If you are lucky enough to own rental property in Ellicott City, you know that managing a rental home requires experience, knowledge, and a lot of patience. In addition, you know that if you do not employ a property management company, self-managing rental homes means running a small business on your own.
Or, maybe you don’t own rental property quite yet and are curious to know which mistakes to avoid as a novice in the rental property business.
Either way, if you are interested in investing in rental property in the Howard County area, and are hoping to learn from the past mistakes of previous newbie property owners, keep reading.
Today we are going to look at the most common mistakes new property owners make in their quest to build a strong rental property portfolio and rake in a positive cash flow throughout the year.
Top Mistakes New Ellicott City Landlords Make
Without prior experience in the real estate or rental property industries, it is easy to make plenty of mistakes as a new property owner. And unfortunately, some of these mistakes can cause more problems than just a bad day. In fact, some common mistakes new landlords make can cause a loss of money, a legal dispute, and even a collapse of their rental property business before it gets off the ground.
Read on to find out what mistakes you should avoid as a new Ellicott City property owner.
1. Not Adequately Screening Potential Tenants
For new property owners that have not employed the help of Howard County’s most experienced property management company, Bay Management Group, you may quickly find that one of the biggest mistakes you can make is to rush the tenant screening process. Sure, your number one goal is to place tenants in your property and start collecting rent right away. However, not thoroughly screening a tenant may end up costing you much more money in the end.
Here are some of the credentials you should verify before placing a tenant in your investment property:
- Personal Information. Have potential tenants fill out a rental application that includes all of their personal information.
- Background Check. Check for prior evictions, criminal history, and terrorist activity.
- Financial Stability. To ensure your prospective tenant will have the means to pay rent each month, check for past bankruptcies, liens, judgments, credit worthiness, and income.
- Contact all references listed on the rental application and ask the pertinent questions to make sure your tenant is worthy of placement in your property.
Having a property management company conduct thorough tenant screenings on all potential tenants will help catch bad tenants before they move in and you’re stuck dealing with problems and likely an eviction.
2. Underestimating the Cost of Maintenance and Repairs
Everyone that gets into the rental property business is hoping to incur income from it; whether your rental property serves as supplemental income or your primary source of money, you’re looking to make some cash. After all, that’s why you have invested so much of your time and hard-earned money into a rental home. However, many new landlords fail to realize until it is too late just how much added expense regular maintenance and repairs on their properties will cost annually.
Spending thousands of dollars each year on maintenance issues big and small, upgrades to make your property more appealing, and repairs that are your responsibility will easily cut into your positive cash flow. Here are some things to consider to ensure these costs do not cause you too many financial setbacks:
- Have savings set aside for routine maintenance and repairs
- Only hire licensed and insured contractors
- Make sure your tenants know before move-in what their maintenance responsibilities are
- Provide tenants with a tenant welcome package that includes maintenance tips
3. Not Following the Law
Despite being a new landlord, it is your obligation to know all federal, state, and local laws that apply to leasing rental properties.
Here are some of the most important laws you should become familiar with to avoid a legal dispute:
- Housing Discrimination. You cannot refuse to rent to a tenant based on criteria such as race, color, religion, national origin, sex or gender, disability, or familial status. This is why although your tenant screening process should be thorough; it should also be legally compliant.
- Right to Privacy. There are times when you will need to enter your rental property while it is occupied. However, regardless of whether it is for a maintenance issue, repair, or routine inspection, there are proper notices you must provide and time limits that you must follow before entering your rental property.
- Improper Use of Security Deposits. Though security deposits are collected from your tenants prior to move-in to cover expenses such as damage or non-payment of rent, there are specific rules and regulations that you need to understand and follow during the collection and use of security deposits.
- Wrongful Eviction Procedures. Starting the eviction process is never fun, especially if you are new to the rental property business. However, if your tenant needs to be evicted from your Ellicott City rental property, make sure to follow the legal eviction process.
Breaking the law when it comes to renting property is an easy thing to do if you do not educate yourself properly. This is where having a property management company in place becomes key. Not only does an experienced property manager keep up to date on the ever-changing rental property laws, the management company itself typically backs you in court if a dispute ever lands before a judge.
4. Not Putting it in Writing
What exactly does putting “it” in writing mean? Well, in the case of rental properties, “it” means any agreement that you come to with your tenants regarding anything that has to do with your rental property and the leasing of it.
Drafting a written lease agreement, complete with provisions outlining both parties’ duties and responsibilities, is one of the most crucial things a new landlord can do before placing a tenant in their property. Things such as the rent collecting process, issues regarding maintenance, and even basic provisions about how a tenant can redecorate your rental property must appear in writing, must be agreed to by both parties, and must be signed as a legal contract for the entire lease term.
Additionally, any other agreements you decide upon later in the lease (e.g. the allowance of a pet) should be drafted as an addendum to the existing lease agreement and signed by both parties.
5. Charging too Much Rent
As a new landlord that has presumably placed a large amount of money into their first investment property, it is natural to want to charge a high rent to make up for any financial setbacks that getting into that first property created. In fact, even seasoned landlords want to charge a premium rent and make as much positive cash flow as possible.
The difference is, seasoned landlords know how to read the market, follow area trends, and understand what a reasonable rent amount is. If you are a first time landlord, consider getting advice from real estate professionals knowledgeable in the area your rental property sits. Better yet, do your own research and see what similar properties are renting for compared to yours and adjust the amount according to any amenities you may be providing tenants. In the end, it is better to charge a lower, more reasonable rent than have a property sit vacant hoping for higher paying tenants.
Other Important Mistakes to Avoid
Though the above 5 mistakes are some of the most common, and detrimental, any new landlord can make when it comes to their first rental property, here are some more things that should never be far from your mind:
- Make sure communication with tenants is open, available, and professional
- Always enforce lease terms, especially when it comes to rent collection
- Do not mishandle abandoned belongings left behind from your first tenants
- Learn successful marketing strategies if you do not have a property management company to do so
- Don’t forget to routinely inspect your property
- Make sure you have homeowners insurance and consider requiring tenants to have renters insurance
In the end, being a new landlord can come with a steep learning curve if you have never had any experience with real estate. And, while the rental property business is a very lucrative venture if done correctly, there is always a chance you make a damaging mistake as a new landlord that can cost you time, money, and your sanity.
If you are new to the rental property business and are looking for an exceptional Ellicott City property management company, contact Bay Management Group today. Our experienced and knowledgeable staff can help guide you through the entire leasing process and ensure everything is done professionally, legally, and with the least amount of hassle possible.