You've finally bought a rental property and are looking forward to your new role as a landlord. Owning a rental property offers a dependable source of monthly income, but if you want to keep that cash flowing, you should watch out for a few practices that can affect the success of your new endeavor.
1. Getting Too Friendly with Tenants
Although it’s important to maintain a cordial relationship with your tenants, it’s best to find friends elsewhere. If you become too friendly, your tenants might try to take advantage of the relationship, thinking that they can make late rent payments or ignore your policies. Think carefully before renting to relatives or current friends. If you do decide to open rentals to friends or relatives, use the same screening procedure you use for everyone else and emphasize that your role as a landlord will be separate from your role as a friend or family member. It’s not easy turning down someone you know, but if you know that the person isn’t responsible or reliable, it would be better to rent to someone else.
2. Not Establishing Policies
Whether you’re renting 20 units or just one, it’s important to create written policies before the first moving truck pulls up to the door. With written policies, there are no gray areas. Are other tenants complaining that Joe in 2B is practicing his drum solo at 2 a.m.? Pull out the policy and show him the “No loud music or noise after 10 p.m.” section. Does Kaitlyn want to paint her walls black? Point out the appropriate section of the policy. Policies are very useful because they clearly spell out what is and isn’t allowed. Keep in mind that they must apply equally to everyone.
3. Not Running Background Checks
Most potential tenants seem like perfectly wonderful people when they’re touring a rental apartment or home. But beyond that friendly exterior may be someone who has trouble paying bills on time. If you don’t run background and credit checks, you won’t know that your new tenant views the monthly due date as a mere suggestion. Background and credit checks can help you avoid big headaches with tenants who aren’t what they seem. It’s much easier to turn down potential tenants than try to evict them three months from now.
4. Failing to Identify Your Market Segment
Is your unit the perfect place for a young family or will it appeal to college students? Identifying your market segment can help you decide where to advertise it. If it’s ideal for families, an ad in the local shopper makes sense, while college students will be more likely to respond to an ad in the college newspaper. Make a list of the positive aspects of the unit to determine how to market it. A unit with multiple bedrooms, a large kitchen and proximity to schools and playgrounds will probably attract families, while an upscale one-bedroom with luxury finishes in a busy urban area will appeal to young professionals. Use the positive attributes in your ads, social media posts, and website, if you have one. Even if you are focusing on a market segment, be sure that you do not appear to discriminate against any protected classes when you are advertising your rental.
5. Not Raising the Rent
Taxes and utilities tend to increase every year and so should the amount you charge for rent. Although you don’t want to gouge your tenants, you do want to increase the rent every year to cover costs. Tenants will be much more accepting of small rent increases than one very large increase after five years of stable rent.
Renting is more popular than ever, with 36 percent of American households renting. The things you do as a new landlord will help ensure that you attract the highest quality renters from the renter pool. Although you’ll do a lot of on-the-job learning, the process will be well worth it when you enjoy the financial benefits of owning rental property.
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