Real estate investment continues to grow in popularity. It can be a highly profitable asset class, and one of the only paths allowing many to get ahead financially. However, there are pitfalls which can bankrupt landlords. So what are some of common mistakes and dangers today? How do you avoid them?
Deposits are a tricky issue, but one which is often underestimated by landlords. While regulations and laws differ a little depending on where your property is, too many see deposit money as a way to get more money from a tenant upfront. This money really isn’t yours to spend as a landlord. It should be held in a separate account, and if it earns interest that money may have to be shared with tenants. This money can’t just be grabbed or kept. Legally it is designated to cover very specific damages. That’s it. If you fail to return deposits timely and give a proper accounting you could find yourself out far more money. Some landlords may ultimately find they are better off lowering their deposit requirements, and increasing their monthly rent.
You can’t discriminate when it comes to choosing tenants, and even when trying to get tenants to move on. Discrimination comes in many forms, and if you aren’t sure if it is discrimination or not, err on the side of caution. Stay safe by having written criteria for applicants which can be used to protect you in court.
Vacant rental units aren’t just failing to bring in money. They are costing you money every month, and they increase risk. Vacant units are at higher risk of being vandalized, squatters, and other things malfunctioning due to lack of use. If your units aren’t rented every day, it’s worth digging in to figure out why and how you are going to fix it. Are you taking too long to fix the place up? Are you asking too much for rent? Are you being too tough on prospective tenants?
How you start off with a new rental property can make a big difference in success or going bankrupt. Landlords should be looking to their agents and title insurance company to help ensure any renter deposits and prorated rents are credited to them at the closing. Estoppel letters should be sent to tenants to verify rents, leases, and current status. A smooth hand off for collecting rents is important too. Tenants should be aware a transfer is coming, and know who to pay their rent to in advance, and how.
What issues have you had with rentals? How did you overcome them? Let us know on Facebook…