Be sure to avoid these three common property management mistakes:
Not thoroughly and rigorously pre-screening applicants.
- There are literally volumes written on the methods and techniques of this art/science. I blush when I remember how many Investor’s I’ve met at a training event who shared with me that they put someone into their $100K house without so much as checking their credit. “They seemed honest”. Folks, the best liars usually do- they’ve had the most practice! Verify everything, read between the lines, and check credit of every person over 18 that will be living in the house. A good lease will give you the right to do this, and also the right to retroactively charge a predetermined amount of rent for anyone found to be living in the property at a later date that was not on the application- calculated all the way back to the original move-in date of your applicant(s).
Leniency with late payments.
- This is one I had to learn the hard way. I suppose it’s human nature to have someone look you in the eyes and tell you something out of their control happened and they swear the rent will be caught up soon. This may indeed be true. However, over the years, I have determined a precise formula (well okay, it measures intangibles) that all tenants use to determine whom they will or will not pay when short on money (and if you’ve verified their assets and they are living from paycheck to paycheck, it is not if they will be short, but when). Payments are made in decreasing order of negative consequences for late payment. If I pay my phone or cable bill late, they will shut it off very soon. That’s no way to live, have to take care of those. Same with utilities, internet, even sometimes family loans. But, If I know I can tell my landlord a story and buy some extra time with no ill consequences, I get to keep everything! This quickly becomes a habit where the unsuspecting landlord is invariably paid last out of whatever money is left over after paying everything else. Be firm up front, and your tenants will pay the rent and then get creative for the other things. After they have established a long and solid record of timely payments, if a tenant reaches out to you before the rent is late and offers a very plausible reason, and also a plan for repayment, that is an entirely different story. Zero tolerance for at minimum one year will be a policy, if adopted, I assure you that you will thank me for later in your career.
Renting to someone to try to "help them out"
- Charity is commendable, and a solid goal for each of us to work toward. However, if you bend your application requirements to “be nice” because someone has a hard luck story, please ensure that said niceness extends to a perfect willingness to pay the mortgage on the house with no rent coming in for months upon months. It’s coming. And renting to family!!! Never, never, never. Did I say never? I cannot tell you how many calls I’ve gotten from motivated sellers, and how many houses I’ve bought, from people who rented to family, and the situation was now the single largest stressor and problem in their entire life.
Lou Gimbutis, owner of Property Solutions, LLC, https://www.sellmobilehomenow.com/, has been buying and selling houses full-time since 2004, first in Michigan, then after moving to NC in 2007. He serves as Director of Education for the Metrolina Real Estate Investor’s Association.
Related: What are you and your money waiting for?, Want to sell your property? Rent it out instead.