Investing in rental properties can be one of the most consistent ways to build a retirement fund, build an additional revenue stream, or diversify your investment portfolio.
However, like all forms of investment, it is not without risk. Most of the threat comes from novice landlords who make critical mistakes. Here, we are going to look at some examples of the mistakes that could turn your big money-making opportunity into a money and time black hole that might even end up taking you into debt.
Not vetting your tenants
As a landlord, You have the right to access some important information about your prospective tenants both through database checks and through the selection process. The most important detail you need is any criminal conviction and credit problems. Remember that both of these do not necessarily mean you shouldn’t rent to them – there can be perfectly valid reasons for credit issues, or they may be seeking an expungement.
A tenant credit check will help you eliminate those who are likely to have trouble paying the rent reliably. Besides having to deal with the costs of repairs without the income to fund, the relationship between you and the tenant can be fraught, which also leads to wretched actions against the property that you have to end up fixing.
Do not be afraid to inquire about their previous rental experience, too, by getting references from past landlords. If they do not have a successful relationship with any of the landlords they have operated with before, it is a red flag worth taking on board.
Not maintaining your property
You are going to have to get used to shelling out for maintenance and repairs. It is an expense that you can’t avoid.
You have a legal duty to ensure that the entrances are safe and that the heating, electrical equipment and plumbing of the home function as they ought to, as well as looking ahead to anything that could pose a risk in the future.
You can save money on repairs by making them when they are smaller, rather than making major repairs in the future.
If you leave the rental property in an unsafe condition and the occupant ends up being ill or injured because of it, you might have some serious and expensive legal bills to swallow, as well as a potential criminal record and a bad reputation.
Not treating it professionally
If you are renting out a property, you are a business person. Remember that.
While you may have a good relationship with your tenants – and that is admirable – do not let this relationship jeopardise your business.
For example, if they are late paying their rent, make sure that you enforce any late payment fees or penalties as laid out in your contract or tenancy agreement. If you allow someone to do it once without recourse, they will quite often do it over and over again.
Also, do not be afraid of raising the rent if appropriate and fair. It is a business and one that should see you benefit financially.