You have done your research, learned about cap rates and gross rent multiplier to help determine if the investment will have a great return. You’ve raised the necessary capital, found the perfect neighborhood and finally, you pulled the trigger and bought your first investment property. Congratulations, you are on your way to living the dream of financial freedom!!
Now that you are a real estate mogul, you have made the decision to manage the property on your own to save a little money. I mean, how hard can it be, right? After all, you’re just collecting the rent. Before you dive into the deep end, though, there are some things you might want to know.
An education can be had just about anywhere, doing anything. Owning real estate can be a harsh task master and when you make the inevitable mistake (we all do), this business has a tendency to apply a hefty fine for that mistake.
However, there are many things you can do to maximize your profits by thinking about, and acting upon, the top 5 things I think are important when managing your rental portfolio.
COSTLY MISTAKE 1: NOT TURNING UNITS OVER QUICKLY
The cost of vacant unit can add up quickly and the longer it’s empty, the more expenses climb. Avoiding extended vacancy periods is critical as a landlord if you want to make a profit.
When you receive the tenants notice to vacate, schedule a pre-exit walk through. Here at Real Property Management Solutions, once we receive the notice to vacate, we visit the unit to begin the assessment of turnover repairs. This advanced visit allows for the staging of vendors, project planning and owner communication. All of which reduce the time to turn.
A key part of turning units over is marketing and advertising. Make sure you’re on as many listing sites as possible and carefully construct engaging copy to describe your property. If you’re using a property manager, make sure they are using the technology that enable a broad net being cast to prospective tenants as well as an easy scheduling tool. Finally, in todays’ pandemic world, self showing capabilities will give you the competitive edge. To see how easy it is to find, view and schedule a showing, check out our listings for rent – Homes for Rent
In addition to marketing, ensure your property is well-maintained. You want to show people something that catches their eye and has features they’re looking for. Think about your curb appeal and ask yourself, “would I want to rent this unit from me?”
COSTLY MISTAKE 2: POOR TENANT SCREENING
Even though turning units over quickly is important, that doesn’t mean you should go light on tenant screening. Skipping or glossing over tenant screening is a huge mistake. And it’s one that could cost you money for a long time. Be sure to check out your local screening rules. Here in Oregon and in the City of Portland, specific screening rules apply. And of course, ALWAYS follow fair housing rules. To learn more about our tenant screening process, including our use of petscreening.com, visit our screening criteria page – RPM Solutions Screening Criteria
Great tenants are one of the best ways to keep your profits healthy. You don’t want to deal with damaged property, noise complaints, and poor communication. It’s frustrating and hurts your bottom line.
So, thorough tenant screening is a must. Have criteria and stick to them. Be sure to pull criminal reports, eviction reports, and run credit checks. You want to get a full picture of someone before you loan them your most valuable asset. And, most importantly, you want someone who is going to pay rent in full on time.
Tenant screening is a long-term investment. It helps prevent evictions, which are a nightmare. It also helps you find tenants who may become reliable customers in the long run. These are relationships you want.
COSTLY MISTAKE 3: MISHANDLING MAINTENANCE ISSUES
A small, patched leak in the roof can allow for major damage. A broken dishwasher can lead to flooding. A hole in the ceiling can cause a slew of problems.
Many landlords make the mistake of putting band-aids on maintenance issues that need full repairs. Or they don’t stay organized enough to take care of maintenance issues as they become issues. You need to avoid these mistakes. Maintenance issues can compound in the blink of an eye.
Staying organized, communicating promptly, and managing issues is critical when it comes to maintenance.
When I talk to self managing landlords, I’m often asked if they are required to fix something when it breaks. Or, I’ll see language in a lease agreement that states the if a specific appliance breaks during the tenancy (at no fault of the tenant), the tenant will have to pay to fix it. Not only is this a bad policy, it’s quite likely contrary to your local tenant/landlord laws. The best way to think about this topic is to remember that we landlords rent the unit “as is”. This means the unit is in good condition, systems are working, doors lock, etc. Any deficiencies are noted on the move in condition report.
Now, when (not if) something breaks that was working when the tenant moved in, and the landlord is collecting rent (obviously) the landlord is obligated to bring that item back to working condition. In our State of Oregon, ORS Chapter 90 has clear language regarding the amount of time the landlord has to effect repairs before the tenant can take action on their own. ORS Chapter 90
COSTLY MISTAKE 4: FORGETTING THAT OWNING A RENTAL PROPERTY IS A BUSINESS
Always remember you’re running a business. It’s great to build solid relationships with tenants. It’s great to communicate proactively with tenants. It’s great to understand who they are and where they’re coming from. But not at the expense of your business.
You must operate your rental business in a manner that allows for enough resources to repair, maintain and possibly invest in additional properties. So, one thing you need to avoid is accepting unreasonable partial payments without the proper documentation. We’re living in difficult times, so some understanding goes a long way, but a landlord can remain compassionate and understanding while being disciplined in enforcing the lease agreement and the rules and policies all parties have agreed to when the lease is signed.
It’s not easy tracking everything and hunting down late payments. Thankfully, a great property manager can take the stress and burden of managing the property off of your shoulders, making owning rental properties the pathway to financial freedom much easier.
At the end of the day, you want to build relationships with tenants, but it doesn’t behoove you to make things too personal.
COSTLY MISTAKE 5: IGNORANCE OF LAWS AND REGULATIONS
Educating yourself about laws and regulations is a necessity. You need to understand what you can and cannot do. You also need to understand how to run your business within the applicable rules. Research your specific state laws. Understand regulations and how they impact your business. Talk to a lawyer if you need to.
Not understanding the “rules of the game” will destroy your profits. Imagine trying to play a sport without first understanding the rules. It would lead to disaster. It’s the same with your rental business. You need to know how to navigate the landscape and avoid land mines.
Secondly, once of the top mistakes I see self managing landlords make is using general forms for documentation. Often a landlord will find a lease online using any number of websites claiming to have the proper forms for their area. Understand this: Tenant/landlord laws are complex, change often and carry stiff penalties. If you don’t have the proper documentation, you’ll lose every time. Find a local landlord association with legally reviewed, proper forms specific to your local laws and regulations. You’ll thank me you did.
As a landlord, it’s always better to be proactive rather than reactive. But no matter how proactive you are, you will make some mistakes. However, minimizing your mistakes and avoiding the five pitfalls we’ve discussed will help be more successful in your business.
If this doesn’t appeal to you, reconsider getting into this wonderful business, or better yet, interview property managers and hire the one you feel meet’s your needs best. You’ll be glad you did!
About the Author
Dan is an active real estate investor in the Portland market that includes both residential and commercial Properties. Along with his family, Dan is one of the owners of a successful property management company, Real Property Management Solutions serving the greater Portland Metro market. As a licensed Property Manager and Certified Instructor, Dan spends most of his time providing continued education to the Real Estate Industry and is a sought-after speaker on tenant landlord law, rent control and investing in rental real estate.
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