Being a landlord sounds simple on paper; you buy a home, make some repairs and improvements, and rent it out for more than your monthly mortgage payment to cover the renovations. But the actual reality of becoming a landlord demands the mastery of many different skills: interpersonal communication, property management, business sense, and a shrewd understanding of the ever changing legal and financial responsibilities of the rental industry.

For new landlords with little experience and so many tasks and rules to keep track of, it can be easy to make mistakes when you're just starting out. To help you navigate your new venture, lets take a look at the most common mistakes new landlords tend to make and how you can avoid making them yourself.

Not Screening Your Tenants

After buying and preparing your new property, you're likely eager to find tenants as quickly as possible to start generating rental income. As eager as you are, it's in your best interests to screen every tenant before offering them a lease agreement. Tenant screening is one of the most important steps you can take in the entire rental process. Proper screening will help you find responsible tenants who will not only regularly pay rent on time, but will take excellent care of your new investment.

Even if the tenant seems like a perfect fit on their applications and is ready to move in as soon as possible, don't feel pressured into skipping or delaying the screening process. Bad tenants could lead to costly repairs, constantly late rent payments, or even expensive eviction proceedings. With CreditLink Secure, you can find the perfect screening package for your property - and the cost of the screening is deferred to the applicant!

Believing Your Property Will Always Have Tenants

In an ideal world, you will never face a vacancy in your rental property, filling the unit as soon as a tenant leaves. Unfortunately, the harsh truth is that there may be months at a time where your property isn't occupied. Because of this, it's vital that you plan for the worst and manage your finances in a way that ensures you are able to pay your mortgage without consistent rental income. Sit down with an accountant to do a cash flow analysis and place some backup funds in savings as a buffer for any tenancy dry spells.

Underestimating the Cost of Maintaining the Property

As per the standard lease agreement, landlords have a responsibility to keep the property well-maintained and in good condition. A poorly maintained property in disrepair will only drive away your current paying tenants and deter potential new tenants from applying. Additionally, if you fail to budget properly for maintenance and upkeep, you can find your finances in dire straights as you struggle to keep up with the reasonable needs of your tenants.

To make sure that you're prepared for whatever your property might need, factor the potential costs of monthly upkeep and ongoing maintenance into the amount of rent you're charging. You should also set up a savings account for unexpected expenses and repairs, either out of your own pocket or your business fund.

Viewing Your Business as a Hobby

If you want to turn a consistent profit with your rental property, you must treat it as a business. To avoid treating it like a hobby, set up a separate bank account for deposits and expenses, implement a reliable bookkeeping system with thorough record keeping, and consult with a tax expert to accurately and adequately save for tax season.

Relying on Verbal Agreements

It's unwise to rely on verbal agreements with your tenants, even if they seem like the most trustworthy and honor-bound person you've met. In order to legally protect your property and business, you must insist upon having a formal lease or rental agreement and make sure your tenant reads and fully comprehends the terms of the contract before they sign it. With a formal lease agreement, you will be protected by the legally binding document in the event that you have any legal issues with the tenant.

Take some time to review your state's laws regarding leases and make sure you're using the right form for your state. With CreditLink Secure, you can easily build, customize, and legally sign a state-specific lease with the proper addendums by using our Lease Wizard.

Asking Your Tenant Illegal Questions During the Interview

To make absolutely certain that you're not inadvertently being discriminatory to your potential tenants, you should familiarize yourself with the Fair Housing Act. Failure to do so could land you in legal trouble. Enacted in 1968, the Fair Housing Act prohibits landlords from denying applications based on the following protected groups:

1. Race or color
2. Religion
3. Sex or Gender
4. National origin
5. Marital Status
6. Disability
7. Family status

Keep in mind that some states, like California, have additional protected classes as well. During interviews with applicants, keep your questions focused on the tenancy and your rental property and avoid asking questions that relate to any of the protected classes.

Neglecting Your Tenants

If your tenants are low-maintenance and aren't spamming your phone and email address, but they're paying rent on time, it might be tempting to leave them alone. However, without checking in on them and staying updated on the property, any number of issues could be brewing, from unaddressed maintenance or repair issues to lease violations they were trying to keep hidden. Checking in with your tenants every few months and scheduling annual property inspections will save you time, money, and hassle in the long run.

Neglecting Property Inspections

We're touching on property inspections again because they're so important for keeping your properties well-maintained. Regular inspections help you address minor issues before they become more serious and expensive problems. For example, it's much easier and more cost-effective to repair a minor leak in the roof than it is to have to replace the entire roof due to rotten wood, missing shingles, and extensive water damage.

Tenants won't always let you know when something needs maintenance and repairs, so it's best include annual scheduled inspections in your lease agreement. Review the legalities in your area and give your tenant the appropriate notice before showing up at the property.

Being Too Nice to Your Tenants

It's important to have a good working relationship and solid communication with your tenants, but you don't want to be a pushover, either. For example, if your lease agreement says that you charge a late fee after the rent is five days late, or that you don't allow pets at your property, make sure to enforce those rules and penalties according to the lease agreement. Changing your rules to accommodate your tenants can lead to a pattern of them taking advantage of you.

Delaying Evictions

Once you've exhausted all other options and decided to evict a tenant, serve an eviction notice as soon as legally possible. Too often landlords will wait too long to evict, causing them to lose more money in the process over damages or unpaid rent. If you aren't sure about your rights as a landlord or how to proceed with the eviction process, consult with a qualified eviction attorney.

Neglecting Documentation

Hopefully, you've practiced thorough tenant screening and will never need to take any of your tenants to court - but if you do, it's essential to have the right documentation to support your case. Document every interaction with your tenants in writing, including the time and date of the interaction. Take notes on your phone conversations, and file copies of emails, text messages, notices, and any maintenance invoices or receipts you have. A long, clean paper trail will make any legal proceedings much smoother.

Not Having the Proper Insurance

If you're still paying a mortgage on your rental property, you should take steps to include liability insurance protection as well as your required hazard insurance. This will ensure you're protected in the event that your tenant sues you for damages due to some sort of negligence on your part.

If you don't have liability protection on your policy, you may want to check whether you can have your homeowner's insurance extend liability protection to your rental. If this isn't an option, consider buying an umbrella policy that includes liability insurance.

Avoiding Costly Pitfalls

As a first-time landlord, chances are you're not to get everything exactly right during your first tenancy even if you painstakingly follow every guide you read. Investing in real estate comes with a learning curve, no matter well-prepared you are at the start. Mistakes are human nature. However, by understanding some of the most common pitfalls that befall new landlords, you can avoid costly mistakes that can jeopardize the success of your business. If you do find yourself making mistakes just remember: every mistake is a learning opportunity to improve your business and refine the rental processes.

Please note that this is for informational purposes only and is not intended as legal or financial advice. Laws may vary depending on your location.