While being a landlord may sound like a way to make revenue with little effort, success requires a business owner’s mindset. If you just bought your first property and are ready to promote it, read this article first to discover the main six mistakes new landlords make that cost them time, money, and peace of mind so that you can avoid them.
1 – Inadequate Tenant Screening
Inexperienced landlords often succumb to their eagerness to rent their property as soon as possible to start recovering their investment and making a profit.
However, failing to take the time to do a thorough screening before accepting a tenant may cause time consuming issues if the tenant becomes a problem.
Bad tenants may fail to pay their rent on time. They can also cause property damage or disrupt the peace of their neighbours.
Landlords may end up dealing with complaints, stress, and financial losses that are easily preventable by carefully selecting tenants. We have a blog dedicated to this topic that can help you make the tenant screening process easier and more efficient.
2 – Poor Lease Agreements
Using poorly drafted lease agreements (or, worse, a verbal agreement) is another common mistake. New landlords may overlook crucial terms or fail to include specific clauses that protect their interests.
A well-drafted tenancy agreement should cover essential aspects such as the rent payment terms, maintenance responsibilities for both parties and dispute resolution procedures.
In Alberta, a standard lease agreement must include the following:
- The date of the agreement, names and addresses of the parties involved;
- Address of the leased property;
- Start and end dates of the agreement;
- Rent amount, when, where, and how is going to be paid;
- Clauses detailing whether utilities, furniture, appliances, parking, etc., are provided, and the condition of the items at the moment of the agreement;
- Information on the people who are permitted to live in the residential premises;
- Security (damage) deposit amount requested by the landlord, interest rate (the province offers a tool to calculate it) and what they are allowed to deduct if needed;
- Tenant insurance requirements;
- Rules for guests hosting and pets and;
- Signatures of the landlord and tenant.
A formal, legally binding tenancy agreement protects both landlord’s and tenant’s rights and allows the nurture of a healthy business relationship for all parties involved.
3 – Neglecting Financial Planning
Not adequately planning for the financial aspects of rental property ownership is a common mistake.
Inexperienced landlords tend to underestimate expenses and often fail to set aside funds for regular maintenance, and often they don’t have a contingency fund for emergencies and vacancy periods.
Proper financial planning is crucial to ensure profitability and handle unexpected expenses.
4 – Overlooking Property Maintenance
A rental property is an asset that needs regular maintenance to keep its appeal. New landlords may delay or ignore necessary repairs, resulting in further damage, financial distress, tenant dissatisfaction, and vacancy for long periods.
When the property is rented, regular inspections and prompt addressing of maintenance and emergency repairs are crucial to maintain the property’s condition and reduce tenant turnover and vacancy.
5 – Overpricing or Underpricing Rent
Setting a fair and competitive rental price is more than thinking about an arbitrary amount. If landlords overprice their property, they may face long vacancy periods and difficulty finding interested tenants. On the other hand, underpricing may diminish the property’s potential income.
Landlords need to analyze the current state of the local rental market and calculate their expenses and desired return on investment (ROI) to set a competitive and fair rental price.
Taking some key criteria into consideration, such as location, average rental prices in the area, property size, amenities, and property condition will help you determine the best rental price.
6 – Not Having Proper Insurance
Many inexperienced landlords overlook the importance of real estate insurance besides the insurance requested from tenants. This makes them vulnerable to liability claims due to property damage, financial losses, and complete loss of income if the property becomes inhabitable.
Insuring your rental property protects your present and future revenue, giving the peace of mind that your cash flow won’t be affected if an incident occurs.
If you don’t have your property insured yet, check out this article when we cover the details to get the perfect insurance coverage for your property needs.
Expert Help Is the Best Way to Start as a Landlord
Being a landlord involves many details that need to be addressed to avoid costly mistakes, which is why considering hiring a property management company is the best choice for new landlords or any busy property owner.
Having the help of a property manager from the beginning of your landlords will not only save you from making these rookie mistakes but also add the expertise needed to maximize your property’s revenue while saving you money and time. If you are a new landlord in Calgary looking to start on the right foot, contact us.
