Why Do New Landlords Lose Money?

Owning an unprofitable rental property can be stressful on a number of levels. For one thing, in the absence of healthy returns, property taxes, maintenance costs and other expenses can place a considerable strain on a landlord’s finances. So, if you’ll soon be investing in your first rental, it’s only natural that you’d want to avoid losing money. Fortunately, this may be easier than you think – especially if you’re open to learning. New landlords looking to minimize losses should steer clear of the following behaviors.

They Don’t Research Locations

No matter how nice a rental property is, a bad location can effectively diminish its profitability. So, before committing to purchase a rental, you’d do well to thoroughly research local property values, rent prices, median income, population size, long-term growth projections and job market. This should leave you with a clear picture of how in-demand an area is, thus enabling you to make an informed investment decision. Should require additional guidance on identifying profitable locales, when to sell real estate investments or any other market-related issues, reach out to a knowledgeable real estate investment company.

They Regard Maintenance with Little Importance

While property maintenance may be among your least favorite parts of the job, regarding it as an afterthought can have big consequences, many of which are synonymous with financial losses. Not only can ignoring certain maintenance issues cause lasting damage to your property and bring down its value, it also stands to create a host of safety hazards and compromise the property’s livability. Furthermore, failure to address maintenance issues in a timely and professional manner can result in low renter retention, withheld rental payments, fines and lawsuits.

In the interest of nipping such consequences in the bud, make a point of hiring knowledgeable maintenance personnel and promptly responding to every maintenance request a tenant sends your way. Furthermore, make a point of regularly inspecting the property for issues and addressing small problems before they’re able to become much costlier headaches.

They Take on High-Risk Tenants

Taking on tenants who are unable to comfortably keep up with rent represents a big gamble for any landlord. In the absence of tenants who dutifully stay current with rent, making money with a rental property is liable to prove exceedingly difficult. If a unit’s occupants aren’t paying rent, you’re effectively losing money.

That being the case, it’s in your best interest to be mindful of high-risk rental applicants. Fortunately, you can effectively diminish your chances of taking on such tenants by adopting a thorough screening process. Taking the time to properly screen every rental applicant may strike you as cumbersome, but doing so stands to save you a fortune in lost income.

When screening applicants, there are several important factors you’ll need to focus on. First off, take care to obtain proof of income, as this will help you determine how readily an applicant is able to afford rent. Secondly, have a look at each applicant’s credit score and eviction history. Thirdly, you’ll need to look into an applicant’s criminal background, assuming, of course, they even have one. While a criminal conviction shouldn’t necessarily prevent you from renting to someone, you’ll need to take the nature of the offense into careful consideration. For example, if the crime(s) in question could prove harmful to other renters or the property, it may not be wise to take a chance on the offending party. You should also contact any references that applicants provide. Since some people bank on landlords not reaching out to their references, they won’t hesitate to list references that are irrelevant or outright fake – and following up with references can be a great way to prevent yourself from being misled.

If you have too much on your plate to devote proper time and attention to the screening process, consider delegating this task to your property manager or any other office staff. Working with a dedicated screening service is another good option.

They Take on High-Risk Tenants

It practically goes without saying that most landlords aim to generate hefty returns. After all, considering how much capital goes into purchasing and maintaining rental properties, it makes sense that landlords would want to profit from their respective investments. However, as many first-time landlords quickly come to discover, some rental properties – and some approaches to property management – can act as drains on their financial resources. So, if you’re looking to avoid losing money with your first rental property, avoid the missteps discussed above.