The Top 5 Landlord Mistakes

General Landlording & Rental Properties
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The Top 5 Landlord Mistakes

Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes

I'm looking to see if we could compile a list of the top 5 mistakes made by landlords. I'll throw out a few and hopefully we can come to some kind of consensus.

Note - to all who participate, we're going to give you all a plug in an upcoming blog post on the subject. Thanks in advance!

My Short List:
- Overpaying up front - paying too much for the property, resulting in diminished cash-flow
- Failure to understand financial management of a property
- Leniency - not going after late paying tenants immediately
- Failure to address problems with your rental units ASAP. Small problems often explode into huge ones when ignored.
- Overcharging / undercharging rent

Add your own or expand upon this list and we'll start to narrow things down to a list of 5 (10 if we must).

Podcast Guest on Show #100
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Harrison Painter
Indianapolis, IN · Member since 2008 · 759 posts · 185 votes
17y

1. 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!

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  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    @Joshua D.

    I didn't read everything word for word but I think that there are 2 obvious and overlooked mistakes. 

    1. Your counter part speaks about on almost every pod cast. Hiring a poor property manager. The property manager is THE most important part to renting.

    2. Putting the wrong tenant in the property.

    These 2 can ruin the properties performance no matter how good of a job you have done evaluating the investment.

    [email protected]239-339-3969
    Bartomeo Property Management4.7150 Reviews
    WebsiteView Page
    0Reply
  • Rochelle Wilkinson
    Property Manager · Phoenix, MD · Member since 2015 · 79 posts · 60 votes
    10y

    wow, reading some of these responses I feel like a jerk posting this but I am blessed.. I have figured out , and have the best tenants ever.. I inherited a 60 unit apartment complex about 4 years ago.. it had 14 vacancies, 1 squatter, 2 people who were behind in rent ( 1 guy was behind by 13 months!! and the other was behind by 6 months).. the building was, welp, a dump.. the annual rent roll was way below market. I drove around in my car and checked out the other complexes near my buildings.. I compared apples to oranges.. came home .. scratch down some numbers on paper to determine a new rent.. when it looked like a number people would accept , welp that was the new magic number.. all the vacancies were replaced with new tenants at the new rate.. work done in the apartments was painting, new carpet, new counters, new kitchen tile floor.. kitchen cabinets stayed the same as I didnt have enough money to replace. but oh what a difference new paint and carpet made.. had my husband rip ot all the old dead overgrown bushes outside ( he has a landscaping company) and I had my company ( my career was i own a housecleaning business) my company came in and scrubbed the apartments before new tenants moved in.. I had no prior experience in managing a 60 unit apartment complex.. but used common sense and my gut.. you want to know the numbers?? here they are  when I started the annual rent roll was right about   $325,000 a year, we had the 14 vacancies, the squatter, and the 2 non payers.. I kicked out the squatter, made payment arrangements with the 2 non payers ( i made them write out post dated checks in advance for the past due rent and told them the first time a check bounced they were OUT.. all the checks cleared.. I collected over $14,000 in back rent in less than a year and a half.. tenant number 1 has been on time since then.. tenant #2 who had the larger amount to pay back slipped right after he finished paying me off and I took him to court immediatley, he told the judge he wanted payment arrangements and wanted to stay..I told the judge I wanted him out.. and he was gone.. he begged me in the hallway to let him stay I said " this isnt how I do business, so Im sorry but you'll have to go.. I warned you it would only happen once"  todays new rent roll after 4 years is almost $ 725,000 annually... yep you read that right.. and we are at 100% apartments full and I rent most apartments before they are even vacant and have a wait list..and believe it or not my tenants pay on time, and most of the time early.. there were so many people who told me I couldn't do it and I am doing it....since my background was I owned a cleaning service.. but it was my years in providing great customer service that helped me in apartment management.. I listen, Im on site, they know me when they see me.. and I truly care that they are happy in thier apartment

    6Reply
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @Rochelle Wilkinson

    That is frieken awesome.  Every one in BP needs to read this and see how you make money in real estate.  You took over a problem and created an opportunity and adde value to your customers, i.e the tenants..  It must have been tough while going through the process, but whatever doesn't kill you, makes you stronger.

    Do you have any new projects on the horizon?

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
    0Reply
  • Dennis Nemitz
    Billings, MT · Member since 2013 · 102 posts · 11 votes
    10y

    Asking too high of rent, because only problem renters apply, and having an up/down duplex, neighbor issues.

    0Reply
  • Rochelle Wilkinson
    Property Manager · Phoenix, MD · Member since 2015 · 79 posts · 60 votes
    10y

    @Gino Barbaro my next steps are to start to buy up the townhouses surrounding the apartments and fill them with the people on my wait list.. and I am actively pushing my 17 year old who is trying to figure out which college courses to take to study all things involving real estate investing. Do you have anything to suggest to him to take? He is currently in a program learning AC service and electrical work , which I told him is great.. he can do those things 9-5 while buying and holding real estate and when his property needs a new AC system he can install it himself.. but have a job and start buying and holding real estate

    0Reply
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @Rochelle Wilkinson

    Hi Rochelle

    I would tell my son to take some business classes.  Have him learn how to analyze a balance sheet and income statement.  Let him do the rent rolls with you and teach him the business. It is important for him to learn the trades but you have an opportunity to teach him the business and to become an entrepreneur.  That is where I think he will become wealthy. I think in the end he had to follow his passion but a few nudges from mom can't hurt

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
    1Reply
  • Jeffrey Gignac
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    10y

    To add what many have already stated. Underchargind rent is a tricky swamp to get out of. I was timid with my first rental property when choosing an initial ask. I asked for $950 and settled on $900 to lock in a good tenant. The tenant has been IMMACULATE and has treated my property better than I ever could have without the hassles of lat night calls for non-issues. For this reason, I am not sweating the reduced rent very much.

    On the other hand, I know of similar properties on my street renting out for over $1,100, so the extra $200 a month would go along way towards covering repairs/saving for my next property. The same tenant has stayed and I have kept rent flat. I have now foregone several years of rents that are lower than market. I did not do my research, nor did I have enough confidence in my property which was in superb shape.

    1Reply
  • Nikki Grizzle
    Rental Property Investor · Wake Forest, NC · Member since 2016 · 186 posts · 78 votes
    10y

    I am saving this and using this as a reference. Im a no nonsense type of person but I do have that soft spot I try to hide. 

    0Reply
  • Marie R.
    Real Estate Agent · San Jose, CA · Member since 2016 · 16 posts · 7 votes
    10y

    1) Thinking that everything that breaks or fails is caused by the tenant because when they "lived there for years, nothing ever broke down."

    2) Not having enough money for major repairs like a new water heater, furnace or A/C unit.

    3) Deferring maintenance. 

    4) Waiting too long to begin an eviction- thinking the renter will pay last month's rent this next month because that's what the renter told them.

    5) Understanding that there will be costs that they will have to incur- just like any other business. 

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    Biggest mistake I see is landlords screening based on outside influences taking priority over the best interest of their business and other tenants.

    Many landlord are afraid to disqualify candidates because they fall under a protected classification.

    Many landlords do not understand that some of these protected classes are protected due to their historic bad reputation resulting in them having difficulty finding housing. They have a basic flaw that leads to a disproportionate number of them being very high risk.

    Second biggest landlord mistake is having compassion for tenants in trouble. 

    0Reply
  • Yenlan Patton
    Burleson, TX · Member since 2016 · 87 posts · 6 votes
    10y

    Bring religion into business. 

    Pick and choose base on what they get along with you on your conversation.

    0Reply
  • Anna M.
    Investor · Denver, CO · Member since 2016 · 220 posts · 98 votes
    10y

    @Rochelle Wilkinson, you truly do inspire me.As a newbie, I love to read stories such as these.It can be a scary thing going into this as a newbie just hoping to get decent tenants.For the most part I do have decent tenants, but those in one unit occasionally try to push my buttons, which I have done well to stand firm, but I cannot tell you how many times I almost feel like throwing in the towel because of these 2.I purchased the property and took over their lease, so they have been on property for a lot longer than I have owned it and try to push their weight around, not to mention I am a young investor so I think that sometimes makes them think they can push me around.Hanging in there though and thanks to people like you and all other BP members I can go about this not feeling so alone or like a fish out of water.

    Mistakes Landlords make (This may have already been mentioned, but these 2 I would say have been top on my list as I have not had issues with the screening or tenants paying):

    Skipping the routine inspections.I currently undertake 4 inspections during the lease term (move-in inspection; 2 in the course of the lease term and a move-out inspection).Some may deem this over-kill but for me, it ensures that I catch and address any issues sooner rather than later.

    Treating tenants like your buddies.You must be able to separate business from personal and know when to draw the line else tenants will walk all over you.

    1Reply
  • Martin Miller
    Bend, OR · Member since 2011 · 14 posts · 9 votes
    10y

    The single most important item is finding good tenants.  It doesn't matter if your new investment property cash flows nicely or looks pretty if you move in tenants that destroy it or cost you a fortune in eviction costs.  Don't skimp when screening prospective tenants.

    1Reply
  • Tapanga Matthews
    Mississauga, Ontario · Member since 2016 · 23 posts · 2 votes
    10y

    this is a great post. SO much useful information.

    Keep it up

    T.Matthews

    0Reply
  • Jesse Sasomsup
    Property Manager · Los Angeles, CA · Member since 2013 · 58 posts · 9 votes
    10y

    I'd would like to add failure to follow local and state law. =)

    0Reply
  • Patrick D. Roberts
    Property Manager · Baltimore, MD · Member since 2015 · 46 posts · 13 votes
    10y

    I think one of the biggest mistakes is failing to be empathetic. There are many frustrating moments when you're a landlord--late night maintenance calls, evictions, etc.--but you want to be careful about taking those frustrations out on your tenants. After all, these are routine issues that occur, especially if you are managing more than one property. It’s important to remember that one of the fastest ways landlords alienate their tenants is to avoid their needs, respond too slowly to a situation, or ignore calls.

    1Reply
  • Kasia Manolas
    Landlord Expert · Chicago, IL · Member since 2016 · 15 posts · 4 votes
    10y

    @Michael Rossi, I agree with what you said in regards to dealing with tenants. A lot of landlords make the mistake of not realizing how much day-to-day tenant related tasks there are. Several people on the forum have touched on understanding that a rental business cannot be placed on auto-pilot. The main reason why auto-pilot is a mistake is in dealing with tenants. Issues will always come up during tenancy- from maintenance problems to late rent. 

    As @Connie Brzowski said, it's important to handle your rental property like a business and be professional. One way to make your life easier as a landlord is to project that professionalism onto everything you do. For example, have a solid tenant screening process (write it down and stick to it). Include a credit and background check, an in-person property showing, and a rental application. Call prior landlords and an employment reference and ask multiple questions. 

    Another way to decrease problems / avoid mistakes is to avoid accepting partial rent. It's important to project strict guidelines and not be overly lenient, especially when it comes to rent and deposits.

    0Reply
  • Patrick D. Roberts
    Property Manager · Baltimore, MD · Member since 2015 · 46 posts · 13 votes
    10y

    1. Taking shortcuts on the tenant screening process - If you ever consider skipping the screening process because of the extra time and effort it takes, keep in mind that a difficult tenant will demand more time and effort down the road.

    2. Not taking the proper time to explain policies to tenants - Even the best tenants can cause problems if they don't understand the lease and policies, so put in a little extra effort to make sure everything is crystal clear. 

    3. Still collecting checks as rent payment - It's 2016, avoid the hassle and set up an online payment portal.

    4. Not being knowledgeable of the laws - As the landlord, it is crucial to stay on top of federal, state, and local laws. Your reputation is on the line.

    5. Not outsourcing the tasks that stress you the most - If you are able, hire a property management group or an assistant. It's extra money out of your pocket, but the peace of mind that it affords is priceless. 

    0Reply
  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
    10y

    First thing I tell them they are part of my family .I want them to feel like this is a close and personal relationship, not them vs me .

    I keep everything  in great shape ,I come by every month to collect the rent.

    You make your money when you buy a house ,I am big fan of passive income.

    0Reply
  • Cathy Freyberg
    Boston, MA · Member since 2016 · 4 posts · 0 votes
    10y

    I think the main mistake is they want to more then they can to get!

    0Reply
  • Brad Russo
    Professional · San Francisco, CA · Member since 2016 · 124 posts · 31 votes
    10y

    It seems one more mistake was not named yet. Many homeowners neglect the fact that their property is not being covered by adequate and specialist landlord insurance. This insurance from a specialist provider should cover all eventualities and even the complete rebuild of the property. Landlord needs to revise the rebuild value every year when renewing the policy.

    1Reply
  • Donald Dickerson
    Investor · Houston, TX · Member since 2016 · 36 posts · 22 votes
    10y
    Letting your emotions dominate your decision making process. This can happen very easy, so never let your guard down.
    0Reply
  • Garr Ett
    Charlotte, NC · Member since 2016 · 3 posts · 0 votes
    9y

    Screen, screen, screen. Did I say screen yet? I would rather have an empty unit then one filled with a deadbeat that isnt paying and/or trashing the place.

    0Reply
  • Cesar Ramirez
    Riverside, CA · Member since 2016 · 88 posts · 3 votes
    9y
    Not going after late charges has been one of my biggest mistakes. Not paying attention to the rental. And been to understanding. Basically distinguishing when there's bs and an actual hardship but even then it's a business.
    0Reply
  • Michael Henry
    Real Estate Consultant · Brookfield, WI · Member since 2014 · 873 posts · 350 votes
    9y

    Not having a lease agreement at all or not having a lease that is comprehensive enough.

    Not collecting a security deposit.

    Being too lenient

    Not factoring potential rates of vacancy

    Not keeping enough reserves for those unexpected repairs or code violations

    Turning a blind eye to illegal activity in your rental properties

    Not making timely repairs

    Thanks,

    MH

    1Reply
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