Major Mistakes of New Landlords

[invst4profit]

I have been thinking of making a list of the most common mistakes new investors make when becoming Landlords. I have a few and others will hopefully add some more based on personal experiences.1) Overpaying up front. How many times have we heard Real Estate agents say "It Cash Flows".2) Not doing thorough tenant screening. Never trust any applicant.

3) Failure to operate your investment as a business. Not understanding expenses, allowing emotions to influence decisions, valuing your own time etc.

4) Failure to quickly respond to problems. As an example not issuing a eviction notice on day 2 every time a tenants rent is late.

5) Accepting excuses, partial payments, doing favors for tenants. This relates directly back to item #3. Always remember tenants do not feel sorry for landlords.

6) Failure to do, or relying on management companies to do, regular inspections.

 

[EdRenkema]

QUOTE (invst4profit @ Jun 8 2009, 07:31 AM) I have been thinking of making a list of the most common mistakes new investors make when becoming Landlords. I have a few and others will hopefully add some more based on personal experiences.1) Overpaying up front. How many times have we heard Real Estate agents say "It Cash Flows".2) Not doing thorough tenant screening. Never trust any applicant.

3) Failure to operate your investment as a business. Not understanding expenses, allowing emotions to influence decisions, valuing your own time etc.

4) Failure to quickly respond to problems. As an example not issuing a eviction notice on day 2 every time a tenants rent is late.

5) Accepting excuses, partial payments, doing favors for tenants. This relates directly back to item #3. Always remember tenants do not feel sorry for landlords.

6) Failure to do, or relying on management companies to do, regular inspections.

Thanks Greg.
Nice list but I will add to it.
I have tenants who passed all requirements and are now paying on time and taking excellent care of my units. I do all maintenance required expeditiously and treat them with respect.

7) Failure to treat tenants with respect I try to create some raport with them, I`m dealing with them anyway it might as well be a pleasant relationship, I bring donuts, I have fun with the kids and I try to empathise with their situation - people love that!

 

[Thomas Beyer]

8) unrealistic expectation of rents or vacancies (i.e. not enough rental market due diligence)

9) unrealistic expense assumptions , for both minor ongoing (tap leaks, landscaping, taxes, ..) as well as potential large expenditures (needs a new roof, boiler leaks, needs new fridge ...)

both related to:

10) too small a reserve fund to allow a 5+ year hold

 

[jwilbrin]

QUOTE (thomasbeyer2000 @ Jun 8 2009, 10:24 AM) 8) unrealistic expectation of rents or vacancies (i.e. not enough rental market due diligence)
9) unrealistic expense assumptions, for both minor ongoing (tap leaks, landscaping, taxes, ..) as well as potential large expenditures (needs a new roof, boiler leaks,, needs new fridge ...)

both related to:

10) too small a reserve fund to allow a 5+ year hold

11. Not insisting that renters take out Renters Insurance; explain to them why it is important to have renters insurance and ask them to provide proof of their policy. Remember to get copies of their renewals every year.

12. Not educating their tenants. It`s important to creating a checklist for your tenants with very detailed information and instructions on "what to do in the event of ..." and what not to do. Have them sign a statement that they have reviewed the checklist and have received a copy. Things we consider common knowledge may not be for renters who have never owned or have been responsible for a property.

Samples of things I have on my personal checklist that I give to tenants include: what to do when the toilet starts to back up. You`d be surprised at how many people don`t know what to do. Heck I know people who have owned their homes for many years and aren`t sure what to do first if the toilet starts to back up.

Never leave windows open when you are not home -- weather in Calgary changes so quickly. Driving rain coming through a window can destroy drywall, carpets, ceilings in units below etc.

Never leave washing machine running when you are not home -- washing machines or the plumbing can overflow and can cause flooding.

Information on how to avoid clogged drains: not pouring grease down the drains or not letting excess hair and debris go down the drains. We think this is common knowledge but for some it is not.

And a very detailed list of what you expect them to do with regards to housekeeping. ie. vacuuming at least once a week; cleaning bathroom tile and tub... I even ask potential tenants point blank "do you own a vacuum cleaner?" if yes, "what type?" If they say no and they`ve rented units with carpets previously I won`t rent to them. Not vacuuming destroys even the best of carpets.

13. Not providing tenants with a list of emergency numbers that they must keep near their phone or posted on their refrigerator. My list includes my home & cell number; my husbands cell number; the numbers of my electrician, plumber and general handyman in the event my tenants are unable to reach me.

 

[Thomas Beyer]

QUOTE (jwilbrin @ Jun 8 2009, 11:38 AM) ...13. Not providing tenants with a list of emergency numbers that they must keep near their phone or posted on their refrigerator. My list includes my home & cell number; my husbands cell number; the numbers of my electrician, plumber and general handyman in the event my tenants are unable to reach me.
14. giving out your cell phone number. Landlording is important, but not as important as finding more properties and more investor partners. Thus, not enough delegation of tasks, such as property management, to qualified 3rd parties or individuals is a major mistake.

To grow you have to have access to capital, from banks, from your own pocket and from investor-partners. This takes time and effort and constant marketing. Thus, do not hand out your home nor cell phone number to tenants. This is a major mistake !!

 

[invst4profit]

13. Not providing tenants with a list of emergency numbers that they must keep near their phone or posted on their refrigerator. My list includes my home & cell number; my husbands cell number; the numbers of my electrician, plumber and general handyman in the event my tenants are unable to reach me.


Contact numbers are important (landlord) however I would not advise allowing tenants to call contractors directly. This could turn out to be very costly.

Keep in mind Thomas many investors have no desire to acquire many properties and it is very common to give out a LLs home number when only a few tenants are involved. I want my tenants to call me first so that I may evaluate the situation personally.

 

[jwilbrin]

QUOTE (invst4profit @ Jun 8 2009, 01:01 PM) 13. Not providing tenants with a list of emergency numbers that they must keep near their phone or posted on their refrigerator. My list includes my home & cell number; my husbands cell number; the numbers of my electrician, plumber and general handyman in the event my tenants are unable to reach me.


Contact numbers are important (landlord) however I would not advise allowing tenants to call contractors directly. This could turn out to be very costly.

Keep in mind Thomas many investors have no desire to acquire many properties and it is very common to give out a LLs home number when only a few tenants are involved. Personally I want my tenants to call me first so that I may evaluate the situation personally.

You have to ensure you have a good working relationship with your contractors. My contractors know what I expect of them. They are aware that my tenants have their contact info in the event of an emergency. If there is a serious plumbing or electrical emergency and for whatever reason my tenants are unable to immediately connect with me; I want them on the phone with my trusted contractors asap. The sooner they get there the less damage. I know of many property management firms who post emergency contractor numbers in their buildings in the event tenants or condo owners don`t get through to the management contact immediately. You just have to make sure you have a strong understanding with your contractor as to what constitutes an emergency. Remember most management companies have call services taking calls after hours. You could lose several valuable minutes waiting for your call back or dispatch. Several minutes of flooding is NOT GOOD.

Not all investors are looking to build a huge real estate portfolio right away. Many start out small and have to self manage or chose to self manage -- it just depends on what their business model is. I know several multi millionaire mom and pop landlords in Calgary who still self manage and are hugely successful. They know everyone of their tenants and they have hundreds and in one case thousands of tenants. (how they do it is beyond me) If you are self managing it is vitally important to make sure your tenants have all emergency contact numbers. Otherwise they may contact a contractor that you have no relationship with -- that`s when your costs really start escalating.

 

[Thomas Beyer]

QUOTE (invst4profit @ Jun 8 2009, 01:01 PM) ..
Keep in mind Thomas many investors have no desire to acquire many properties and it is very common to give out a LLs home number when only a few tenants are involved. I want my tenants to call me first so that I may evaluate the situation personally.
noted .. but keep in mind many investors do not get more properties because they spend way too much time dealing with tenants issues which, after the learning curve has worn off, are
a) a time waster
b) negative energy

to a point where they stop buying more properties because they don`t have the necessary time or required positive energy to attract more investors !

I agree it is very important to learn and understand the landlord-tenant issues at the beginning .. but spending too much time there is a proven path to a very limited real estate portfolio ..

hence lesson 14:
14) Don`t do tasks that could be purchased for $15 or $25/h if you aim to make $100 to $500/h by buying more properties with your own or JV partners money !

 

[GarthChapman]

15) Not doing every aspect of Property Management yourself in the early going, and thereby not learning what is truly important, how to deal with problems, and how to treat your tenants to develop positve relationships.

 

[invst4profit]

QUOTE (thomas beyer 2000 @ Jun 8 2009, 03:28 PM) noted .. but keep in mind many investors do not get more properties because they spend way too much time dealing with tenants issues which are a) a time waster
b) negative energy

to a point where they stop buying more properties because they don`t have the necessary time or required positive energy to attract more investors !

I agree it is very important to learn and understand the landlord-tenant issues at the beginning .. but spending too much time there is a proven path to a very limited real estate portfolio ..

hence lesson 14:
14) Don`t do tasks that could be purchased for $15 or $25/h if you aim to make $100 to $500/h by buying more properties with your own or JV partners money !

Once again Thomas you are absolutely correct.

 

[GaryMcGowan]

Great topic Greg,
This will make a great blog or article for someone with the writing skills.

 

[invst4profit]

12. Not educating their tenants. It`s important to creating a checklist for your tenants with very detailed information and instructions on "what to do in the event of ..." and what not to do. Have them sign a statement that they have reviewed the checklist and have received a copy. Things we consider common knowledge may not be for renters who have never owned or have been responsible for a property.

This goes hand in hand with educating your tenants on your expectations for rent payment on time and how you wish them to maintain the property.
Explain up front that a eviction notice will automatically be sent on day 2 as a formality even if they inform you in advance that they will be late. This is strictly business (essential in Ontario).
As far as your expectations for maintaining the property do not assume that because they seem to be nice people that they have the same living standards as you do.
Tell them you will be doing regular inspections and that they will be expected to pay for the repair of any damage.

 

[smmcguire]

QUOTE (jwilbrin @ Jun 8 2009, 01:38 PM) 11. Not insisting that renters take out Renters Insurance; explain to them why it is important to have renters insurance and ask them to provide proof of their policy. Remember to get copies of their renewals every year.
12. Not educating their tenants. It`s important to creating a checklist for your tenants with very detailed information and instructions on "what to do in the event of ..." and what not to do. Have them sign a statement that they have reviewed the checklist and have received a copy. Things we consider common knowledge may not be for renters who have never owned or have been responsible for a property.

Samples of things I have on my personal checklist that I give to tenants include: what to do when the toilet starts to back up. You`d be surprised at how many people don`t know what to do. Heck I know people who have owned their homes for many years and aren`t sure what to do first if the toilet starts to back up.

Never leave windows open when you are not home -- weather in Calgary changes so quickly. Driving rain coming through a window can destroy drywall, carpets, ceilings in units below etc.

Never leave washing machine running when you are not home -- washing machines or the plumbing can overflow and can cause flooding.

Information on how to avoid clogged drains: not pouring grease down the drains or not letting excess hair and debris go down the drains. We think this is common knowledge but for some it is not.

And a very detailed list of what you expect them to do with regards to housekeeping. ie. vacuuming at least once a week; cleaning bathroom tile and tub... I even ask potential tenants point blank "do you own a vacuum cleaner?" if yes, "what type?" If they say no and they`ve rented units with carpets previously I won`t rent to them. Not vacuuming destroys even the best of carpets.

13. Not providing tenants with a list of emergency numbers that they must keep near their phone or posted on their refrigerator. My list includes my home & cell number; my husbands cell number; the numbers of my electrician, plumber and general handyman in the event my tenants are unable to reach me.




Its not necessary to demand tenant insurance. If you notify them via e-mail and cc your insurance company, it will be noted if a claim is made. You will be served, usually quickly by your adjuster and the tenants will be pursued by the insurance company.

 

[ChrisDavies]

QUOTE (GaryMcGowan @ Jun 8 2009, 01:56 PM) Great topic Greg,
This will make a great blog or article for someone with the writing skills.

I`ve had the same thought

 

[jwilbrin]

QUOTE (smmcguire @ Jun 8 2009, 05:11 PM) Its not necessary to demand tenant insurance. If you notify them via e-mail and cc your insurance company, it will be noted if a claim is made. You will be served, usually quickly by your adjuster and the tenants will be pursued by the insurance company.


There are various reasons why renters insurance is important. A landlord`s insurance usually covers only the landlord`s assets and liabilities. Renters possessions are not covered ie. furniture, electronics, clothing etc. If anything happens as a result of one of your tenants negligence and it causes the loss of your other tenants possessions your insurance in most cases will not cover their losses. Losing all their possessions could drastically impact your tenants and their financial situation. The last thing you want is to lose other tenants in your buildings because they`ve been set back financially.
Also, depending on the type of property you are renting, if the tenant is responsible for shovelling the walk ways you want to make sure they have liability coverage for any accidents that occur as a result of icy walk ways because the tenants did not shovel. I guess as a landlord you can take that liability on but if you do then you might as well take on the responsibility for shovelling as well to make sure it gets done.

There are other reasons why renters insurance is important, you just have to do a little research or contact an insurance broker to get all the details. Most professional management companies (both rental and condominiums) demand proof of renters insurance. I`m sure they`ve learned from experience how important it is.

Yes, you can file the claim and let the insurance company go after the tenant as you said, but one thing I`ve learned -- The less claims you have to make the better for you in the long run. Never trust that an insurance company is going to take care of everything. Don`t be surprised if they turn around and say it was your responsibility to make sure your tenants had insurance.

Better safe than sorry I say. But please do talk to your insurance company and make sure you read all the fine print in your policy.

There was an interesting discussion on the topic of renters insurance on the CanadianBusiness.com site a few months back. Here`s the link: http://forums.canadianbusiness.com/thread....=0&tstart=0

Might make for an interesting thread on the rein board.

 

[margaretcowan]

I`d like to add 15A. If your first property is near your home, like mine in Vancouver, manage it yourself for a short time so you appreciate all that property managers do for you and go through. From then on, hire a property manager and treat them very well because as you`ll discover, they`re worth every penny you pay them.
I send my PMs thank you letters and emails and an appreciation cheque at Christmas time.

I`m continually striving to do only what I love and property management is not on my "Loves" list.

Margaret
15) Not doing every aspect of Property Management yourself in the early going, and thereby not learning what is truly important, how to deal with problems, and how to treat your tenants to develop positve relationships.

 

[IanSzabo]

16) Standardized renovation bible, check lists, material list, types of materials, location that you purchased the materials, this way when your items are on sale you can buy in bulk.
17) Building your team of trades people, a list of your standardized materials, your scope of work within your renovation bible, so you can effectively relay your message to your trades.
Example
200 sqft of laminate flooring main living room, product num# 14152 Canadian flooring, gunstock, standard underlay
Install and paint 5 six panel doors, brass hinges product nuber#122365 six panel door #1223344
I have done this for all of my properties, I use excel to format a sheet with all product numbers
I can send this to any sub trade to compare apples to apples< also this makes ordering extremely easy.
Simple check all the products you need, fax to Home Depot or Rona. You will be surprised at the time you will save. Not to mention any shady contractors will not even try to quote the job, you will overwhelm them with details
Please feel free to e-mail me, I would be happy to send you my product list, and a report on “How Not to Be Scammed by a Contractor”
Cheers

 

[DineenJJ]

#18 Not increasing rents when the average rental price in your area is increasing.

This relates to one of the earlier posts of running your business like a business and not becoming a charity.

 

[Thomas Beyer]

QUOTE (DineenJJ @ Jun 14 2009, 10:08 PM) #18 Not increasing rents when the average rental price in your area is increasing.

This relates to one of the earlier posts of running your business like a business and not becoming a charity.
#19 Not decreasing rents when the average rental price in your area is decreasing, supply is increasing, job growth is negative, or in-migration is slowing.

 

[housingrental]

A great post

QUOTE (thomasbeyer2000 @ Jun 15 2009, 12:02 PM) #19 Not decreasing rents when the average rental price in your area is decreasing, supply is increasing, job growth is negative, or in-migration is slowing.