If you’re renting out a property for the first time, it’s more likely than not you’re making some rookie mistakes. Here, we’ve compiled some key professional property manager advice for new landlords. With these tips, you can set yourself up for success.
Main Takeaways:
- Some of the top mistakes people make when renting out a property for the first time are:
- Under (or over)-pricing your rental
- Not screening tenants thoroughly enough
- Not having a co-signer clause
- Lacking homeowners’ insurance
- Not requiring renters’ insurance for your tenants
- Not requiring security deposits
- Not having tenant responsibilities, rules, restrictions, and processes in writing
- Underestimating operational expenses
- Not remembering tenant privacy, housing discrimination, security deposit, and eviction laws
Top Mistakes People Make When Renting Out a Property for the First Time
Here, let’s break down the missteps you should take care to avoid as a new landlord:
1. Under or Overpricing Your Rental
Our property management company in Northern Virginia will start with this advice for new landlords: make sure you’re pricing your property’s rent correctly!
When renting out a property for the first time, it’s critical to do your due diligence regarding market rental rates. If you simply eyeball yours, you could be vastly under or overestimating how much people would pay for your rental.
Instead, look at similar area properties’ prices, or better yet, get professional advice from a property manager. They have a trained eye, so they can help you better understand your target market’s nuances, demographics, and needs.
However, this advice for new landlords comes with a caveat. It’s fine to offer higher rates than before with new tenants, but not so much with current ones, unless you raise it very carefully. After all, they may be put off by the sudden rent hike. So, be judicious in how you raise the rent.
2. Not Screening Tenants Thoroughly Enough
As tempting as it may be to take in tenants the minute they apply, don’t be so fast. You may regret it. Instead, our advice for new landlords is to pace it steadily but securely. Screen each tenant to ensure they’re safe and reliable renters. Be sure to investigate:
- Personal History: Look at your tenant’s personal information, criminal history, and rental history for validity.
- Employment History: How stable their employment history is. If it looks rocky, that might be a reason to be hesitant.
- References: Contact accounts from all personal and landlord references on their application. This will give you a better idea of the person’s character. When doing this, ask each reference how long they’ve known the person.
- Income: Their income to make sure it’s high enough to cover the rent.
- Financial Background: Credit history, bankruptcies, judgments, liens, and other information.
Of course, it’s critical to screen every applicant with the same criteria to adhere to Fair Housing Laws. So be sure to keep your screening processes consistent.
3. Not Having a Co-Signer Clause
Some tenants may seem promising but don’t have all the usual qualifications. For times like these, you should have a co-signer clause in your lease agreement. For example, if you rent out a property to a college student with no rental history, their guardian could co-sign the lease.
This way, you can give these tenants a fair chance, and you’re more protected if it doesn’t work out. You can fall back on the co-signer for handling any issues that arise.
When bringing on a co-signer, make sure they go through the usual tenant screening process, too. See whether they have a stable income six times or bigger than your monthly rental rate. By doing this, you can be sure they’ll take on the rent if the original tenant can’t.
4. Not Having Certain Types of Insurance
When you rent out a property, you should have two kinds of insurance in place. These insurance policies are critical to ensuring each party stays legally and financially secure.
Homeowners’ Insurance: This insurance policy protects your property physically. It protects you from large financial costs in the event of significant property damage. For example, if a flood or hurricane happens, you’ll be covered. As an aside, you keep this policy in your name, not your tenant’s.
Renters’ Insurance: All your tenants should keep this policy to financially cover the injuries they experience on your property, any damage they cause to it, or belongings that get damaged or stolen there. This policy should be in their name.
With these insurance policies, no one has to argue about who is responsible for which unexpected expense.
5. Not Requiring Security Deposits
When you ask for security deposits, it gives you reserve funds to pay for any costly unpaid rent or damages that may happen during a tenancy. Otherwise, you will have to pay the tab if either event happens. So, you should learn more about how to set these up.
6. Not Having Tenant Expectations in Writing
Many people renting out a property for the first time forget this step, but it’s a big one. In the rental agreement, you should make your expectations crystal clear. Leave no room for ambiguity.
State explicitly what all possible tenant responsibilities, rules, and restrictions involve. Also, make processes, like rent collection, easy to understand. For example, you should state the types of maintenance tenants must make and when. This way, tenants know exactly what’s expected of them.
More importantly, this cements in writing that tenants are legally accountable for these responsibilities. It serves as clarification if any disputes or damages occur.
Then, you should carefully comb over the lease agreement with the tenant to ensure they understand. With this, you can rest assured all parties are on the same page.
7. Underestimating Operational Expenses
As you’re renting out a property for the first time, you must budget meticulously. If you underestimate your rental business expenses now, they will snowball uncontrollably later. You’ll be left unprepared and with a worse ROI in the long run.
As such, our advice for new landlords is to factor in repairs and renovations, regular maintenance, property taxes, utilities, your mortgage, possible vacancy periods, and other big expenses that might pop up.
8. Paying Insufficient Attention to Tenant Rights
If you accidentally ignore certain laws, your lack of bad intent won’t be enough to get you off the hook. You still could end up defending yourself in court. So, before you rent out a property, be sure to read up on local laws regarding:
- Eviction: Eviction requires due process, which varies by state. For instance, you will have to provide formal notice to vacate within your state’s stated timeframe. Furthermore, you legally can only evict someone for not paying the rent, violating the rental agreement, and staying after the lease ends.
- Security Deposits: Once the tenancy is over, you can only keep security deposit funds for good reasons. For instance, you should only keep portions of it related to repairs or unpaid rent. Otherwise, you must give back all leftover funds to the tenant.
- Privacy: Each state has its own laws about how long in advance you must inform tenants before entering their property. Simply barging in unannounced violates their rights.
- Housing Discrimination: As we mentioned before, you cannot make any aspect of the renting process different for tenants based on their race, religion, color, national origin, sex or gender, family status, or disability. However, this comes with one exception: if tenants with disabilities request reasonable accommodations, you can (and must) provide those.
Renting Out a Property for the First Time? Get Support with PPM Northern Virginia!
When you rent out a property, you can’t forget to do adequate tenant screening, follow all applicable laws, have an airtight lease agreement, and other staples of running a rental business. By following these best practices, you can get started on the right foot.
However, staying up to date with the real estate industry’s best practices can be time-intensive. Combine that with the time required to actually implement them, and you’ve put in enough hours for a full-time job. Most people simply don’t have the time to juggle it all. That’s where professional property management comes in. On your behalf, we can handle:
- Legal compliance
- Lease agreement creation and renewals
- Tenant screening
- Tenant customer service
- Property maintenance
- Rent collection
- Accounting
- Inspections
So, make your investment truly passive and call us today!