For some rental property owners, it can be challenging to turn a profit. But, that's due to lack of effort. Landlords do everything from running ads, interviewing tenants, and collecting rent, to fixing toilets, cutting grass, and answering midnight calls.
So, why do so many rental property owners struggle to make money?
In short, they lack effective property management skills. While it may make sense to take the do-it-yourself property management approach if you’re a handy person, live close to your property, and don’t mind devoting unlimited hours per month to picking up the skills you lack, in many cases, it just isn’t practical.
Whether you’re looking to improve your own property management skills or hire a property manager to help you with your workload, we’ve put together a list of 7 deadly sins of property management—common mistakes that take the biggest bite out of your potential profits. We'll show you how to avoid these mistakes and start getting more value out of your property.
Humans get emotional about things they invest in, but trusting your gut to set rental rates hamstrings your profits. Have you looked into the kinds of amenities renters in your area are really going for? When setting rates it can be difficult to step back from subjective or sentimental value and set an objective rent that's competitive within your market.
To set fair rates, start with some research.
A basic option is to start by browsing the local paper and Craigslist pages, which is an upgrade over simply trusting your gut. Although it can still be difficult to discern how your property compares to others listed on these forums. Another option is to employ online tools and websites for getting rental comps in a specific market. Some charge a flat rate for reports, others a monthly membership. While this is a more reliable method than browsing Craigslist, it won’t provide the most accurate view of the market. For that, you'll need to enlist the help of local experts like a property manager or another professional with deep and active knowledge in your specific location.
Imposing late fees on late rental payments is no one’s favorite part of the job.
Do you need to be a heartless miser to be an effective landlord? No. But many property owners struggle to be profitable because of this major sin. Believe it or not, some landlords don’t even charge late fees. So by the time the rent is finally paid, they’ve worked for free to collect it.
Think about it this way: Do you ever notice how your bank doesn’t accept most reason for late payments on your mortgage? You need to have the same mindset, with the understandable exception of pandemic-related hardships and the recent rules and regulations attached to them.
It may sound coldhearted, but it’s exactly the type of system you need to have as a landlord. Just like the papers you signed ahead of taking ownership of your house, your tenants sign off on a well-defined contract. Ensure that penalties around late rent payments are spelled out clearly in the lease and that you stick to the agreement rigidly.
Since your property isn’t the only place for rent in your community, you’ll have to compete for each renter’s precious attention. Profitable renter owners are always thinking ahead, especially in marketing. They constantly think about what makes their building and community unique.
Ideally, landlords should:
Luckily, you can always hire people to help you. You likely don’t need an agency, but you can hire copywriters and marketers through various online resources. Just keep in mind that you will have to oversee them and pay for any ads you run.
Of course, a good property manager can help you market your properties effectively. Property managers are well-versed in successful marketing techniques for your area, and they will have the resources to devote to those tasks.
Screen, screen, screen, every applicant. Mainly you’re looking for income greater than 3x rent, no evictions (ever), and good references.
Each applicant should fill out your application in its entirety. That means they sign documents allowing you to pull credit reports and contact current and previous landlords and employers. If they refuse, find someone else.
Successful landlords reject more people than they accept, especially in competitive markets. That’s because they have clearly defined standards of the type of tenant they want as part of their community.
They also know local and federal fair housing laws inside and out for each step of the leasing process. If you get your screening and move-in process wrong by ignoring Fair Housing Laws, you’ll be spending a lot of time and money in court.
Just like your marketing, screening, and move-in processes need a system, so do your repairs and maintenance. Keep in mind, though, that no matter what system you devise, you’ll also want to have a reliable way to track every job and repair that comes in. Remember, what isn’t measured can’t be improved.
It’s rare that a landlord loves plunging tenant toilets or being shaken awake at 2 AM to do CPR on a water heater, yet 8 out of 10 investors choose to do their own repairs and maintenance. Most are doing it to save money. But they woefully underestimate even basic maintenance needs, let alone urgent tenant repairs. Even worse, their only budget for both is how much room they have on their credit cards.
Now, we’re not saying you shouldn’t do your own repairs and maintenance full stop. But you should have a plan and know exactly what you’re getting into if you choose to go that route. Unprofitable landlords who try to battle both the repair and maintenance beasts themselves end up spending a significant portion of their rental income to do so.
Unfortunately, contractor relationships that yield special pricing don’t just happen with a friendly first handshake. They’re built through sending them regular work and paying on time.
There are also shady contractors who can spot a newbie or inexperienced homeowner a mile away. You might think you’re getting a good deal, but how do you really know unless you spend several evenings making phone calls, getting bids, then crossing your fingers you’ll get someone who can do the job right the first time.
If you don’t have that kind of time, consider fast-tracking a contractor network relationship by partnering with a property management company. PM companies already have trustworthy relationships with affordable maintenance workers, tradesmen, contractors, suppliers, and vendors that are almost impossible for an independent landlord to duplicate.
Staying compliant with ever-shifting housing laws can feel overwhelming. While no housing law should ever be overlooked, pay particular attention to fair housing regulation. In summary, the federal Fair Housing Act prohibits “discrimination because of race, color, national origin, religion, sex (including gender identity and sexual orientation), familial status, and disability”. Understanding this and other housing laws is the best protection against a violation claim—and the right thing to do for the integrity of your business.
The problem is that there are dozens of laws to keep track of—not just fair housing regulations—and they vary in each state, county, and even by neighborhood.
It’s best to stay out of the I’ll-catch-up-on-this-stuff-later mentality. It can be difficult to get out of the never-ending pile of tasks that keep accumulating on your desk. Many landlords will only become aware of fair housing laws when they’re staring at a letter from the Fair Housing Administration threatening legal action. Don’t let this happen to you.
The easiest way to stay compliant—and avoid all of these 7 deadly sins—is to hire a property management company. They’ll help you avoid lawsuits by keeping your property up-to-date and in compliance with all regulations.
Partnering with a professional is a reliable way to sidestep many difficulties that come your way as a landlord, but it may be difficult to make that choice and it might not right for every situation. Property managers are best for real estate owners who want professional help overseeing some or all aspects of the financial, marketing, and maintenance of their property.
If you’re thinking of partnering with a property manager, consider these three points to help you decide if it’s the right next step:
If one or all of the above applies to your experience as a landlord, then hiring a property manager is an excellent way to lessen your stress and generate lasting revenue.