Owning a piece of property that you can now rent to others can be very exciting. You are finally the landowner, not merely the resident. Reaching the point where you can purchase properties where you do not need to live or work is a stepping-stone into a larger world of greater possibilities and financial gains.
But even with all these possibilities, it is remarkably fragile how quickly you can lose it. Those first few properties can burden you with too many expenses, you must find reliable residents, and more importantly, actually collect rent. It is can become overwhelming. Property Advantage, a San Diego property management company has some tips that can help prevent you from falling victim to common mistakes that landlords often make.
Over-Estimating Rent Rates
Many people purchase a “fixer-upper” assuming that they will renovate it and then charge an above-market rental rate. Unfortunately, charging at the market or above market rates ensures that you are going to spend a significant amount of time marketing and looking for residents.
You are much better off renting at slightly below market rate to a reliable resident that pays on time and takes care of your property. While you may sacrifice some money with lower rent, you will make up for it with a full year of occupancy.
If a resident pays late, you must charge the late fee contained in your lease. Moreover, if they are sufficiently late to trigger the eviction clause in your lease, you must immediately begin proceedings.
If you delay on either of these actions, it could be construed as you are waiving the right to charge a late fee or initiate an eviction. Do not accept partial payments. That could also be interpreted as a modification to your rental agreement.
Not Treating the Rental like a Business
Renting properties is a business. A single property is a headache, but multiple properties begin to scale up and generate significant revenue.
Treat your rental property like a business, not a hobby. The faster you expand, the more revenue you earn, and the more you can justify the time and effort expended on your rentals.
Things break and maintenance will usually cost more than your initial estimate. Animals are incredibly destructive, even cats. Water damage can force you to replace walls, ceilings, baseboards, and more.
Every little thing that goes wrong takes your property off the market and forces you to expend thousands of dollars to make it habitable. Plan a significant rainy day fund for these necessary expenses.
Exposing Yourself to Litigation
Landlords are bound by the same anti-discrimination laws as any employee or grocery store. You are not permitted to refuse to rent to someone based on his or her:
- National origin
- Family status
- Sexual orientation
For a complete review of anti-discrimination laws, check out this short guide.
Not Having Multiple Funding Sources’
Multiple funding sources are critical to scale up your real estate business. Most people follow the traditional 20 percent down and use the rest of the cash to improve the property. That system may work for a while, but the reason banks operate under that method is that it makes money for them, not necessarily you.
Approach your funding sources in a flexible manner. Look into using equity from your other properties, private loans, and partnerships to acquire additional funding. You don’t need to operate strictly in the bank-loan paradigm.
Asking Friends and Family for Advice
Everyone has an opinion, and everyone knows someone who knows someone who had a terrible experience. Ignore all of the “advice” from your friends and family.
Don’t let a negative aunt or uncle stop you from investing in real estate. Real estate, more than any other property, is responsible for the massive growth of wealth in the United States.
Considering a San Diego Property Management Company
Investing in real estate is the best option for every family to grow their wealth. Property ownership opens up doors to credit, steady sources of income, and collateral for new investments. You don’t need to let property management consume your life; there is another way. As the number of properties you own grows, it may be to your advantage to consider hiring a San Diego property management company.
Property management companies come with their set of collection and eviction protocols, which allow you to earn income passively while the company handles the rest. You can then focus on finding new properties and building your real estate portfolio. Property Advantage is a specialized and experienced San Diego property management company. They know the San Diego market and how to keep your properties filled with paying occupants.