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What are the most common mistakes to avoid as a new landlord?

Learning from the mistakes of others is a great way to avoid making those same mistakes yourself. The most common mistakes new landlords make include:

  • Failing to get a written Lease Agreement.
  • Not screening new tenants.
  • Not documenting conditions at move in.
  • Setting rent too low.
  • Letting tenants slide with lease violations.

Get a written Lease Agreement.

While you can have a rental without a written Lease Agreement, it is generally not a good idea. A Lease Agreement outlines the rights and duties of both the landlord and the tenant. If there are disputes about what services the landlord is supposed to provide or how the tenant can use the property, the Lease Agreement can help solve them.

Without a signed Lease Agreement, you may not be able to enforce rules, such as a preset number of people living in the apartment, or where to park, even if the tenant said they would agree to them. If you end up in court over late fees, unapproved tenants, or for an eviction, it may be your word against your tenant's. With a signed Lease Agreement, a court may be more likely to side with you and the signed agreement.

Screen your tenants thoroughly.

Tenant Screening is important, especially if your rental property is in an area where local governments make it hard to evict. In a common rental scam, tenants lie about who they are, never pay a dime after moving in, and then use legal eviction protections to stay in the unit for months. 

It is unwise to take a tenant at their word and then find out they cannot afford the rent, have a violent criminal record, or have been evicted multiple times. While screening tenants takes money and time, the costs of a bad tenant, such as not receiving rent for months, or having to repair damage to your unit, are going to be much higher and may easily be avoided with good screening practices.

Document the condition of a rental when a tenant moves in.

A landlord generally has the right to charge the tenant, when they move out, for damage to a rental unit except for normal wear and tear. For example, carpet wearing out over time is normal wear and tear, but a major stain on a carpet generally is not.

The problem you may face is when you go to charge the tenant for the cleaning or repairs. They may say the property was like that when they moved in. Keeping written notes about the condition of a property with a Renter's Inspection Worksheet protects both the landlord and tenant. It records the exact state of the property so the landlord can collect from the tenant, and the tenant has to pay only for damage they caused.

Account for long-term and routine repair expenses when setting rent.

When setting the rent, new landlords may think that rent should be just a little bit above their mortgage, enough to make a small profit. But there are other costs to consider, too. For example, if you need to replace a roof every 10 years at a cost of $12,000, that is an extra $1,200 per year or $100 per month. You also may want to consider basing your rent on things like the cost of replacing your HVAC system and kitchen appliances, repainting, and saving up a rainy-day fund to pay for unexpected repairs.

Finally, it is a good idea to understand the cost of putting off maintenance. For example, if you do not spend a few hundred dollars to fix your air conditioner today, it could burn out and need to be replaced much sooner than normal, or during a heatwave when the cost of doing so may be much higher.

Enforce the terms of the Lease Agreement.

When you sign a Lease Agreement with a tenant, tenants are responsible for following the terms of the agreement. The lease terms are there to protect both of you, but your Lease Agreement only works if you enforce it. This means letting your tenants know if they violate rules, or pay rent late, and enforcing the consequences stated in the agreement. For example, there may be a fine for late payments, or you may issue a warning for excessive noise at night.

There are many reasons landlords might not enforce lease terms. You might not know the tenant is breaking the rules, you might feel bad for your tenants, or you might not want to seem too strict. But, if you do not enforce your lease terms, tenants may continue to ignore the terms, and the problems could get worse over time. In some cases, not enforcing your Lease Agreement may even lead to you legally giving up your right to enforce it.

If you do not want to be too hard on your tenant, you can decide not to waive the fees for breaking the rules, or only send written warnings and not take it any further. But you may want to keep records of the issue, and remind the tenant you may take more action in the future.

If you are not sure what to do in the event of a lease violation, reach out to a Legal Pro for affordable legal advice. 

How can I improve my tenant screening? 

Using a Rental Application is a good first step when it comes to tenant screening. Even if you know a potential renter personally, it is a good idea to confirm things like their credit history and whether they have past evictions. 

What's more, having a defined rental-screening process may be one way to avoid costly fair housing complaints from a potential renter alleging you denied them a rental unfairly.

Once you have an application that meets your basic standards, you may want to confirm everything on the application. This often includes confirming income via paystubs, as well as running credit and background checks, or calling references.

Many terms in a Lease Agreement protect you financially. For example, leases typically provide clear solutions if your tenant fails to pay rent on time or damages the property. Additionally, some leases may allow you to be paid back for your attorney fees if you have to file a lawsuit or evict the tenant.

Other legal issues can often be addressed up front in a lease as well. Landlords often limit pets, or require pet deposits and pet applications, not because they do not like pets, but because pets can cause damage.

Also, at the end of a lease period, an agreement can automatically convert to a month-to-month rental, or renew for another year. No matter which method you prefer, your Lease Agreement allows you to set the renewal method and terms.

There are many benefits to having a written Lease Agreement. With a standard lease template, new landlords can customize their agreements to suit their properties and business.

How can I prepare for unexpected rental costs?

When setting the amount of rent you charge, you may want to consider that there may be unexpected costs that arise over time. Sometimes it may just be that expected costs are higher than expected too. Once you start receiving rental income, it can be helpful to start putting money aside in case of emergencies. 

Making a regular habit of small annual rent increases can help cover rising costs, like property taxes and maintenance. Small increases add up over time, and are less likely to upset tenants.

When it comes to tenant damage, using both a Pre-Rental Inspection Checklist and a Move Out Inspection Checklist can help you inspect the property carefully. These give both you and the tenant a defined process to follow and clarity about who caused the damage. 

Keep in mind that rental properties have both expected and unexpected maintenance and repairs that result from the aging process for homes and buildings. You may want to check out these strategies for managing your own rental property to help you plan ahead. The methods include things like keeping up with routine maintenance and making a financial plan that protects you from large, unexpected costs.

If you are new to the residential rental business, check out these legal tips for first-time landlords. If you have more questions about managing or leasing your rental property, reach out to a Legal Pro for affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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