No one becomes a landlord just because it seems like fun. You do it because you want to make money. Unfortunately, a lot of landlords make expensive mistakes that undermine their ability to earn as much money as possible. Whatever you do, try to avoid these top four most expensive mistakes that many landlords make.
1. Delaying the Eviction Process
Although the eviction process varies from state to state, in most cases you can expect it to take about 30 days. Depending on the circumstances, though, it can take even longer since you and your tenant will have to meet with a judge. After that, your tenant may still have a week or two to leave the building.
By the time the tenant has moved out, you may have spent over a month trying to get them evicted. Legally, the tenant still has to pay you any outstanding rent, but it's such a difficult process that many landlords simply move on. That means they could lose several months of rent before finding someone to replace that tenant.
The longer you wait to start the process, the longer it will take you to evict the tenant. Instead of accepting a lot of excuses, you should start the process as soon as you realize there's a problem with the person renting your property. If you don't, then you'll likely lose even more money.
2. Choosing the Wrong Tenants
You take a risk every time you let a new tenant stay in your property. While most people pay their rent on time and take good care of the property, there are others who do not act responsibly. Letting those people live in your apartment or house can cost you a lot of money.
It's not just about bounced checks and late payments (although these are obviously serious concerns). Bad tenants can also damage parts of your property that are expensive to fix or replace. Accepting a tenant who manufacturers methamphetamine is probably the worst possible scenario. The chemicals used to make the drug are so toxic that you can spend anywhere from $3,000 to $25,000 having the site cleaned. That's assuming that the tenant doesn't make a mistake that literally blows up the house.
The best way to avoid bad tenants is to perform background checks that will help you identify those who have criminal histories or have had problems with previous landlords.
3. Undervaluing Your Properties
Your property's value can change significantly within a fairly short amount of time. That's especially true if it's located in a popular neighborhood where people are willing to spend more money to live. If you aren't updating the rental price of your property at least once a year, then you're probably leaving money on the table.
San Francisco offers a clear example of why you should reevaluate your property annually. In June 2014, the median rent for a two-bedroom property was about $3,575 per month. A year later, the median rent for a two-bedroom property had grown to $4,275 per month. A landlord who didn't bother updating the price of an apartment would lose $700 a month. That's $8,400 over the course of a year.
4. Charging Too Much
Undervaluing your rental properties can cost you a lot of money, but so can charging too much. It's important for landlords to research rates in their neighborhoods to make sure they keep their prices competitive. If the median rent in an area is $1,000 per month, then you'll have a difficult time finding a tenant willing to spend $1,500 for your rental space.
In the long run, asking for too much is just as damaging as asking for too little. Strike a balance so you can keep your properties full while earning a good return on your investment.
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