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).

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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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  • Oscar Manzz
    Real Estate Investor · Austin, TX · Member since 2013 · 9 posts · 7 votes
    9y

    My past 5 most costly mistakes:

    1) Buying out of state--or not close to property

    2) Being too lenient

    3) Being desperate for money instead of patient for qualified tenant

    4) Not informing tenants what I expect on their move out date

    5) Allowing large untrained dogs

    I already made those mistakes. 

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @LaTonya Thompson:

    The 1st mistake that Landlord's make is becoming a Landlord. The only way that I would be willing to be a Landlord is via a lease option agreement (Lease-To-Own). In that case, the tenant would be responsible for repairs.

     Sure formula to destroy innate property value - - lack of maintenance / allowing the tenant to perform it.

    It's my asset; my retirement;my nest egg.  D*** if any tenant is going to wipe me out due to this kind of laziness.

    0Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Not watching Judge Judy  

    0Reply
  • Account Closed
    Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes
    9y
    Originally posted by @Deanna McCormick:

    Not watching Judge Judy  

     It's actually quite accurate if you've ever been to small claims court. They cut out a lot of the boring facts, and usually the judge and the defendant don't get to exchange insults with each other, other than that, it's exactly how court works. Yes, often the judge will make up their mind about the case before even hearing it, much the way Judy does frequently.

    It's a real court with real cases, they just have to edit out all the boring parts and focus on anything that could be interesting on TV.

    0Reply
  • Kenan Karalic
    Salt Lake City, UT · Member since 2016 · 9 posts · 3 votes
    9y
    Michael Rossi - Nice post. I'm thankful to learn from your experience. You also mentioned that you've purchased aa lot of properties from distressed landlords. What tips do you have for a new investor to find these types of landlords? Also, is it a good idea to take over a property that may be causing someone to lose sleep with potentially bad tenants? Thanks!
    0Reply
  • Adam Christopher Zaleski
    Investor · Pueblo West, CO · Member since 2014 · 310 posts · 213 votes
    9y

    I think it's a mistake to go for a high risk/high reward property for your first deal. In order to meet the 1% or 2% rule, someone might need to buy a property in a class C or C- neighborhood. For your first deal, I think a property in a B neighborhood with better tenants and a little less cash flow would be better for a first deal. After a few years of experience, then go for the higher cash flow properties in the C neighborhoods.

    0Reply
  • Ryan Hilbun
    Investor · Scottsdale, AZ · Member since 2016 · 40 posts · 19 votes
    9y

    I hired a Property Manager that was less expensive than their competition and I got what I paid for. They had very poor communication, and tried to take advantage of any opportunity to charge a call out fee. I fired them after 6 months but learned some good lessons along the way.

    1Reply
  • Steve Shaw
    Gold Country, CA · Member since 2016 · 5 posts · 2 votes
    9y
    Originally posted by @Tom C:

    I think that I am working to much, therefore; spending too much money. If a tenant ask for something and if it's a reasonable request, I do it. Next thing you know I have 200 bucks wrapped in a project. I think I need to start looking at my expenses a little closer and making sure that these fixes are truely going to produce a ROI.

    Charge more for rent (enough to cover what you spend), but keep handling the reasonable requests without charging the renter or creating friction in the relationship. 

    You'll find that you can charge more rent and make small annual increases. Tell them before they sign the leases that you do this every Jan. 1st so that you can provide great service and remind them that the longer they rent the more it costs to upkeep. You'd like to keep it nice for them. Good tenants will appreciate this and pay it without a gripe.

    Having a tenant that stays longer will increase your ROI. Doubling the length of time a tenant rents from you will more than triple your profit, because it's cheaper than acquiring a new tenant and you don't have turnover/marketing costs.

    So the name of the game... maintain a great relationships with your tenants so they will stick around. 

    Don't gouge them, but charge enough to keep your tenants happy and you happy.

    0Reply
  • Steve Shaw
    Gold Country, CA · Member since 2016 · 5 posts · 2 votes
    9y

    Not maintaining the property. 
    Not understanding landlord/tenant law. 

    0Reply
  • Ashley Ben
    Property Manager · Miami, FL · Member since 2016 · 62 posts · 15 votes
    9y

    Not communicating enough with the tenant!

    0Reply
  • Richard Jackson
    Grand Rapids, MI · Member since 2016 · 5 posts · 0 votes
    9y

    I completley agree with Joshua! The points are perfect!

    0Reply
  • Chuy Gonzalez
    Investor · Long Beach, CA · Member since 2012 · 313 posts · 190 votes
    9y

    - Leniency - not going after late paying tenants immediately,,,This is kicking my *** for the second year in a row. You get a good tenant...eventually the rents start coming later, and later, and later...then you have to evict, and I am pissed at myself for not acting quicker. I should know better...but you think of the cost to renovate your unit, and your tenant impressed you when you first rented to them...you want to work with them...but it blows up in your face, and you are giving away free rent, and you have to hire a lawyer.

    Lots of renters wonder why landords are a-holes..probably because they have been in the landlord game successfully for many years.

    Never again. 20 days late, and I am starting the eviction process. I am not letting it go to even 30 days.

    0Reply
  • Angela Worley
    Salt Lake City, UT · Member since 2016 · 5 posts · 3 votes
    9y

    @Joe Pitrolo definitely agreeing with you. Not thoroughly screening your tenants is a HUGE mistake. 

    0Reply
  • Brian H.
    Carolina · Member since 2017 · 519 posts · 222 votes
    9y

    A lot of people on here talk about newbie landlords often failing. Many mention the underestimation of expenses to be a big reason (second generally cited reason is not knowing how to handle tenants).  

    This is mentioned over and over but could someone lay out a clear explanation of said expenses?

    0Reply
  • Marty Gordon
    Investor · Rockwood, Ontario · Member since 2016 · 38 posts · 5 votes
    9y

    From my experience working with a ton of other investors and listening to THEIR horror stories, the biggest mistakes that they make are:

    1. Taking a crappy property in to the portfolio/management -This leads to nothing but headaches.  (constant repairs, and attracts bad tenants)

    2. Being extremely CHEAP when it comes to repairing damages.  There is a cheap way, but certain things need to be done properly.

    3. Doing TOO MUCH for your tenants.  -If you set the wrong standard that you are there to CATER to your tenants, many of them develop entitlement and start requesting things that are unreasonable.

    4. Allowing late payments to go unchecked.  It's important to file eviction notices/warnings immediately when rent is not paid.  If it's late, you can always call off the eviction, but atleast you started the process.

    5. Judge people by their looks.  If they are missing teeth, and the have ripped clothes, your apartment will end up the same.

    1Reply
  • MIchael Rickerd
    Flagstaff, AZ · Member since 2016 · 44 posts · 60 votes
    9y

    Excellent information in this thread, and I am glad I read through it all before I move in my first tenants into my owner occupied property.

    Definitely excited to start learning about this area of REI. I am sure I will have some pointers to add to this thread in the future.

    - Mike

    0Reply
  • Rochelle Wilkinson
    Property Manager · Phoenix, MD · Member since 2015 · 79 posts · 60 votes
    9y

    @Anna M.  sorry  am just now seeing your post.. I think the scariest thing you said in your response is the tenants are trying to push you around.. yikes.. This is your property.. you saved for years, this is your dream.. those people would easily get a letter notifying them that i would not be renewing their lease when it comes due.

    I have someone who i recently put in an apartment back in August and they are behind and I had to take them to rent court.. I will be filing a right of redemption this week and having them removed.. every day they stay and dont pay rent you loose money.. you cannot change peoples habits, behavior, or way of thinking.. some people just cant pay their bills on time no matter what.. dont we all know adults like this? they make good money but are ALWAYS broke?? So move on as quickly as you can .. also i do have a secret i will share and maybe its not such a secret.. but I never admit to anyone that I own the building.. I'm the leasing agent and property manager.. so whenever someone questions me about not raising the rent when their lease renews, or when someone begs me to let them have 3 more weeks to catch up on the rent, I always say " I'm so sorry, my hands are tied.. the owners are asking me to file eviction papers if i don't collect the money today".. or I say " i'm sorry i dont set the rents, the owners do"...... I guess its talking in third person but yea it works.. I do this because like so many of you have mentioned we are dealing with people.. and I too have a soft heart, but if you dont want to pay my rent and live by my rules, I have no love for you and will replace you asap..

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    Most landlord fails to understand it is the marketing that drives it. The high grade kitchen may attract renters to come but they will not pay more the marketing price for it.

    Never mind cash flow, ROI the renters do not give a hoot. They want a good price period.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Based on many posts from landlords asking basic questions th ebiggest mistake landlords make are:

    1) Compromising on defined screening standards.

    How many times have we read....should I accept this applicant. In ever case the applicant falls below the landlords standards and yet they still want to accept them.

    2) Not making every decision based only on what is best for the business.

    Favours, late payments, fees, repairs etc. every situation has only one proper business decision. Those that believe otherwise always make decisions to benefit tenants not the business.

    0Reply
  • Darren S.
    Investor · Philadelphia, PA · Member since 2015 · 8 posts · 4 votes
    9y

    If you purchase a property and inherit tenants its important that you have a already have system in place for how you are going to mange those tenants and let them know what the new rules and processes are up front. If you don't have systems in place for property management it might be better to loose a few months rent while you work out that system than have to deal with an upset tenant. People in general don't like change especially when its to their personal space or affect their normal routines, and if they don't agree to your new system or rules then let them out of the lease and find new tenants. 

    1Reply
  • Andrew SeverinoBusiness Member
    Broker / Owner / Real Estate Investor · Fairhope, AL · Member since 2017 · 36 posts · 14 votes
    9y

    I take the leniency point one step further. I do not do grace periods. At all. Rent is due on the first.  A base late fee kicks in on the first or second, and a per day fee starts on the third day of the month.  Why do I do this?  Not because I want to collect late fees, quite the contrary.  Over 20+ years owning and managing rental properties, I have found that tenants abuse the grace period, often 5 days, and then pay on the sixth, complaining about the late fee stating "I'm only one day late though".  WRONG!  In this case they are 6 days late, and completely abusing the grace period which contractually is a gift.

    Andrew Severino | Need help with Quickbooks for property management? I can help...
    WebsiteView Page
    1Reply
  • Ron Orr
    Bloomington, MN · Member since 2009 · 107 posts · 30 votes
    9y
    Cash flow not enough is the big one Vacancies and damage can add up over time 5 rentals and 5 late payments at once you'll feel that. Budgeting for bigger expenses down the line. It's mostly all points back to cash flow and knowing expenses. I was a landlord on a handful of homes for years.
    0Reply
  • Chris LumLee
    Investor · Honolulu, HI · Member since 2017 · 187 posts · 108 votes
    9y

    @Harrison Painter

    My biggest mistake was not planning thoroughly. This led to me spending pretty much all my cash just to execute the purchase and then I had to save money for things such as CapEx. So definitely going forward I know to keep a little in the tank...if not for anything just for peace of mind.

    0Reply
  • Jean Zambrano
    Investor · Marietta, GA · Member since 2016 · 29 posts · 13 votes
    9y

    Here's a few of mine (also taking from some of the other answers as well):

    1. Failing to properly screen prospective tenants,

    2. Failing to take care of small repairs that later turn into expensive repairs.

    3. Being too lenient or too 'friendly' with Tenants.

    4. Not moving fast enough when it comes to evictions and other proceedings.

    5. Failing to account for property management when first investing in the property.

    6. Failing to get proper documentation and proof of income (driver's license / pay stubs / bank statements).

    I hope this helps!

    Always,

    Jean Zambrano

    1Reply
  • Kyle Collette
    Investor · Columbus, OH · Member since 2016 · 112 posts · 79 votes
    9y

    So many good ones on here already..

    For me, it has been:

    1) Overpaying (being too hungry to find a deal)

    2) Not spending the time to find better tenants

    3) Underestimating expenses (vacancy, cap ex, maintenance)

    Prior planning prevents poor performance!

    0Reply
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