If you own a second property that you are not using, why let it stay vacant when you could rent it out? Renting out a property can be a fantastic way to earn a little bit of money on your investment, whether to pay off the mortgage or to provide yourself with a steady income.
Of course, renting out your property also comes with all the responsibilities of being a landlord. You need to ensure that you have worked out all the legalities, chose trustworthy tenants and are providing them with a safe and adequate space.
Many people who become landlords make a lot of mistakes due to their inexperience. Here are a few of the most common mistakes that landlords make and how you can avoid them:
Not Taking it Seriously
Many people think that being a landlord is a very easy job and that you can simply sit back and watch the rent roll in. However, this is not true and if you take this lax attitude you might run into problems in the future.
Being a landlord requires a lot of diligence, hard work, organisation and attention to detail. You will need to keep on top of the financial side of things, carefully screen tenants, ensure that they pay the rent on time, fix any repairs and issues and generally keep them happy. It amounts to quite a decent amount of work so keep this in mind before taking it on.
Not Screening Tenants Carefully Enough
When you are choosing a tenant, you will feel the pressure to get them into your property so that they will start paying rent as quickly as possible. However, never rush into things without checking out the tenant’s credentials first. Ending up with a bad tenant can cause you an enormous amount of headaches, as they might have loud parties, destroy your property or be late on paying the rent.
Create a rental application form that will require them to provide you with the important information that you need to know, such as where they rented before and how long. Ask them to provide references from previous landlords so that you can verify their track record. You might also want to do a credit report so that you can find out whether they have a history of late payments.
Budgeting as If the Property Will Forever Be Rented
It is a very clever plan to buy a second property and rent it out so that the rent paid by the tenant covers your mortgage. However, you should never rely solely on the rent coming in. Make sure that you can cover the mortgage yourself if you have a month or two when there is no tenant paying rent.
Before making the property investment, do a very simple cash flow analysis so that you can be sure to maintain sufficient funds and cover your mortgage payments even when you can’t find a renter.
Not Making Your Tenants Sign a Rental Agreement
Being a landlord is a business process and unfortunately, you can’t rely on a handshake or someone’s word. Before your tenant moves in, you should write up a lease agreement that outlines all the terms that they agree to follow. They need to read it over and sign it and then you can both keep a copy.
Hopefully, no problems will occur and this will just be a formality. However, if a dispute does arise in the future it will be very valuable to have written and binding documentation so that everyone knows where they stand.
These are just a few of the biggest mistakes that landlords make and how you can avoid them.