Top 10 Mistakes most landlords make

10. Not realizing your tenants are your clients

It’s a common statistic used by big companies that is costs seven times more money to attract a new customer than keep a current one. Your tenant is not your enemy. You want that tenant to stay in your property as long as you have it. Not having a vacancy for years at a time is a very nice thing to have. How do you treat them like clients? Return their call is number one. When you ask for a rent increase, be sure there is nothing outstanding that they have asked you to repair, now, a repair is not new carpet in every room, but, if they want new carpet, you should be able to work out something. How many of you would think to carpet a room and add a little bit onto their rent in exchange? This type of thinking will drive your cashflow numbers crazy.
9. Not knowing how to run cashflow numbers

If you only look at PITI versus monthly income you may be surprised to see what you really make. You need to budget a percentage for vacancies, repairs, advertising, legal fees (evictions) or those little things will eat your cashflow to nothing or worse.

8. Charging too small of a late fee

One place we took over charged a $15 late fee. $15 is not worth the time to drive to the place and ask for the rent. In Florida you can charge a $50 late fee and when you do that, you hope for people to pay late. Check your state for late fee amounts you can charge. We have some tenants that pay late every month…and we thank them every month.

7. Representing yourself to the tenants

Whereas you may feel good being a hotshot real estate investor, your tenants will and do not appreciate this fact. When they picture you as the owner they see you as a big fat cat that sits by the mailbox collecting checks. Representing yourself as the humble property mgr lets them view you as a working slob like them and can curtail questions such as “I want new carpet”, “Can you give me another week on my rent”, etc. Answers to these types of questions can be “I need to speak with the owner(s).
6. Not returning phone calls

This should be self-explanatory but some realtors and investors can’t follow this principle on people that may make them money, let alone a tenant. If a tenant calls, have their calls returned in less than 12 hours and their problem fixed within three days.

5. Not having good leases

This is important on multiple levels. One is if you need to refinance your property or sell it, being able to produce annual leases will definitely help. Banks and buyers want to see the security of annual leases. If you go to court over an issue with your tenant, having a strong lease will help as well. The lease should point out whether you cover damages, how much of the deposit you take if they do not leave the place spotless, if you supply appliances and how much the late fee is if they do not pay on time.
4. Keeping all your properties in your name

You do not want to be a lawsuit magnet. There are volumes of books written on asset protection but the basic premise is when a tenant is injured or feel they have been wronged they go to a lawyers office where that lawyer will do a quick asset search on you (if they know you are the owner) or they will look up the property the tenant was living in. If they see in the public records that you have any number of units, you are now worth pursuing. I recommend looking into the benefits of the anonymity of land trusts and at the minimum, look at having your properties in an LLC. NOTE: Be careful to understand how your insurance is impacted when you deed any property to a land trust or LLC. I recommend reading Mark Warda’s “Landtrusts in Florida” and “Asset protection”, also by Warda.

3. Not tracking expenses

If you buy a light fixture or ceiling fan, do you track which property that was for? How about if you are paying a handyman, do you track which properties you are spending money on for repairs? You need to do this not only for tax reasons but for profit tracking reasons. That property you think is generating $100 a month cashflow may have ended up breaking even or worse once you calculate all the expenses you had on it. I also recommend you do NOT have the utilities in your name. Trying to collect this is much worse than trying to collect the rent.

2. Not doing background checks

Someone said the best indicator of someone’s future is their past performance. Contrary to non-experienced landlord’s belief, I do not think a credit check is the best way to know if someone will be a good tenant. For example, it is pointless to run a credit check if you are managing rentals in a low income area. So, what are the things you should run regardless of area? Sexual Predator check, outstanding warrants check, and small claims check to see if they have ever been evicted. Guess what? These can all be done online for free!

1. Not knowing they are not cut out to be a property mgr

This is the number one mistake landlords can make. Do you blow a gasket every time someone tells you they will be late with the rent? Do you see your tenants out in public and purposely avoid them? Real estate investing is to get away from the aspects of life that you don’t enjoy, if you do not have the personality that can deal with tenant issues, figure it out before you age 20 years in two. Most investors know that they best place to get rental properties is from burned out landlords. Hire a property manager. If you do, be sure to calculate this expense on future deals you look into. Most property managers charge around 10% of the properties monthly income. If you are in the minority of people that actually enjoy property management (like me) then by all means stick to what you are doing!



Happy Investing!



Ray Higdon

SWFLA Investments