5 Decisions That Can Destroy Your Rental Property

Rental Property

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Owning rental property can be profitable, but it requires hard work and a commitment to making strong business decisions. You need to keep your best interests in mind at all times and avoid decisions that might derail your business.

It’s easy to do things right on the back end, but when it comes to your tenants, here are five decisions that get landlords into trouble.

1. Renting to friends and family

When someone you love needs a place to live, and you’ve got a vacant unit, it’s tempting to rent to them. Although this sometimes works out great, it often doesn’t. Friends and family tend to expect breaks when they can’t pay rent or violate the lease.

In that situation, it might be harder for you to enforce your lease agreement without feeling like a bad person. Who wants to raise the rent on their uncle or give their best friend a notice to quit or vacate for skipping two months of rent?

Renting to friends and family can hurt your real estate business and your relationships. When a familiar tenant breaks the lease and you have to resolve the situation, it can put a strain on your relationship and cause them to feel resentful toward you. Granted, it may be entirely their responsibility, but that won’t matter. If someone is unable to be accountable, they will project the blame onto you.

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Avoid renting to friends and family unless you know they will be responsible and accountable. A good way to gauge this is how they respond to criticism and if they ever acknowledge their mistakes and apologize. While not foolproof, those are promising traits. However, you never know how someone will behave until they sign the lease.

2. Not collecting a security deposit

Security deposits are designed to provide you with the funds necessary to make repairs and clean your unit after a tenant moves out. It’s a big mistake to skip collecting a deposit from your tenants. If they damage the property, you’ll be on the hook for the repairs out of pocket and that can get expensive.

Most tenants want their deposit back and will make sure they don’t cause extensive damage. If they never gave you a deposit, they have no reason to be as careful. Sure, you can take them to court and get a judgment against them, but it could cost you more than you’ll be awarded. Plus, there’s no guarantee the tenant will ever pay the judgment.

Always collect a security deposit from your tenants. If someone can’t afford your security deposit, but you really want to rent to them, allow them to pay in installments. Just don’t skip the deposit.

3. Having low (or no) screening standards

Ideal tenants do exist, and the only way you’ll find them is by holding applicants to high standards. It will narrow down your options, but that’s a good thing.

Here are some general guidelines for tenant qualifications:

  • A minimum credit score of 650
  • A gross income of three times the rent
  • Verified employment
  • No evictions
  • No financial accounts in collections
  • Verifiable (positive) rental history
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The higher you set your screening standards, the better chance you have of finding a good tenant for your rental property.

4. Ignoring repairs

As a homeowner, you will have to perform maintenance and repairs on a regular basis. There will always be something that needs your attention. When your property is occupied, your tenant will inform you when there’s a problem, but don’t ignore or procrastinate on fixing the issue.

If the problem falls under the category of habitability, you could end up getting sued. Otherwise, ignoring repairs can cause further damage that you’ll have to pay to repair later. Always schedule repairs when you become aware of an issue.

5. Keeping the lease verbal

A verbal rental agreement of any kind is never a good idea because there’s no proof of the specific terms of the agreement. A written lease gives tenants a tangible reference for the rules, but it also creates a foundation for you in court, should you end up in a lawsuit. Verbal agreements are equally enforceable, but it will be your word against your tenant’s in court. Courts tend to favor tenants, so don’t risk it – always create a written lease.

Keep your rental property profitable

One bad decision can negatively impact your profitability and/or get you into legal trouble. Make sure all of your business decisions align with your goals and don’t ease up on tenant qualifications just to be nice. You’ve worked too hard buying rental properties to lose what you’ve built.

Also Read: 8 Important Expenses Eligible for Rental Property Tax Deductions

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