Jay

Profit killing mistakes that are easily rectifiable! No one goes into business to lose money and your rental property should be treated just like any business! Its there to make you money and you should do everything possible to make sure the investment is as profitable as it should be.

Here are the 7 profit eating mistakes that landlords make when privately managing their rental investment properties!

#1 IGNORING MAINTENANCE ISSUES

Not addressing rental property maintenance issues quickly can quickly lead to much bigger problems down the road. What may have started out as a small leak that goes unfixed could become a huge problem one day when the unit is flooded or the floor falls through. In the event of a tenant turnover, you may want to take advantage of the vacant property and perform maintenance without the hassle of scheduling conflicts and bothering any current tenants. A rental unit that’s in good condition when you’re looking for a new tenant is much more likely to attract a better quality renter and more rent per week.

Regular & scheduled rental property inspections can help prevent a lot of these issues, as well as keeping the lines of communication open. A good landlord-tenant relationship is communicative and cooperative. Maintenance & repairs can be inconvenient for a tenant, but if they feel that the landlord will be respectful of their time and get repairs done quickly, they’ll be more likely to report a leaking tap or an electrical issue (a possible fire hazard). Staying on top of maintenance also indicates to a tenant the type of condition you expect the property to be returned in. After all, if you don’t care about the property, why should they?

With all of that said, you’ll want to be efficient in completing renovations and repairs. Taking too long to get the unit ready can cause you to miss out on rental income which can add to your turnover costs. You also don’t want to over-improve the property above the market rental rate, because it’s not likely that you will get a return on this investment.

 

#2 WEAK TENANT SCREENING

In the interest of turning over your property quickly, you may be tempted to select one of the first tenants that applies, but this is a mistake that can cost you much more in the long run. Proper tenant screening offers many benefits.  It helps you ensure you have a renter in your property that will pay their rent and be a reliable & respectful tenant.

Proper tenant selection including full credit checks saves you time, energy, and money. Spending a little time and effort on screening tenants now could prevent costly evictions later. It’s hard to put a price on a respectful, stress-free tenant that pays on time and takes care of the property.

 

#3 NOT KNOWING THE RULES AROUND BONDS

Requesting, processing & lodging a bond is standard operating procedure for most landlords but many landlords don’t give it much thought outside of how much to collect. That’s a common mistake with rental properties and can become costly.

There are 3 distinct areas to pay attention to regarding the tenants deposit:  figuring out how much to collect, abiding by the Tenancy Act and knowing what the bond covers (Especially important if you are trying to recover losses at the end of the tenancy).

It is important to collect a reasonable amount of money for a deposit (In NZ this is 3-4 weeks rent). The deposit can serve be an effective tool to deter tenant neglect or breach of contract with the rental agreement.

It is important to be aware that there are laws regulating the collection and lodgement of bonds. Tenancy Services details all the rules surrounding what you need to do and what your legal requirements are. See here

 

#4  KEEPING SLOPPY PAPERWORK

A common mistake that landlords with rental properties make when dealing with bonds brings us to another pitfall: keeping sloppy documentation. Like any business, property investors must pay attention to the paperwork. A paper trail is particularly important when dealing with the finances, from tracking expenses & repairs to paying taxes. In particular, improper payment of taxes can lead to all sorts of problems such as audits or penalties. Conversely, a landlord who keeps meticulous financial records on expenses will find they spend less time worrying about the profitability of their investment.

The tenancy agreement is probably the most important piece of paperwork, as it is a legally binding document between a landlord and tenant. Many landlords, however, use a generic agreement without paying attention to the details. Some of the stock standard clauses may not be relevant to you and could end up hurting your interests down the road & in the same way your property may require that you add special clauses to protect your interests.

A landlord should keep a file on each tenant that includes references, contact information, bond details, etc. Basically, anything that has to do with that tenant before, during and after tenancy including inspection reports and high resolution photos to back them up.

 

#5 NOT CONDUCTING A MOVE-IN AND MOVE-OUT INSPECTION

Ignoring or completing insufficient move-in/move-out inspections is another common mistake landlords with rental properties can easily avoid. This one is also related to keeping proper documentation and paying attention to the bond. Simply put, if you don’t properly document the condition of the property before the tenant moves in, it becomes quite difficult to prove that he or she caused any damage found after moving out. It becomes a “he said, she said” situation.

A comprehensive rental property inspection can help protect the landlord’s investment and clarify expectations with the tenant. Every damaged item, scratch on the hardwood floor or scuff on the wall should be noted in a report, along with photographs. Then put this report with your tenant file. A move-out inspection should be done, as well. Proper inspection documentation will go a long way to helping a landlord if he or she needs claim against the bond for repairs.

 

#6 INVESTING IN UPGRADES THAT DON’T ADD VALUE

It’s a good idea to keep your rental updated in order to attract quality tenants, but some landlords spend a great deal of money on a home upgrades that aren’t valuable to tenants. By researching the top amenities and features tenants want, you can avoid sinking a lot of money into an undesirable upgrade.

Improvements should be thought out carefully. The kitchen is a good target to upgrade along with appliances to attract higher-paying renters, as it often serves as the hub of the household. But landlords should avoid doing fancy, customized designs that appeal to their own aesthetics. Spaces should be utilitarian. Rather than trying to convert a small, awkward nook into a wine cellar because its something you may want, think about installing a seperate laundry space or butlers pantry, a far more desirable upgrade.

 

#7 BEING THE GOOD GUY

There are ways to be a great landlord and still run a profitable enterprise without it hurting your yield. Renting property is a business with financial and legal consequences. A landlord should act courteously, professionally and provide good customer service but this doesn’t mean you never increase the rent.  The problems come because it’s easy to sympathise with tenants and let their problems become your problems, and have it interfere with your business goals, especially when it comes to collecting rent on time and increasing the rent on a regular basis as the market grows.

Establish clear policies and stick to the rent due & review dates. A one-week lapse in rent can easily turn into two, meaning loss in income before a landlord can even begin a costly and time consuming eviction process. As always, keep meticulous records (see above). And, finally, do not accept partial payments, as this can hinder any eviction or recovery options you may have had.

The bottom line when interacting with tenants: Be personable but don’t make it personal.

 

Conclusion

In the end, the tenant screening & selection process is the most important way you can protect your investment property. Presenting the property the best you possibly can, advertising it at current market rent is Step 1. Step 2 is to take your time to assess candidates then doing all possible checks to confirm their ability to pay rent, keep the home clean and tidy and communicate in a professional and fair manner which will mean less money lost during tenant turnovers, and more money in your pocket. Do regular inspections, keep accurate records, be polite & professional whilst respecting your tenants space and finally always remember this is a business so be personable by don’t make it personal. 

 

If this sounds all too hard we’d suggest you employ qualified, professional property managers who can manage this business investment for you making sure to keep your investment a profitable venture.