Your journey has certainly been anything but easy, yet you are now on your way to earning a passive income for years to come.
That said, buying an investment property is only half the battle. To win the other half, you need to avoid making some common mistakes.
Being a successful landlord requires lots of business tenacity, practical know-how, and market familiarity.
Do you want to effectively and profitably rent out real estate?
Of course, you do! So here are six of the most common landlord mistakes to avoid:
Mistake #1: Forming strong emotional connections with your tenants.
Yes, forming a good relationship with your Tacoma tenant is critical to being a successful landlord. However, the relationship may become toxic if you get too friendly or attached to your tenants.
Here are some reasons why you should avoid becoming too friendly with your tenant:
- It’s easy to slip out of a business frame of mind when the clients are “friends”
- It’s tougher to evict “friends” (which might be necessary)
- Disputes may seem more emotionally charged and less business-focused
- Tenants may become too comfortable with the relationship and feel it is acceptable to ask for favors (such as a delay on rent payment)
Clearly, getting too friendly or attached to your tenants is bad for business. It may hamper your efforts of trying to run your rental business effectively, which can only mean one thing: losses.
Ultimately, your goal should be to have a healthy but respectful relationship with your tenants.
One of the many benefits of working with a property company is that it separates the property owner from the tenants. Your property manager will be the tenants first point of contact for anything related to your investment property.
Mistake #2: Failing to get insurance coverage.
Now that you have an investment property, getting landlord insurance should be your next priority. Failing to get insurance is putting your property at risk; a single calamity can negate all your hard work.
One day you can be happily collecting rent, and the next you could be salvaging whatever little remained of your property after a catastrophic flood.
The only way to protect your business from losses is by insuring it against common perils. Examples of perils include fires, vandalism, riots, earthquakes, and floods. A good insurance agent should be able to help you choose the best policy for your specific property.
Mistake #3: Hiring the wrong person to manage your property.
This a common mistake that many new landlords make in Tacoma. Hiring the wrong person to manage your investment will, without a doubt, hurt your bottom line.
An important thing to note is that a real estate agent or a realtor is different from a property manager. While both are experienced in real estate matters, their specialties are not similar: one is specialized in real estate transactions, while the other is specialized in property management.
For more information on this topic, see: What property managers do.
Another thing to note is that not all property managers will be the right fit for you and your investment. Some of them may be more interested in making money off of you than helping you achieve your goals. These are the property managers that you want to avoid at all costs.
You want to hire a property manager that has your best interests at heart, so look for one that is skilled, experienced, and knowledgeable.
Mistake #4: Assuming you can handle everything on your own.
A common misconception that new landlords often have is that being a landlord is all about collecting rent. The truth, however, is that rent collection is only a small part of a property manager’s responsibilities.
Running a successful rental business requires more than just depositing a check each month. Among other responsibilities, you’ll need to:
- Ensure your property complies with all federal, state, and local laws
- Be expected to respond promptly in the event your tenant has an emergency
- Take care of all the property’s repair and maintenance requests
- Handle all evictions in accordance with Washington landlord-tenant law
In addition, you need to be knowledgeable in all matters relating to rental property management. Essentially, being a landlord is a 24/7 job.
So, do you think you possess all the necessary skills to become a good property manager?
If you are still unsure, try asking yourself the following questions:
- How much do you know about rental laws and processes?
- How will you handle maintenance and repairs?
- How accessible are you for your tenant to reach you when they are having property issues?
- How much time do you have to dedicate to finding a tenant and managing your rental?
- How far away from your rental do you live and work?
Your answers to these questions will help you determine if you are ready to become a landlord.
Mistake #5: Charging the wrong rent amount.
This is another common mistake that new landlords often make when managing their property: they either overcharge or undercharge their tenants. This often comes with its own set of repercussions.
Overcharging tenants means your property will have longer stretches of vacancies, as prospective tenants often do their own market research before applying for a rental. Undercharging, on the other hand, means leaving money on the table.
Neither of the two situations is good for your Tacoma, Washington rental business. You need to come up with a rental price that is “just right” and will attract the right tenants.
The amount to charge for rent depends on a variety of factors, including rental demand, market trends, rent averages, and neighborhoods. As such, before coming up with your rent price, ensure you have considered all these factors.
If you are just starting out, consider hiring a professional to help you determine the appropriate amount to set your rental rates.
Mistake #6: Failing to set clear rental rules.
Set specific rules for tenants to follow. Draft a lease agreement that is clear in regard to things like rent, security deposits, repairs and maintenance, and occupancy limits.
Clear rental rules help protect the tenants, the neighbors, and the property.
These are six common landlord mistakes to avoid at all costs.
Are you just starting out?
If so, please consider hiring Tacoma PMC. This is the best way to learn how to shield yourself from potentially costly mistakes.