Rental properties are often seen as a sound investment and with proper management, they certainly can be. However, many rental property owners make common and avoidable mistakes that reduce their ability to turn a profit off of their investment. Here are five of the most common rental property errors their owners make.
The Top 5 Mistakes Made by Rental Property Owners
Buying a “Fixer Upper”: In the last decade the popularity of so-called fixer-upper houses has exploded among the general population as well as for prospective rental property owners not yet flush with cash. But it is often a mistake. A property in need of repair may be priced well below market value but the real cost of a property includes all the repairs and improvements it will need to be safe and ready for renters. The amount of work needed to make it an attractive rental property can be so high that any profit made renting it is used to pay back repair bills. Such properties may not turn a profit for many years even if rented out consistently.
Charging too much for rent: Overcharging for rent is often based on ignorance about the factors affecting rental rates in the local market. Every rental market has a general range of prices renters are willing to pay depending on location, amenities, the rental vacancy rate and other factors. Charging more than a rental property is worth in a given market compared to competitor rates results in long-term vacancies. A property with long periods of vacancy generates no income while still accumulating expenses such as upkeep and property tax.
Judging applicants: The economy has seen many changes over the last several years. The highs and lows have resulted in a new employment environment and changes in consumer behavior that have affected the use of credit and individual’s credit histories. Because of these factors, property owners need to be more open-minded when reviewing an applicant’s financial history. On average tenant applicants have lower credit ratings than in the past. It is important to remember that a lower credit score is not necessarily an indicator of ability to pay since people generally prioritize rent over all other bills. A tenant’s income and feedback from previous rental agreements provide more relevant information on how an applicant behaves as a tenant.
Not listening to their property management company: Due to the work involved in renting and maintaining rental properties, the majority of rental property owners use a property management company. Rental property management companies oversee properties and handle the daily work of maintenance, accounting and tenant questions. Despite this many property owners ignore their management company’s ideas thinking that they, as the property owner, know best. A good management company protects their client’s interests and has the experience needed to handle the many issues rental properties present. A good management company should never be ignored.
Ignoring tenant concerns and feedback: Without tenants there is no income so tenants should not be ignored when they bring up the need for repairs and regular upkeep or complain about loud neighbors, landscaping concerns, etc. As noted the rental market is highly competitive and word spreads fast. Disgruntled tenants will post negative reviews on the internet which have a lasting effect on a property’s perceived value. Once a property has a bad reputation it becomes harder to fill vacancies. Plus, existing tenants will likely move when their lease expires to a better-managed property. Tenant concerns should be addressed promptly and fairly.
Son-Rise Property Management has been serving the property management needs of Bellingham and Whatcom County since 1996. Contact us today to see how we can help you find a rental property for your family or manage your rental properties.