheaper per square foot than a new construction. Also, they will put down as little of their own money as possible in order to get the property. Those choices can lead to higher monthly mortgage payments. Unfortunately, investors frequently underestimate potential repair costs and they over estimate potential rental income. It’s not uncommon for a real estate sales associate to project the absolute perfect situation about a properties potential in order to make a sale. The best solution is for owners to regularly set aside money in a separate repair account in anticipation of unseen, inevitable, repairs.
Pitfall #3 – Ignoring Problems
The third pitfall involves ignoring problems, hoping that they will self-correct or just plain go away on their own. This is a surefire way to increase overall costs. Probably the most common problem is ignoring a tenant that has a legitimate repair request. As an example, we had this amazing tenant that paid like clockwork but rarely even resided in the property. The tenant played on the senior golf tour and spent the majority of every month on the road, staying in hotels, following the pro golf circuit. This tenant had been in this same property for years. When we did inspections, the tenant still had most of their belongings in boxes stored in one of the bedrooms. One weekend he was actually home doing laundry and the dryer stopped working. During the repair it was discovered that there were 5 different sized socks down in the motor area that caused the problem. Upon further inspection, it was clear that none of the socks actually belonged to this tenant. Apparently, they had come from the previous tenants. The repair bill came to $70.00.
The owner refused to pay the bill stating that the tenant caused the necessary repair. The rent for the unit at the time was $850 per month. The tenant ended up paying the bill and in the process gave notice and moved out. There were a couple of other very minor repairs from normal wear and tear that needed to be made, and the unit sat vacant for 3 months before another tenant was approved and took possession. The total cost of the $70.00 repair for the owner ended up being close to $3000.00, which included the cost of getting a new tenant, the other minor repairs, and lost rent during the vacancy period.
When you have a good tenant that is paying on time, not causing any problems, and only wants to be supported when something does need to be repaired, it’s best not to ignore the situation and instead take care of it as quickly as possible. The tenant will be grateful and will stay longer while keeping up the owner’s cash flow. Tenant turnover can eat up rental profits faster than just about anything else.
Get Connected If you would like more information on the rental market here in the greater Las Vegas valley, or would like a free no obligation analysis of your property’s rental potential, feel free to give us a call at 702-916-2222. We work hard at keeping properties filled, and owner’s rental income flowing.
