14 Rookie Landlord Mistakes You’re in Danger of Making

Landlord Mistakes | All Property Management

For those who are just starting out, rookie landlord mistakes can be very painful lessons indeed. In this post, we’re sharing some of the more common landlord mistakes we’ve seen. Read carefully to prevent costly missteps that could put you out of business before you know it!

14 Risky Landlord Mistakes to Avoid at All Costs

Landlord Mistake #1:

Undercapitalization

It’s extremely common for enthusiastic new property investors to overextend themselves to acquire property. However, this leaves them without adequate cash reserves to tackle emergency maintenance or survive vacancies. Many landlord mistakes, such as a failure to invest in preemptive repairs, sufficient insurance, or marketing efforts, stem from this basic problem.

Landlord Mistake #2:

Being a Soft Touch

“I let the marginally qualified tenant in because they seemed so sincere and needed someone to give them a chance.” My advice is to get the best tenant you can for the area (even if you have to drop the rent a bit to do it). Run their credit, call their references, and don’t be afraid to say ‘no.’

Landlord Mistake #3:

Missing Move-In Season

Statistically speaking, apartments that are vacant in October could be vacant for months. In most areas, the best time to lease is the summer. People don’t move much during the holidays; so once September comes, it might make more financial sense to cut your rates than to risk a vacancy. If you have a current tenant, don’t let your lease go month-to-month in the fall.

Landlord Mistake #4:

Being Too Lenient

You can generally cut some slack to a tenant who’s already proven him- or herself. However, many landlords report that when their expectations are too lenient early in the lease, tenants come to expect that kind of flexibility in the future.

Landlord Mistake #5:

Going Without a Lease

No veteran landlord will advise you to rent a property on a handshake. Get a professional lease agreement. Have an attorney look it over and identify potential trouble spots, or hire one to write it for you.

Landlord Mistake #6:

Failing to Treat Your Rentals as a Business

This problematic mindset can take many forms. The most dangerous is probably the failure to use entities to protect yourself from potential liability. You’re taking a big risk when you own the property directly, in your own name, instead of via a corporation or limited liability company (LLC). Other dangerous landlord mistakes include commingling personal and real estate operating funds, poor bookkeeping, renting to friends and family, and failing to invest in expert legal and accounting advice when needed.

Landlord Mistake #7:

Getting Cheap with Property Managers

“Cut-rate property management–totally not worth it,” writes one rueful landlord.

Landlord Mistake #8:

Relying on Renovations to Add Value

Every year, Remodeling magazine publishes the Cost Versus Value report, which analyzes common renovations against the value these improvements add to the subsequent expected sales price of the home. Each time, the findings are the same: Improvement projects usually fail to add value net of their costs. This doesn’t mean that you shouldn’t renovate your units if they need it–just that you shouldn’t rely on renovations to bring in extra cash.

Landlord Mistake #9:

Failing to Take Pictures on Move-In Day

You’ll want these when the tenant moves out, just in case they dispute a charge against their deposit.

Landlord Mistake #10:

Failing to Screen All Tenants

Get a background check, a credit check, and a signature on the lease from all adults that will be living in the unit. Landlords have been held liable for failing to conduct or heed background checks on individuals living on their property who later commit crimes against other tenants.

Landlord Mistake #11:

Hiring Unlicensed Contractors

Yes, you might save money in the short run… until something happens. For example, a worker could get hurt on the job, but your fly-by-night contractor doesn’t maintain worker’s compensation insurance. Or they accidentally break a power line that causes the restaurant at the end of the block to shut its doors, losing tens of thousands of dollars in volume. Guess who’s liable? You are! You need to hire licensed, bonded, and insured contractors–period.

Landlord Mistake #12:

Failing to Buy Landlord Insurance

Many rookie landlords, renting out their first homes, maintain homeowners insurance coverage. However, homeowners insurance won’t cover you if the insurer finds out you’ve been renting the place out. They also won’t cover you if your tenant’s dog bites a neighbor’s child; the plaintiffs will come looking for you, though. To protect your financial interests, you need to invest in landlord insurance.

Landlord Mistake #13:

Asking Discriminatory Questions

It’s easy for well-meaning landlords to make remarks to tenants and applicants that land them in hot water with federal or state housing regulators. Even routine small talk can mean trouble when you ask certain questions of a current or prospective tenant.

For example, “Do you have children? How old?” may be a perfectly reasonable and welcome question in any other interaction. However, ask this of an applicant, and you could be facing discrimination charges on the basis of familial association. Other landlords have been fined for saying things like, “The upstairs units might be better for you.” Keep things professional, and only ask questions directly related to the application.

Landlord Mistake #14:

Not Getting a Home Inspection

Rookie landlords aren’t exactly known for their home construction and maintenance acumen. Too many of them fall for developers’ assurances that they don’t need to get a rental home inspection. “I’m putting my best supervisor on your home,” they’ll say.

Always get your own eyes and ears on the building, though–at least at the pre-drywall stage. Jay Markanich, a home inspector in the Northern Virginia area, says homeowners report that developers tell them that they don’t need to get an inspection all the time. Markanich details oversights he finds on these very homes:

  • Insulation not stapled
  • Indoor nails used in outdoor settings
  • Shoddy drywall and painting (one landlord we know reported to us that someone painted over the wallpaper rather than removing it first!)
  • Poor flashing on windows and doors, leading to leakage problems
  • Small sections of roof missing (because the roofer promised to come back to finish up and never made it)

These are brand-new homes with some serious problems right of out the gate that are easily identifiable–if you know what to look for. That’s why you need a professional home inspection.

Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.