June 27th, 2017
Many real estate investors want to grow their business and venture into keeping a portfolio of properties that they can maintain and collect rent from as long-term investments. Often this sounds easier said than done. However, if you surround yourself with the right people and properly operate your business, being a landlord will likely prove to be an outstanding strategy to sustainably increase the value of your assets.
For those of you wanting to make the switch to being a landlord, you should avoid the following:
1. Underestimating the value of using a good real estate agent. Being able to reach a wealth of potential qualified tenants is key to have a property rented quickly and with good tenants. Experienced agents not only have the ability to reach a great number of potential candidates through their marketing, personal contacts, referrals and MLS reach, but also have the experience to conduct effectively the necessary screening of tentative tenants. They see potential tenants day in and day out and know exactly how to qualify them. Yes, it is an expense as commissions have to be paid when a tenant is secured, BUT being able to get your property rented quickly with a good-paying tenant will save you a lot of money in the long-run.
2. Overlooking landlord-tenant law in the area you invested can get you in a lot of trouble. There are many laws protecting landlords as well as tenants, but many are specific to your state. It is extremely important for any landlord to be familiarized with these laws as the last thing they want to do is to unknowingly disregard an anti-discrimination law, for example, because they did not know about it. Your real estate agent should also be able to assist you in this regard. Also, consult with your attorney about the specific landlord-tenant laws in your area.
3. Having a lease that is inadequate or does not protect you properly. It is often recommended for residential rentals to use a standardized estate drafted lease (in Florida this is done by the joint committee of the Florida Realtors and The Florida Bar). These forms have been carefully prepared to address all the key elements of a lease in accordance with state law and will save you a great deal of money if what you had in mind was a custom drafted lease from a lawyer (you may still need an attorney to draft a commercial lease – check with your attorney). Your agent has access to all the latest versions of these forms.
4. Being inconsistent or lenient collecting rent. It is often common (and healthy) to create a good rapport with your tenants, however, if your tenants do not pay on time, beware of being too lenient with them and make sure you post a “3-Day Notice” in a timely fashion, at most no later than 15 days after rent was due. Moving forward diligently regarding rental payments will send a clear message to your tenants that you will not tolerate late payments without them facing the consequences provided in the lease. Also, don’t forget to let your tenants know if they have any outstanding late fee payments due, as forgiving late fees open the possibility for them to relax when they decide to pay you. Be polite to your tenants but firm. Also, make sure you have a good attorney that specializes in evictions.
5. Failing to collect enough security deposit. I usually ask my tenants to provide two months security deposit (in addition to the first month rent) as part of the “move-in” money they need to pay upon signing the lease. This is precisely to make sure I will have enough funds to cover any potential damage the tenant may incur after they move out. To illustrate better this point, I had a tenant many years ago that moved into a one-bedroom condo in Brickell I was renting at the time. He seemed like a great tenant at first and back then he was qualified to pay the rent. However, after a long battle, he finally left the unit not without leaving behind almost $4000 in damages and a tick infestation from an unlawful pet he kept in the unit. Undoubtedly, these scenarios are extremely rare, BUT, when they occur, you certainly need to be protected to minimize your loses.
Bonus. Not having a good handyman. If you are renting your property, you need to make sure you have qualified and reliable people you can count on to fix quickly and properly anything that may go bad. Another alternative is an appliance protection plan, such as those provided by Total or Service America, which are relatively inexpensive and often will save you money in the long-run.
Real Estate Professional
Miami Properties Network