The Top 5 Landlord Mistakes
Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votesThe Top 5 Landlord Mistakes
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Indianapolis, IN · Member since 2008 · 759 posts · 185 votes
17y1. Not Putting a Dollar Value on Your TIme
One example is this: If you have over 4 properties, my advice is to hire a good management company. One of the biggest mistakes I see investors make is that they try and do everything for themselves. Spending hours marketing, showing properties and doing handy work to save a few hundred dollars. Your time is worth money, and you need to figure out that equation for yourself. I would rather play with my kids on Saturday than snake a toilet to save $200.
2. Not being in Touch with Reality
We see too many Investors trying to sell properties based on false rent rates and/or showing higher cash flow than what will really happen. In return, we see too many buyers fall for it over and over again. I know, as folks come to me often to clean up their mess!!!!
I can show investors cheap properties in sub par neighborhoods with $500 a month cash flow too, on paper! However, collecting the rent in the real world is a different story!!!
Our focus is to buy and sell in neighborhoods where we have the odds of collecting rent in our favor. We might only cash flow $150 to $200 a property, but we actually get the rent every month! The other folks might hit for a couple of months, but the vacancy and repairs will only out them in a negative situation.
3. Not Realizing that here is more to cash flow then the money that you physically put in your pocket each month.
As most of you know, I do not live and die by the 50% and 2% rules that are so often discussed in this forum. I have been beaten up pretty good over disagreeing by folks in here, but hey, if I followed the rules of others, I would probably be working for someone else right now. :wink:
While i am not going to give accounting advice here, there is so much more to this than the money you put in your pocket at the beginning of each month. There are no simple rules, or easy paths in real estate.
Make sure you find a solid accountant and understand pre and post tax cash flow, depreciation, how to deal with expenses, equity, ect......
4. Not Understanding Risk
Real estate investing involves risk. Period! No way around it folks. You need to keep some reserves, and plan ahead.
Also, plan your exit strategies. If you get in trouble, can you sell that inner city dupex or quad quickly? Will a lender approve a loan on the property? Do you have enough equity?
Keep these things in mind. The reason why my company puts a focus on single family homes in solid blue collar neighborhoods is all based on exit strategy. We have enough equity to sell them to investors for cash flow, and enough reserves to try and sell them on the traditional market while vacant for 60-90 days for showings.
5. Not Having a Business Plan
This should probably be #1, as this is the most common of all mistakes. However, my experience is that folks usually remember the last thing they read, so I put it here since it is so crucial to your success.
If you own rental properties, you own a business. Please treat it as such. Create a business plan and evaluate it as necessary. This is not a hobby, hobbies cost you money, they do not make you money.
These are just a few issues to think about.....there are many more.....but look at these concepts, plan ahead, and it will give you a good foundation to get started, or back on track.
Good Luck!
211 Replies
- SFR Investor · Stillwater, OK · Member since 2014 · 168 posts · 37 votes12y
I thought that at one time or another I had made every conceivable mistake , but after reading all six pages ,it seems I missed out on making one or two. :^)
- Raleigh, NC · Member since 2014 · 12 posts · 5 votes12y
The Top mistake to me is local landlords not comunicating and miscomunicating. If I had a bad tenant and someone called for a reference I would be truthful. I have had 3 exlandlords to lye so they wouldnt have to evict. So now I go by whats on paper. I have had to evict multiple tenents and have not in the past 7 years had another landlord even call me. So tenants know they can mess you over and move on.I am in Raleigh and there are a lot of professional tenants.
- Raleigh, NC · Member since 2014 · 12 posts · 5 votes12y
The Top mistake to me is local landlords not comunicating and miscomunicating. If I had a bad tenant and someone called for a reference I would be truthful. I have had 3 exlandlords to lye so they wouldnt have to evict. So now I go by whats on paper. I have had to evict multiple tenents and have not in the past 7 years had another landlord even call me. So tenants know they can mess you over and move on.I am in Raleigh and there are a lot of professional tenants.
Also Landlords not working togeather to standeizes rents and pressure other landlorsd to go by screening protocol. I once tried to get the rental associations and appartment association (2 in the area) but they had no intrest. See most of their Hiarchy are Real Estate Agents and they dont want anybody to know there are problems in renting. They will drive off potential customers
- Raleigh, NC · Member since 2014 · 12 posts · 5 votes12y
To expound on my posted before. A lott of it has to do with the years of no interest rates that we have had. This has caused a lot of people to become landlord's without evening researching the business. So the main thing is that as a whole we have taught tenant how to treat us. If you have 50 to 75 percent of the landlord's out there not checking credit or not knowing how to do evictions or accepting late payments. That's what tenants are going to expect. They can get away with it. Now this is not releasing you from being a good landlord you have to repair things timely. But I learn the hard way about doing favors, taking reduced deposits taking excuses for late payments. Number 1 it doesn't work and number 2 it teaches the tenants that they can treat landlords this way and that's what they do. Now that it is getting harder to buy income property then that will weed out a lot of the landlord's that aren't serious. The ones that are left will be more of the landlord's best up to the script so it should get better
- Calumet City, IL · Member since 2014 · 312 posts · 49 votes12y
Well said John. I just yesterday finally evicted some non-paying tenants that I inherited when I bought my property back in October. Now I get to clean up their mess.
- Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes12yBecoming a landlord
- San Francisco, CA · Member since 2014 · 345 posts · 281 votes12y
1. Evicting bad tenants when you should be paying your bad tenants to leave.
- Raleigh, NC · Member since 2014 · 12 posts · 5 votes12y
There is a person that said pay your tenants to leave instead of evicting.I strongly disagree. If Real Estate Agents would help and tell their buyers the importance of not rushing and sticking to the rules then it would get a lot better. All the information you need to know the calaber of a tenant is right there. Even if they dont have great credit,you can ask to see cancled cjhecks or money orders of payment history. or bank statment. If they dont have that ,9 out of 10 its a reason why they dont have. when they show pay stub,call the business through the yellow pages and check to see if its real business. I have skiped on these things trying to get money flow and I have paid more in long run plus it emboldens those typ tenants. Real Estate think they are scaring away customers when they bring this up and I understand but the word is getting out about the nightmares and they will lose more customers that way
- Kirkland, WA · Member since 2014 · 71 posts · 18 votes12y
@Aaron Mazzrillo - That was my first thought, too! Never, ever rent to family and friends! Lesson learned....twice....
My contribution is that it's a mistake not to pick a couple neighbors, introduce yourself as the landlord/manager. Give them your business card. Have them call you if there are problems with the renters. The one house I learned this from with was in a good neighborhood and the two neighbors chosen were elderly and had raised their entire families there. One call on the tenant's dog breaking into their yard through the fence, and that was it. Fixed fence, no more issues.
Not sure how that might work in less affluent neighborhoods. Would appreciate experienced input, as I am considering going further out of my comfort zone to find affordable rental properties.
- Seattle, WA · Member since 2014 · 44 posts · 4 votes12y
My biggest problem is my neighbor!
touch wood, our tenants has been good, they pay rent on time, keep the townhouse in really good shape, and they are all very nice people. (we are having our 4th party now). Unfortunately, our biggest problem is our neighbor, she would complain about noise, complain about parking, complains about everything! She would bang on the wall, set up camera and pointing to the driveway; and the latest story was she used a audio device to measure how 'loud' our tenants was during Eastern holiday, during day time, omg... she is just ridiculous.
We thought about ditching the property, but we bought it at the peak, 2006 and just way under water and stuck.
Over the years, we have had better luck sometimes, and worse luck sometimes, it's like the weather and we just cross our fingers and hope for the best.
- 12yBill BockwoldtPro MemberInvestor · Petaluma, CA · Member since 2013 · 58 posts · 33 votes
I can share two of them:
1. Relying on "professional" home inspections. Sometimes only experience will teach you but it is an expensive lesson. Learn what is important in maintaining a home and be sure you check those things before buying. The seemingly "simple" things like water issues are what can really cost you down the road (think foundation repair and water in the walls).
2. Learn how landlord insurance works and the industry in general. I got great landlord insurance on 5 properties. After several really bad storms, I filed some claims for roof repair because the roofer who gave the free estimates explained how easy it was. Sure doesn't seem easy now that the insurance company is cancelling all of the policies (and they denied all the claims but one) at renewal. Finding insurance in some areas is not easy.
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes12y
Leniency seems to be a mistake every landlord has to learn the hard way.
- Rental Property Investor · Wichita, KS · Member since 2014 · 79 posts · 13 votes12y
Great tips on this thread. Thanks to everyone who posted.
- Dallas, TX · Member since 2013 · 4k+ posts · 744 votes12y
Most all landlords will lie to the tenants, and then they wonder why tenants are not friendly.
Joe Gore - 12yLisa DoudBusiness MemberInvestor · Portsmouth, VA · Member since 2014 · 75 posts · 72 votes
Here is my top 5 list!!!!!
1.Managing owner Expectation
- I have to make them understand market value vs their value (just because their mortgage is $1200 a month doesn't mean that their rent should be $1300 to cover their costs). Once I pull a CMA (Comparative Market Analysis) for the neighborhood, then I schedule an appointment to look at the property. Based on what I see when I visit the property, and all the available information about the comparable I give the owners the news of what I think the property will rent for. If they go against my recommendation, that property could be sitting on the market longer than necessary. I have had many head strong clients, but when it lists at my recommendation price it is amazing how quickly it moves.
- I have to make an owner understand rental market cycle and how it plays in to renting your unit. Everyone knows the rental market, even a slow market is booming from June -September (Kids are out of school and people are moving). Once september approaches you see a significant slow down, and by the middle of November (I call this the pre christmas spending. everyone is buying christmas gifts and don't have money for security deposit and 1st month's rent). You don't really have anything pick back up until Mid February- March 1(Everyone is paying off credit cards for christmas and don't have money to put down on the security deposit and 1st month's rent). I always tell my owners going in to the winter months to rent their property that they need to expect it to be vacant the entire winter. I am a firm believer in plan for the worst and hope for the best, and I would much rather have a property rent much faster than much slower than I predicted.
- When owner look at the in and out numbers, they have to understand what is only a paper loss (depression) and what actual losses are. It is so hard to explain to owners that yes you are supposed to have losses, but that is how you don't have to pay taxes on your full rental income received.
- When owner's don't understand the difference from a tenant repair vs an owner repair and they want the tenant to pay for something that the tenant had nothing to do with. I have to make them understand that the tenant has no interest in their property, and they as the owner are responsible for the physical structure, but if a tenant caused an issue with the property then it is a tenant bill. Also if a tenant calls for a maintenance ticket, but there is nothing wrong (tenant did not believe the A/C was cooling properly), then that is a tenant bill if the A/C system is operating within manufacture Specifications.
2. Filing Court Documents for Eviction/ ( Unlawful Detianer in VA). I always send out 5 day notices on the 6th day, but I can not pursue court action unless the owner chooses to do so. Unfortunately we get into some cases where the owner says give them a chance to catch up, however in the meantime, they get so far behind there is actually no way for them to catch up. I get more frustrated at the owner for this because if they allow them to stay in the unit without rent, we are not making any income and neither are they.
3. Application information..... A lot of times owner's don't realize that as a licensed real estate company, we must follow fair housing laws at all times, In the past we actually went through the application with the owners and if the owner said I didn't want to rent to them because "they are not a married couple" well that is a fair housing violation in VA, and my licenses is in jeopardy. Also due to our contract with our credit reporting services, I can not handout any information about any potential tenant application to anyone that is not an employee, or sub-contractor of my company. Owner's think they need this information to make a good decision on weather accepting the tenant or not, but most owners really don't know what they are looking for when they are looking at a credit report, and sometimes they don't get the whole picture. They hire a property manager to look at this for them and make the best judgement based on the information that was pulled in the credit reporting service.
4. Repairs and Maintenance Warranty's.... Owner's don't realize that using a warranty company is never the way to go on a rental property. When a tenant puts in a maintenance request all they want is for someone to come out and fix it, they don't want the drama that a warranty puts on the situation. I don't want to name names, but on 4 different occasions we have had nothing but disasters... Most warranty companies will say that all you need to do is just call in the problem and they will send out someone to fix it, all you as the owner need to do is pay the deductible. Well they sell you on either at minimal deductible of $50-100 each trouble call, then you call in and they say we will send someone out ti fix it within 48 hours all you have to do is have the make and model number of everything covered under the warranty or they can't even schedule a service tech to come out. This gets irritating especially since you spent over 1 hour just waiting to talk to someone, now you are frantically trying to contact the tenant to go out and look at the system, or appliance. So your normal 48 hours now turns in to 1 week because you are waiting for the tenant to get the model number and serial number (even if you have already called on this system before), you finally get the information then you get on the phone and wait another hour to speak with someone only to find out that the soonest someone can look at it was next week.
Then after all that they try to find any way that system would not be covered under the warranty, then it goes back to the owner, which the contracted repair company knows and usually makes the bill larger than what it should be...
I could go on and on, but some owner's just don't understand that if they just saved the money they paid for the warranty and found a maintenance person, or even used the one that their property manager recommends, their repairs would be done faster and usually cheaper that what their warranty company charged them for the whole year.
5. Owner Accountability.... Owner's checking in and checking out but usually don't pay attention to anything...
- I have owners that don't pay attention to anything until you have to pay a bill on their behalf, even if you send them a copy of the maintenance request even when you sent it to the prospective contractor for work.
- My favorite is when you send an email to the owner asking about a large maintenance repair and they send you an email telling you to go ahead, you get the work done and they don't remember the conversation.... I just re-forward their authorization email and explain you gave me permission on this one.
- Or coming back at their year end statement and asking why they paid 20% commission one month and not any other month, (look at your statement and see that your tenant was 1 month behind, and you had 2 months of management fees come out in the same month). Our owner statements are very easy to read rent in and all bills out line by line, but when you don't look at your in's and out's every month, you don't get the big picture.
Doud Realty Services, Inc.3.8205 Reviews - Billings, MT · Member since 2013 · 102 posts · 11 votes12y
I just made one. I bought 8 gallons of paint that looked really good on the paint card, but not nearly as good on the house. Oh well, it's not the worst color either. I suggest you buy 1 gallon at first, then it's easy and inexpensive to change.
- 11ySteve RozenbergPro MemberSpecialist · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votesI would add, not running your properties like a true business. With policies and procedures in place and most importantly FOLLOWED!
- Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes11y
Sorry for being flip :) but.....
Being a landlord at all.
I only owner finance my houses to carefully qualified end buyers. I never do any house maintenance at all. I sleep like a baby. And make money.
- Investor · Leesburg, AL · Member since 2014 · 46 posts · 15 votes11y
My husband and I are rookies! Just retired, moved here and purchased our first rental house. It's not on the market yet, here in our tiny town (pop. 868) in northern Alabama. How do I find out what other landlords are charging their renters? There aren't many rentals posted in the local newspaper for our size house. It's a mixed bag here, i.e., older homes, trailers, larger homes. My husband spoke with someone recently who has rental properties in the area. He said he collects rent weekly!
We appreciate all your input, experiences, and suggestions. You've opened my eyes to all the possibilities, good and bad, and made me braver in the process. I'm doing this!
- Property Manager and Investor · Seattle, WA · Member since 2015 · 55 posts · 23 votes11y
Totally agree with @Michael Rossi
"1. Improper screening of tenants"
The right tenants will be great stewards of your investment. The wrong tenants will make things difficult and expensive.
Originally posted by @Michael Rossi:
We all know that the vast majority of newbies fail in the rental property business. Therefore, I would consider the two mistakes that cause them to fail to be the most critical.
The number one reason that newbies fail is that they don't understand the real world operating expenses. Armed with this ignorance, they underestimate expenses and believe that a property will be profitable when in fact it will lose money (often, a LOT of money). This causes them to pay too much for properties, which is a certain recipe for failure.
The number two reason that landlords fail is that they don't know how to deal with tenants. This can be broken down into a lot of different facets including:
1. improper screening of tenants
2. failing to have a written screening process and acceptance criteria
3. accepting late or partial rent
4. failing to IMMEDIATELY evict non-paying tenants
5. accepting excuses from the tenants
6. being an absentee (hands-off) landlord
7. failing to aggressively fight lawsuits
etc, etc, etc.I have bought properties from many landlords who were absolutely DESPERATE to sell. Many have told me that they were literally physically sick and couldn't sleep because of the stress the tenants were causing them. Dealing properly with the tenants will greatly decrease these stresses and increase the chance of success.
Mike
- West Islip, NY · Member since 2015 · 2 posts · 1 vote11y
Ive been a real estate investor/pm for a few years.I feel these are the most important mistakes some investors make.
1: Landlords treating the house like nothing more than a paycheck,If you don't take pride in making the apt nice and staying on top of repairs why would someone else want to live there?
2: Landlords not being firm enough with tenants so they dont think they can do whatever they want but also not treating them with disrespect.
3: Landlords not doing routine checks on apt.This is YOUR investment why would you not take responsibility for making sure your investment is protected.
4: Landlords not enforcing the terms on lease,pay on time,keep place clean etc.
5: The last mistake I made and it was me not putting in the lease that any new appliance that is a washer or dryer the tenant is responsible for repairs.Tenants will overload waher/dryer then complain the motor burned out etc.
- Investor · Trenton, NJ · Member since 2014 · 67 posts · 19 votes11y
I have found many cannot simply put down #'s on a spreadsheet and start working on PITI, landlord fees, legals fees, etc. Every time you think of a new expenses BUDGET it, and put in expenses. At least half population can not seem to do this. You must get a income/expense projection budget before renting!
Many cannot 'PLAN'. See step 5 above by H. Painter.
Not directly mentioned. If the LL gets to collecting checks gleefully. Newbies may not think or plan for a reserve fee (on expense ledger until filled, plus might contemplate a separate business bank account so can be observed easily). Basically any positive income must fill a reserve rainy day fund ASAP. Once that is achieved you can think of doing something else with positive income.
Yes leniency, that catches my eye. Must be on top of the business situation. Responsive.
An mentioned, NEVER start emotionally connecting, this is a business. Be respectful.
I know one LL that says 'hold on', walks 50 feet away. Acts like he is talking on phone. Then comes back and says my investor says "NO". He has no investors :)
I have in my lease, LL plans to inspect monthly. It can be amazing what you can find from stories I have heard. I also am checking for safety/maintenance too. In NJ we must give a days notice of visit. I suppose will do this by email (documented trail).
- New Braunfels, TX · Member since 2015 · 13 posts · 8 votes11y
My husband and I were landlords 10 years ago. We made a lot of mistakes and wish we could turn back the time.
To my mind the biggest error was being a landlord of weekly rentals. The clientele were hard to deal with....their problems become your problems. The other problem was that when the economy went bad, those people were the first to lose their jobs. There went our cash flow ;(
We no longer invest in that fashion now, having learned our lessons.
- Astoria, NY · Member since 2015 · 3 posts · 4 votes11yProperly pre-screening applicants. Have processed over 1,500 applications and here in NYC, all angles are covered. To ensure your investment is protected, always look in depth: utilize a company that will do the dirty work of properly screening and contacting/demanding paperwork to submit if what the applicant has stated on their application appears iffy. As for supporting documentation: 1) copy of photo ID 2) last two bank statements 3) last years W2 and/or tax returns 4) letter of landlord reference 5)most recent bank statements I have seen every backhanded attempt to rent a unit. From false identities, falsification of documents, relatives covering etc. Also, do your best to ensure they person submitting the application is really residing into the unit. So many times relatives submit an application on behalf of another so they can sneak in their relatives and 8 family members who do not have income/credit. If the applicant is self employed 1) last years 1099/tax returns 2) letter from accountant stating last years gross/net income plus projection of anticipated year end income for this year, executed on company letterhead and tax ID number 3) copy of photo ID 4) proof of ownership - to ensure they are the sole owner of this business or they have multiple partners - always check landlord tenant court records/criminal. Any records - decline - not worth it. They have been to court once, more then likely they will go again which is costly. Plus, liability on the LL's end. Do not be soft. This is business and any conversations should be dealt in a courteous /professional manner. Do not get personal with a renter. They will find any weakness and use against if you have a trouble tenant. Explain all the terminology of the lease and have the applicant initial every page. This is their acknowledgement that you went over the terms of the lease clearly and if argued in court, you will have more protection.
- Investor · Boise, ID · Member since 2011 · 1k+ posts · 736 votes11y
So many solid answers here! The one I see so often is during tenant screening, when property managers/landlords do not contact the last two landlords for references. When my renters move on, I rarely get calls from their new perspective property managers/landlords. That always surprises me.
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