Renting or subletting a property you own may seem easy and effortless but it requires a lot of experience to get it right. Landlords make many common mistakes that cause damage to the property, losses in revenue, and legal hassles as well.
Subletting a house or apartment should be treated as a running business balancing costs against revenue, so that you are earning a lot more from the property you own compared to what it costs to keep it maintained.
Real Estate is always prone to market fluctuations so don’t make the mistake of thinking that your property will always secure a renter for long periods of time. When doing some sensible accounting and making balance sheets of your assets, you need to account for the periods in between when your property may not be yielding revenue at all. At the same time, however, your property will still incur costs such as mortgage payments, utility bills, taxes, and maintenance costs.
Make a habit of financial management and cash flow analysis so you can keep on top of your expenses without having to compromise the state of your property. Cash flow analysis helps you to secure enough liquid cash to pay for the expenses incurred when a house is not generating revenue.
You may have advertised online to find a renter and even gotten a good response. The trouble is that you can’t go at face value when meeting strangers even if you have a good gut feeling about them. When you are shortlisting the most likely candidates and their respective offers, do an obligatory background check just as a precaution. You can adopt this as a standard procedure on all your properties.
Furthermore, try to obtain proof of employment and credit reports from your prospective candidates so that you can at a glance ascertain their financial condition and ability to pay the rent every month. This small gesture will save you a lot of hassle in the future.
Many homeowners and property owners make the mistake of thinking they can sublet on the side and it doesn’t require a lot of effort and upkeep otherwise. This is a major misconception as renting is very much like any other business venture and the landlord needs to keep an eye on things at all times. If you find you travel a lot or are busy with work, you can always hire a property manager in NYC, Boston, or others nearby, if you have the budget for it. The property manager will stay on top of the expenses and make regular account statements to keep track of profit and loss.
At least once a year you will also need to visit a tax professional who will calculate and file your taxes for you and this is in itself an expense to add to the books. Sensible and consistent bookkeeping is also the secret behind maintaining a property over a long time as cases of people losing their houses over unpaid mortgage payments are very common.
Many first-time or inexperienced landlords may think that verbal agreements suffice when it comes to clauses in a rental agreement. While your potential renter may seem amiable, nothing is legally binding unless it exists on a proper document on paper. Resist the urge to get terms sorted over a handshake and engage a lawyer if you have to, to get the terms on paper. Furthermore, it helps if you are well versed and up to date on state laws regarding rental agreements and leases to avoid any problems in the future.
Moreover, when you are interviewing your potential tenant stay away from asking intrusive questions that can be misconstrued. As mentioned above, getting a background check is enough so you don’t need to go overboard with the questions. There are many laws that state you cannot deny someone’s application because of their race, religion, or the color of their skin. Wherever possible be polite, even and especially during negotiations.
For new landlords, one of the most common mistakes is to underestimate what it costs to maintain a property in good condition, regardless of whether or not it is earning any money. Even if you want to attract tenants you will need to spend on the upkeep of the house and maybe even renovate it or replace its obsolete appliances. All of this amounts to a greater cost than most landlords realize off the bat.
If you have a consistent tenant or don’t usually have difficulty finding tenants make sure you agree upon an appropriate rent amount. If the amount is too low, maintenance costs will easily run you into financial difficulties and if the amount is too high, you could have high tenant turnover which doesn’t help your property either. Keeping some cash for smaller expenses like wall paint or plumber's fees is a good idea and so is insurance if you can afford it.
Many people register on online platforms like Airbnb so they can temporarily sublet their property on a regular basis. If you find that the market is down and you cannot find a tenant for 6 months or more, it might be a good idea to consider temporary rental situations as this will ensure you are still earning revenue. Register yourself on vacation rental software to get you through any lean months. More to the point, you may find you earn more from these arrangements since the people renting your property may be tourists or from out of town and so they can be charged higher rates.
Not to mention temporary renters are not going to make you paint the whole house or invest in costly upgrades every now and then because they simply won’t be staying at the property long enough to demand change. Furthermore, you can vary your rental rates with peak season or the holiday season in which it is generally acceptable to charge more.
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