If you are buying a rental property, you can learn a lot by observing other people’s mistakes. Below are six of the most common landlord mistakes that we hope you don’t make!
1. Not Hiring A Property Management Company
You don’t have to have an efficient Houston property management company handle your properties; you can do it yourself. But many landlords want to save money by skipping the property management company but don’t put in enough time and effort to manage the property themselves.
That’s why you need to figure out from the start if you have the time, skill, and inclination to handle the properties on your own. If so, great. If not, you will make more money and suffer less stress with a property management company running your investments.
2. Starting Too Big
Most experienced investors recommend starting small if you’ve never invested in real estate before. If you buy too many houses or a big apartment building at first, you may get overwhelmed with tenants, inspections, repairs, property taxes, managing employees, etc.
Instead, try purchasing one or two single-family homes and managing them yourself for two years before you expand. Another option: Buy a four-plex and live in one of the units yourself. This will give you a chance to get your feet wet in managing a small building before you expand your portfolio.
3. Not Screening Tenants
You must get good tenants in your properties that will pay on time and not cause problems. How do you know a good tenant? First, you establish a robust and thorough tenant screening process that checks their background, credit, and employment.
It’s tempting to lower your standards when you have one or two vacancies, but you will usually regret this. Between potential late rent and property damage from a bad tenant, it’s generally better to let that unit sit vacant until you find a good tenant.
4. Not Setting Aside Funds For Maintenance
No matter how well built and maintained your property is, you will have maintenance expenses eventually. Make sure you budget for major repairs, so you have funds sitting in an account to replace the roof, AC, plumbing, etc., because these repairs will happen eventually.
But you can head off many major repairs indefinitely by taking care of routine maintenance every month or quarter.
5. Buying Property For Appreciation
Your primary objective when buying rental real estate should be cash flow. That is, you need to be positive that your monthly rent is more than your mortgage, expenses, repairs, taxes, and maintenance costs.
However, far too many new landlords buy their properties for the appreciation that may or may not occur in several years. If your property appreciates, excellent, but you should only buy the property if it results in positive monthly cash flow. If not, you should move on to the next deal.
6. Sticking To A Fixed Rental Price
It’s important to watch rent trends in your neighborhood and stick to a rent close to others. But if things slow down and you have some vacancies, you may want to consider dropping the rent. Markets change, and you need to change with them.
But if you drop the rent, this doesn’t mean you should lower your tenant standards. Instead, stick to the same credit score and income requirements, so you get the best tenants.
Many investors get involved in real estate and find themselves losing money during the first year. But if you follow our tips above, you will have positive cash flow and will soon be in a position to buy more properties. independently