"Stupid" Mistakes Every Newbie Landlord Makes
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votesNot screening properly.
Not running numbers correctly.
Not evicting in time.
I want your mistakes and your stories behind those mistakes!
Please share below.
You win, or you learn. The only stupid mistake is not trying.
In a hurry to do the deal not accounting properly for old AC units
Trying to run the numbers in my head
Leaving water in pipes to bust when it froze
One of our first tenants schooled us well on a few things....
1. Not requiring first month’s rent in certified funds. It’s a horrible feeling when that first check bounces after you’ve handed over the keys.
2. Likewise, not starting the eviction process as soon as possible after non-payment.
3. Not verifying transfer of utilities before move-in.
In the grand scheme of things, 4 months lost rent was relatively low tuition, considering those tenants impelled us to solidify and enforce the policies we have now. With that:
4. Not networking and learning from other more experienced landlords to help avoid making major mistakes!
Working on acquiring my first property - would love to hear everyone's stories so I have reminders of what not to do.
#cheers
I just rented out my property to my first tenants a few months ago. So far everything has been going good, except they forgot to turn on their monthly rent auto pay for the first 2 months and thus a few days behind. Other than that, I haven't had much trouble yet... hoping to learn from this thread to prevent any future mistakes!
1. I have a tenant who is about to renew their lease for another year (they are coming by this weekend to sign new lease). They have not signed the lease yet and have not given notice to move out. My wife questioned me about what is going on. I told her, if they were going to give notice they would have done it already. I looked at the lease and there was no mention of having to give ANY notice at the end of a lease. I was shocked that I didn't notice this sooner. I retyped the leases on all the 3 rent houses and will cross my fingers that this doesn't bite me in the rear before I have all of them signed to their new leases this year.
2. I was informed by a tenant at 7pm on the day before Thanksgiving that their plumbing was backing up into the shower. They couldn't run any water or use the toilets. I called my regular plumber and he was hunting and wouldn't be able to get to it until Monday. I was out of state visiting family. I called tenants back and told them what was going on. They insisted that I do something that night. I eventually caved and called someone. I got charged $300 for them to try to run the line but was told there was an obstruction. They wanted $2,500 to come back and fix it on Thanksgiving. I didn't do it. I told tenants that the most I would do was to pay $75 a night towards their motel room if they didn't want to stay there till Monday. They were able to get it partially unclogged and stayed. Plumber charged me $1,500 on Monday to replace root clogged pipe in front yard. I had found a high pressure clean out device sitting right on top of the main cleanout drain cap when we bought the house a few months earlier but I just ignored it. The owners obviously had problems but didn't disclose it to us and I ignored it as well.
3. Had 2 different applicants (they barely spoke English) tell me they didn't have a SS number and they wanted me to rent to them because they made plenty of money. I told them I have a process and I'm not changing it. I dodged a bullet I think.
4. I had a couple of people offer me cash in advance for the entire lease. I told them the same thing in #3 and never heard back from them. Dodged another bullet from what I've read on here.
The most important thing is that I told my wife we would have lessons to learn on this journey and some might be costly. Most lessons don't come without a cost. So far I think we have been pretty lucky and blessed to have such good tenants. I would rather have a house sit vacant for a few months then to have a bad tenant. That is the best advice I got from a church friend that has rentals as well.
Allowing a tenant to move in before verifying utilities were in their name. They never did get utilities in their name and rarely paid. They were eventually evicted for non payment of rent and utilities.
Ironically, he screened very well but was one of my worse tenants ever.
I'll speak a little to the rehab side -
1. It's easy as investors to become enamored by the numbers and ROI. Put in as little in as you can for the highest ROI, right? However, there are exceptions as you plan for future repairs. A good example would be for flooring. It's enticing to buy the cheapest vinyl flooring possible (I found it as low as $.79/sqft for 2mm thick), but that stuff will wear down and you're looking at a hefty replacement expense when it inevitably needs replaced. Some costs are worth the extra 25-50% upfront, even if they hurt your numbers a little and don't have an immediate return.
2. Avoid indecisiveness! I have a tendency to overthink things. It's why I've always sucked at multiple choice exams. I find myself always trying to find the BEST decision on every little thing with my property. Truthfully, my mental energy would be better spent pursuing other deals and opportunities rather than worrying if the painter I hired is over-charging me by a few hundred dollars. The RE journey will have speedbumps along the way and mistakes will be made. Embrace them, learn from them, and continue forward.
Letting a tenant pay late when she was in a tough spot. It ruined her. She's always in a tough spot now, always wants to pay late and knows I have authority to let her. I think I will need to hit reset and not renew her lease.
A few options:
Firing a $16/hour handyman. Lesson: At that price, he was "great."
Paying drywall guys by the hour, that hurt. Lesson: Good drywall costs money, start at $50 per sheet for the best and go from there according to your needs.
Asking if they needed more storage shelves, of course they said yes! This kindness cost me money. I bet they will take them after moving, too. Lesson: Keep your mouth shut.
Allowing their "fat cat" in the lease. She wasn't "fat" and had about a litter of 4 kittens or so. I had no provision for per pet fee. Lesson: Per pet fee to the lease.
Asking if they were cold. Of course, they were. The windows are from 1905. I bought a few window treatments and called it the day. Lesson: wait until they complain.
I had a military tenant get transferred after three months on a 12 month lease - she pleaded with me to do the final walkthrough while they still had a pile of moving boxes in the front room. They really needed the security deposit back, they were driving cross country, weren't sure of their new address yet so I couldn't mail the check, etc. I liked her, never had a problem with her, so silly me said okay. House was looked fine so I cut the check and she said she'd lock up and leave the keys after they got the last load of boxes.
When I went back the next day, I found that those boxes were covering serious damage to the hardwood floors - she had two enormous (unauthorized) dogs that she kept locked in that room, according to the neighbors. I felt like such an idiot...
Lesson learned. Never do a final walkthrough unless EVERYTHING is out of the house.
A few things I ran into:
ALWAYS take before pictures of a rental property prior to a tenant moving in. It's tedious and time consuming, believe me I know, but it will deflate any argument they have if they ruin anything. Digital photos have a META stamp that contains forensic details such as date/time and, so long as they are not edited, can likely hold up pretty well as evidence. And take good, high resolution photos in the day time with all windows open and lights on. I had a tenant who moved out and she was burning oily candles all day everyday and all of the walls had a dark waxy coating on them, the carpet was in terrible shape, and her kids drew on the wall everywhere. She threatened to take me to court over me keeping 100% of her deposit. Once I took move-out photos, I uploaded all of the photos to two albums - 'Move In' and 'Move Out' - and shared them with her along with 3 quotes I had indicating the damage was far more than what her deposit would pay. Needless to say it took the wind out of her sails and I never heard from her again.
ALWAYS have the renter complete a 'Condition of Rental Property' form upon moving in. Be sure they sign it and sign it yourself. Make sure to send a copy to your tenant and stay on top of it. My wife and I moved into a rental temporarily when we moved to Austin a few years back and the landlord NEVER returned the form even though we signed it and sent it back to him. Since we are great tenants we figured everything would be fine. However, when we moved out, he wanted to dock our deposit considerably. When I showed him our copy of the 'Condition of Rental Property' form we completed, signed and dated upon move-in, he argued that it was not signed. Lucky for us, it was originally relayed through our agent and then to him so he dropped the issue since the agent was party to the original.
ALWAYS check on your property. We went 1.5 years without checking on our first rental and when we finally went in to check it, SEVERE settling occurred and the sheetrock joints along the ceiling and walls of the living room separated by 3 inches! it had been like that for 6 months according to the tenant who never bother reported it.
If you manage the property yourself, be sure to charge a nominal fee for any and all calls (may waive for major issues). This will prevent tenants from calling about little crap.
My biggest misstep so far was allowing a rental agent rent any of my properties.
Bottom line: No matter how strict their "standards" of vesting are, they are most interested in their own commission. I do all my own pre-screening, all my own showings, and all my own credit and background checks now.
One agent sent me two comical candidates:
A couple with 2 cats (I have a no animal policy)
Both had credit scores in the 500's
Both worked as cleaners in kitchens. Income unverifiable and less than 3x rent regardless
Asked to pay the deposit in installments
This is in an A/B area where my 2/1 is $2,100 a month
Second set was a couple with zero verified income
Their "employers" were dummy companies that didn't exist that used their own address and phone numbers
The wanted to pay for 6 months up front, straight cash
The agent assured me that this meant there was "no risk" because we'd get paid up front. I can't imagine the challenging of trying to evict terrible tenants who have already paid 6 months up front.
Needless to say, both were hard passes. I ended up with a 55 year old single male with a base salary of $150k a year. Doesn't say a peep and always pays on time, I couldn't be happier.
Solid pre-screening is the key to success. Get a good set of questions, ask everyone the same thing and hold them to the same standard, and keep record of every conversation you have. Definitely worth the extra time to do the work yourself the RIGHT way.
My screening process was just OK, and so far I've been lucky.
The biggest mistake I've made (and continue to make) is not documenting my expenses very well. This especially sucks around this time of year, aka, tax time. Luckily I only have one two-unit multi to worry about, but I know I'm costing myself a few bucks here and there by not tracking my mileage or by simply being unaware of the things I can deduct beyond the obvious. D'oh!
Never get to friendly, keep it business like.
Renting to friends, family or employees is another big one I forgot.
My biggest mistake was not keeping proper track of my expenses for tax purposes.
This was my first year doing taxes on my rental and there are several expenses that I could not prove I had complete. So this year I have an excel sheet on my phone to calculate every expense and also log mileage every time I travel to and from.
I can't complain about my tenant though. She has been tremendous
As a newbie, I was actually embarrassed to ask to see the inside of the home as they lived in our property. The tenants at the time lived there for about 2-3 years (very cheap rent)- which was great because they paid on time and didn't really ask for anything. When they left, I had no idea the disaster they were making on the inside! The little bit of money we made during that time evened out to pretty much nothing because of all the repairs we needed to do once they left. We had to take them to court and received some money back, but I will not do that mistake again.
Tip: Don't be embarrassed to check up on your property every so often (inside and out).
In my experience, when you are brand new to the rental game. It is probably in your best interest to interview a few property managers and hire one. They will negotiate their fee just like a realtor will. They will help you get started.
Biggest problems:
Not making the repairs immediately(very important to show tenants that pay on time every month that you care about the house they are living in and in turn, care about them)
At my first rental, at age 18, I was so excited to get someone in the house that I didn’t run a background check. The tenant I chose turned out to be a registered sex offender. He also eventually stopped paying rent because he lost his job as a cook due to an argument with his fiancé. She cut his hand with a knife after arguing over the fact that he was a sex offender.
Lessons Learned: The importance of running a background check and how the eviction process works in Michigan hahaha
My 10 Points:
1. Thinking … “Oh, I don’t need help on this.” No lone ranger here.
2. Understanding that your Purchase Price = Gives you your starting point to everything, INCLUDING your margin of mistakes.
3. Completely misjudging cash-flow (there should be a minimum of 30 expenses).
4. Calculating ARV's on the highest sales vs the lowest sales.
5. Thinking “I’ll get rich quick on this deal.”
6. Thinking the financing costs won’t affect your cash-flow.
7. Planning for a quick flip vs a worst-case scenario.
8. Putting off Insurances until you start the job.
9. You work WITH the GC not OVER him.
10. [There isn’t a point. You shouldn’t expect everything to be like everyone told you.]
