On Flip or Flop, Christina and I focus on flipping houses because that’s how we’ve made our living in real estate investing. However, there’s a lot more to real estate investment than just fixing and flipping. In fact, you can make great, sustainable, passive investment income by buying a single property (or a few properties) and becoming a landlord.
If you’re thinking of going this route with your real estate investment, it’s important to keep a few things in mind and to avoid some of the most common rookie mistakes that first-time landlords all seem to make.
The biggest, most common, and most detrimental mistake you can make as a new landlord is to underestimate your costs. Remember, your tenants’ rent has to cover your mortgage, property taxes, any included utilities, and repairs and maintenance on the property. While rent is largely dictated by property value and by the area where the house is located, you do need to keep in mind whether or not renting the property at a certain rate will actually make money for you.
Not Knowing (or Following) Your State’s Laws
Do you know how much notice your state requires you to give for evictions for month-to-month tenants and/or those on leases? If you find yourself selling the house, and you have an offer on the table, you need to know how long your tenants have before they have to move out.
And that’s just one example of the many laws in place to protect both landlords and tenants. Get to know your local laws and be sure that your lease covers them and protects you and your tenants.
Failing to Inspect the Property Regularly
Many leases include a stipulation that the landlord won’t enter the property without first giving the tenants notice and/or that you won’t enter the home when the tenants are not home. This is a fair and legal condition, and you should never break it. However, you also shouldn’t just leave your property alone until your tenants complain about something.
For example, your tenants will let you know if the roof is leaking, but they may not notice if the gutters are clogged, causing water to pool and stand on the roof. If you schedule regular inspections and check-ins at your property, you’ll be able to make sure that it’s properly maintained and attend to small issues before they become big problems.
Not Properly Vetting Your Tenants
Speaking of your tenants, don’t skip on properly screening and vetting them. Serious prospective tenants will not have trouble paying an application fee that covers a background check. They should also be able to supply you with contact information for their employers and references. Follow up on these and ensure that you’ve found quality tenants who’ll respect your property and pay all bills on time.
Letting Things Like Late Payments Slide
And on that note, rookie landlords often let things like late rent payments slide until they become really big concerns. If your tenant is late with rent, they’re likely to have a very sympathetic sob story, and new landlords are likely to fall for this and not force the issue.
The story may or may not be true, and your tenant may or may not have every intention of keeping up with rent. But if they know that they can get away with paying rent even a few days late, they will be more likely to grow slack with their payments. Enforcing a late fee is a good way to encourage tenants to pay on time every time.
So, if you’re thinking of becoming a landlord instead of flipping houses, remember that all types of real estate investing come with their own challenges and concerns. It’s definitely not for the faint of heart. But if you can avoid these mistakes, you should be on the road to being a successful landlord.