3 Costly Mistakes Landlords Make When Renting Out Their Properties

Renting out properties can be a profitable endeavour. While it offers the potential for steady income and long-term capital appreciation, it also comes with its challenges. Becoming a successful landlord requires more than just owning a property. It involves careful planning with a keen understanding of the market norms, tenant expectations and legal obligations. Unfortunately, many landlords, even the experienced ones, often fall prey to common mistakes that negatively impact their financial returns and overall investment experience.

1. Granting Long Rent-Free Periods

A common mistake among landlords is granting unnecessarily long rent-free periods at the start of a tenancy. Rent-free periods are timeframes where tenants are allowed to occupy the property without paying rent, often negotiated for renovations or move-in times. While accommodating tenants' needs is essential, doing so excessively can lead to significant financial losses.

The Pitfall of Generosity

Landlords might believe they are being competitive or generous by offering extended rent-free periods, thinking this will attract tenants. However, this cannot be further away from the truth. Tenants often use various excuses and cite market norms to demand long rent-free periods, such as claiming it is a "market practice" or necessary for extensive renovations.

Managing Expectations

Instead of agreeing to these demands, landlords should critically evaluate each request. Asking for detailed renovation plans and timelines can often reveal that the tenant's needs for a lengthy rent-free period is not justifiable. Many reputable, especially institutional, landlords typically grant rent-free periods at the end of the tenancy rather than the beginning. This ensures that tenants fulfil the lease terms and helps mitigate the risk of early vacancy.

2. Neglecting Thorough Tenant Screening

Another common mistake is insufficient tenant screening. A good tenant can make all the difference in your experience as a landlord. A tenant who pays rent on time, takes care of your property, and avoids being a nuisance is the hallmark of a good tenant. However, some landlords, eager to fill vacancies, might rush the process and overlook red flags. A bad tenant can lead to property damage, financial losses, and endless headaches.

The Consequences of Poor Screening

Neglecting thorough tenant screening can lead to problematic tenants who may default on rent, cause property damage, or even engage in illegal activities. These issues not only cause financial losses but can also lead to legal battles and prolonged vacancies while the property is being repaired or cleaned up.

Implementing Rigorous Checks

To avoid these pitfalls, landlords should implement a rigorous screening process. This includes conducting background checks, verifying employment and income, social reviews, and contacting previous landlords for references. A well-screened tenant is more likely to respect the property and adhere to the lease terms, ensuring a smoother rental experience.

Conduct a thorough background check that includes doing an online search on the tenant for any adverse news or reviews. Always ensure that the tenant is legally employed by a legitimate company. There are reputable services available to assist landlords with this process. If the tenant is suspected of being evicted by the previous landlord, request for a copy of the tenancy agreement and contact the landlord to verify.

Landlords also often neglected the need to conduct a pre-leasing inspection with the tenant. This ensures that both the landlord and the tenant understands the condition of the property at the start of the lease and avoid any misunderstandings that can lead to wrongly accusations in future.

3. Failing to Properly Manage Risk

Effective risk management is essential for landlords, yet many fail to put adequate measures in place. This oversight can lead to significant financial losses, especially in cases of tenant default or property damage.

Overlooking Security Deposits and Lease Length

One critical aspect of risk management is the security deposit. Landlords should collect a security deposit that is substantial enough to cover potential damages or unpaid rent. Additionally, the length of the lease can impact risk management. Longer leases not only provide stable income but also allow landlords to hold a larger security deposit, as mentioned in the rent-free period discussion.

Timing of Rent-Free Periods

The timing of rent-free periods also plays a crucial role in risk management. Granting rent-free periods at the end of the lease, or in a hybrid manner where part of the rent-free period is granted at the beginning or the lease, while the rest of the rent-free period is given at the end of the lease, rather than solely at the beginning can protect landlords from losses due to early tenant vacancy. This approach ensures that tenants must complete the lease term to benefit from the rent-free period, incentivizing them to stay and adhere to the lease conditions.

Regular Property Inspections and Maintenance

Additionally, landlords should conduct regular property inspections and maintenance. This proactive approach helps identify and address issues before they escalate, preserving the property's value and reducing the risk of significant repair costs. Regular communication with tenants about their responsibilities in maintaining the property can also foster a cooperative relationship, ensuring that minor issues are reported and addressed promptly.

Having a comprehensive tenancy agreement tailored to the specific property type and local laws is often the first line of defence in mitigating risks involved in renting out any property. The agreement should address rent payable and due date, security deposit, the tenant's responsibilities, the landlord's obligations, early termination of lease, and even penalties for not performing the agreement of the lease.

By establishing clear expectations through a detailed lease agreement and open communication, landlords can foster a positive relationship with their tenants and minimise potential misunderstandings and conflicts.