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Common Mistakes made by New Landlords
So you've taken your first big step and acquired a property and you're anxious to get it rented. I don't blame you, rent is one of if not the best way to build wealth. While someone is paying off your mortgage (increasing your principal) your property is appreciating. You may not see the appreciation in these last few years because of the market but that's why you rent. It's a long term hold and if stats will tell you, property has always gone up over the long term. Unless something seriously degrades the property value you can almost always bet your bottom dollar that it goes up. Be on the look out for future hubs on why you should invest in properties.
Having enough reserve funds
As I said above, renting out a property is a long term investment. That means preparing the home for a long term hold and renting to good long term tenants. The common underlying mistake that I see my friends and colleagues make is rushing to get the property rented. It's a huge motivator to get a property rented as fast as you can when you have a mortgage and other expenses such as taxes and insurance looming over your head. This is why I recommend having a minimum of 3 month of cash in reserve but preferably 6 months.
Why 6 months? well because 6 months is a safe number when you think about the process to rent out your property. Depending on the property but it takes about 1 month to prepare a property to show. Plan about 1-2 months to find the right applicant. And if you rent to the wrong applicant and need to evict them it'll cost about $1000 and 1 month to get rid of them. Yes, I am giving some very conservative numbers but, it is the reality of things and having the 6 months reserve will keep you from not only losing the property but possibly a foreclosure on your record.
Preparing the home
Ok, so you just bought your property and have a nice reserve on hand. If the property you bought was a fixer or not in move in ready status then you should prepare the property to show. Keep in mind you want to not only make a good impression on the prospective tenants but also retain good tenants once they move in.
One of the mistakes landlords make is rent out the property prematurely. Some landlords, just make sure things are functional and rent out the property. This is a mistake! It is OK, that the property is old, you'll be amazed that there are tenants out there that appreciate the old style "charm" that a property has, but you must show that the property is well cared for and that the owner has pride in the property as well.
A few things that has to be done before showing, because you don't want to lose a good prospective tenant. The best tenants are the ones looking for something very specific such as location and type of home, for example, a rambler and number of bedroom and baths. Now that all your marketing efforts get's them in the door, you don't want to lose them because of something minor. In general you want to make sure the walls and if necessary the ceilings have a fresh coat of paint and the flooring, if hardwood make sure it is refinished or in very good condition, and if it's carpet, new is best. Nothing turns off a tenant like the thought of used carpet.
If you are going to invest money into "your" property then the place to start would be the kitchen, bathroom and master bedroom. These are the rooms that define a home for tenants. Lastly it has to be squeaky clean. I've hired cleaning professionals and done it myself, and there were always something that could of been cleaned a little better. The cleanliness of the property you show will by far tell the tenant about the home and you as a landlord.
So why so much effort into preparing the home? Well firstly it makes the home more marketable and easier to rent. And Secondly, it tells prospective tenants that you are a good landlord that takes pride in his/her properties. This does a couple of things, first it makes the tenant aware of your professionalism and they are more compelled to take care of your property, and secondly it leaves no doubt that everything was in tiptop shape when they moved in hence no ambiguity on the damage deposit when they move out. Make sure you take photos of how nice and clean the home was for your records before you rent out the property.
Finding the Right Tenant
I have a neighbor that got into rental properties a few years ago. When she first got into it she pretty much rented to the first person that came along. Even going as far as working out the deposit in installments. I have since tried to educate her on renting to the right tenants and using an application process to weed out the bad ones. Although those looming expenses of owning a rental property still gets the best of her. She just recently asked me how to get rid of her nightmare tenant, it has gotten so bad that she has even considered paying that tenant to leave even though that tenant has not paid rent. I feel so bad for her. But here is how you avoid a situation like this.
Remember that reserve I told you to set aside, well this is one of the reasons why you have it, so you take the time and precautions of who you rent to. First always set your guidelines of who you do and don't want to rent to. Remember that landlord tenant laws prohibits your from discriminating. We would all love to rent to a retired couple, but advertising as such and discouraging others is against the law. You can set guidelines for income, employment history, rental history, criminal history and credit just to name a few. Try to be consistent with your guidelines with out discriminating, the Human Rights Commission don't mess around when there is a complaint. You can read about my dealings with them here http://hubpages.com/hub/My-Experiences-with-the-Nightmare-Tenant.
Make sure they fill out the application completely. Use a national credit check company to run their application. The general rule I use is the "2 of 3". They must have 2 of the three main things that a application/credit check looks for. Out of the three: credit, employment history and rental history they must pass my guidelines in 2 of the 3 areas. It is an automatic denial if the applicant has any criminal or evictions on their record. One such research company is www.rentalresearchinc.com. They provide a host of tools to screen tenants.
Lastly always always collect the full month's rent and deposit before you hand them the keys. Even if they are moving in mid month, just prorate them half months rent for the next month. This alone weeds out a lot of undesirable tenants. Depending on the market you're in, it is better to lower the rent and get more applicants to choose from than to lower your guidelines.
Retaining good tenants
I know a lot of landlords that do all the above but once they get the tenant in they are nowhere to be found. This is probably one of the biggest complaints that tenants make once they have moved in.
Once you get in a good tenant, you want to keep them there. Firstly, make sure that any complaints are handled timely and professionally. The landlord tenant law has time frames that specific items needs to be corrected, be sure to check these out as you don't want to give a tenant the legal right to break the lease. Don't wait till the deadline to get things fixed. Secondly, a small reminder that you're looking out for the property goes a long ways. Send them a card on Xmas, or even better set up a seasonal inspection or half yearly inspection. This not only lets the tenant know your on top of things but it gives you a chance to maintain the home such as wrap outside pipes for winter or clean the gutters for spring.
If you have any questions please feel free to ask me a question, I most likely will respond to it within a couple of days.