The Eight Most Costly Mistakes Investors Make When Renting a Property
1. Ignoring local legislation and not hiring the proper lawyer. Knowledge of local tax and real estate legislation will help you save time and money. For example, what do you do when one of the following occurs?
· Payment is late
· Breach of contract
· Termination of contract
· Tenant disturbs neighbors
Before proceeding with any legal eviction proceedings, you must comply with certain steps and provide proper notices, which can mean months of delay in the process. It's extremely important to know what the law prescribes regarding notices, the number of days needed for a notice to be valid, and how and when notices should be delivered That's why we recommend hiring the services of a lawyer specializing in these matters.
2. Tenant pre-selection. Pre-selecting potential tenants is one of the most important steps in the process and one that many owners tend to skip. Despite the negative impact of having an empty property, accepting a tenant who wasn't pre-selected tends to result in greater expenses and more headaches in the long term. Establish a pre-selection system and stick to it. The most common pre-selection elements are:
· Criminal background
· Credit report
· References from previous landlords
· Work references
· Personal references
· Average time they live in each property
Whatever your system, it is important to take local and federal Fair Housing Laws into account.
3. Ignorance of local regulations. Many of the lawsuits brought against owners are the result of violations of the Fair Housing Act. This is the legal system that protects potential tenants from discrimination. Many owners pay little attention to these regulations because they use common sense and do not discriminate. Unfortunately, common sense often violates the regulations established by law. The regulations prohibit discrimination based on:
· National origin
· Familial status
· Physical disability
These regulations apply not only to the pre-selection of the possible tenant, but also during the landlord/tenant relationship. Always remember that the American system is a litigious one. This system is ideal for lawsuits and it's very common to see advertising that encourages people to hire a lawyer if they believe they have been discriminated against in any manner. Therefore, to prevent legal issues, the best thing you can do is to become familiar with the system. More importantly, consult with a legal expert who can provide you the necessary guidance.
4. Lack of local market knowledge. Before renting a unit, it is important to do the proper research about current real estate statistics in the specific community or building in which the property is located. There are different tools that allow one to determine the following key information:
· Real rental prices
· Time units spend on the market before being rented
· Current competition
· Price per square foot
It’s important to know this information when purchasing the property or placing it for rent. It's even more important to constantly monitor the market to make timely corrections and decisions.
5. Not having a strategy. As an investor, knowing the behavior of the local market or having a knowledgeable real estate consultant is essential. Would your pricing strategy be any different under the following circumstances?
· If you were going against one property instead of ten?
· If the area was populated by families? Would it be easier to rent a one-bedroom or a three-bedroom property?
· If the area was populated by primarily single executives? Would it be easier to rent a one-bedroom or a three-bedroom property?
· If the properties spend 45 days on the market before they're rented? What strategy could be used to accelerate this process?
6. Not having a preventive maintenance plan. Most owners pay attention to their property only when there's a problem. However, preventive maintenance is often cheaper than replacements that could have been avoided. It is advisable to have in place preventive maintenance plans for electrical equipment, air conditioning systems, and plumbing.
7. Not having a well-drafted contract. Your lease is supposed to protect you. It is very common to see investors put a huge amount of time and effort into purchasing a property and then try to save money buying an online contract template that will serve as a standard lease. It's very important to remember that your lease is your main legal protection. The stipulations, rules, and regulations that support the agreement between lessor and lessee should be clear. We recommend hiring a lawyer in this matter who will help you protect your investment.
8. Going through the process on your own. An essential part of this business is creating a team of experts in areas that can help you invest and manage your investment. Each member must contribute and provide solutions within their field of expertise. The basic team incorporates the following:
· Real Estate Agent
· Property Manager
· Real Estate Lawyer