As a new or experienced landlord, you probably know that there are all kinds of things (both big and small) that can cause problems and consume your precious time. Between dealing with building maintenance, difficult tenants, and financial concerns, being a rental property owner can be exceptionally stressful.
There are certainly some pitfalls that you are more likely to encounter than others. Here are three of the top traps that property owners commonly find themselves stuck in. We’ll also discuss some of the ways you can escape these traps and make your job easier.
1. Trusting a Tenant Based on Their Word Alone
Unfortunately, there’s a reason that seasoned property owners always, always conduct background checks on their rental applicants. They want to know as much as possible to ensure that they’re accepting a tenant who will be responsible and trustworthy.
Many landlords, at some point in their careers, get burned for trusting a tenant without the proper evidence to support their claims. It’s a common trap and one that can get messy really quickly.
In some cases, you might rent to someone who feels like a friend (or who actually is). You wind up leasing to a tenant who you don’t actually know that well, and in the end, your assumption about their character could backfire dramatically. Never assume that someone will make a good tenant just because they’re friendly or they tell you a believable story about their life.
At the end of the day, you should never accept a tenant based on their word alone. You need hard evidence that they haven’t committed any crimes and are going to be a good renter. The only way you can get this evidence is by requesting it from all applicants.
Don’t just ask your tenant about their history – confirm it by gathering the following information:
- Their full name and social security number
- Their age
- Current and previous addresses
- Information from previous landlords
- Their current income (and proof of payment)
- Their employer’s contact information
- Banking and credit references
- Personal references you can follow up with (not family)
Besides following up with references, employers, and previous landlords, you should also pull a background check on your applicant from a verified tenant screening company. As much as you’d like to think you can trust the word of your current applicants, it’s your job as a rental property owner to take that extra step and do some research behind the scenes. Otherwise, you run the risk of falling into the common trap of working with bad, untrustworthy tenants. [Editor’s Note: Be sure to use AOA’s screening services for credit, eviction and background reports!]
2. Taking on the Accounting Jobs By Yourself
As a rental property owner, your job isn’t to make sure that dollars and expenses don’t slip through the cracks.
Regardless of how organized or experienced you may be; you’ll juggle a lot as a property owner. Too many landlords find out later that they can’t actually handle everything at once, at least not without proper assistance.
If you repeatedly find yourself swamped with issues in the finance sector of your business, you might be dealing with tasks that a real accountant should be handling. Whether you have one tenant or 100, it’s a smart idea to hire an accounting partner that can prevent problems, including:
- Bookkeeping mistakes
- Poor account and finance records
- Failure to deduct expenses properly
- Inconsistent salary management
Wondering why you would need an accountant if you can manage all of the finances on your own? As a rental property owner, your job isn’t to make sure that dollars and expenses don’t slip through the cracks. Your job is to keep the property running smoothly, and an accountant can help you do that more accurately.
Outsourcing your accounting tasks is likely easier than you think it is. You don’t necessarily have to hire an accountant full time.
3. Collecting Rent in Too Many Forms
One tenant pays by cash. One pays by check. One sends you funds whenever they get around to it. Does this sound like your rent payment situation?
If so, you’re likely stuck in the trap of complicated rent collection. This can lead to accounting problems, as well as stress and frustration due to confusing interactions with your tenants.
In order to maintain a consistent cash flow that you can easily keep track of, you should automate your rent collection process ASAP. This will lead to better, clearer interactions with your tenants, and you won’t waste time chasing after the rent payments you’re owed as a rental property owner.
The best way to automate your rent collection is to set up a central tenant platform where they can pay all of their fees, including their rent and any late payments. There are dozens of services available at your fingertips that will allow you to build a clean, simple tenant portal that all of your renters can use.
Centralizing your payment system won’t just make things easier for you. It will also completely change how your tenants manage their payments, and overall, the process will become easier for everyone.
Centralizing your payment system won’t just make things easier for you. It will also completely change how your tenants manage their payments.
Rental Property Owners Summary and Conclusion
Many rental property owners fall into the traps listed above without even realizing it. If you’re wasting your time with challenging tenants, complicated accounting problems, or late rent payments, then you’re taking away time from your most important tasks as a landlord.
If you learn one thing from this article, let it be this: it’s often smart to ask for help as a property owner.
Use tools to thoroughly evaluate your tenants instead of taking their word as proof. Outsource your accounting issues so that you can feel secure in your finances. Simplify and automate your rent collection process so you experience fewer issues.
There are many resources out there that can help you escape these common traps. Don’t be afraid to try them, regardless of how old or new you may be to owning rental properties.
Eric D. Davis is the Founder of Davis Property Management; we help property managers and potential tenants looking for Seattle Property Management and Maintenance services. The RentalHousingJournal.com is an interactive community of multifamliy investors, independent rental home owners, residential property management professionals and other rental housing and real estate professionals. It is the most comprehensive source for news and information for the rental housing industry. Their website features exclusive articles and blogs on real estate investing, apartment market trends, property management best practices, landlord tenant laws, apartment marketing, maintenance and more.