Mo Hashem here with Flat Fee Landlord Property Management serving Greater Houston, Texas. Today in this video I go over the top 5 mistakes (plus a bonus) I see landlords and investors make when they rent out their property.
Mistake #1. The first big mistake I see landlords and investors make is that they don't run the numbers properly when they're first purchasing the property. When you're out and you're shopping for property and you want to become a real estate investor, a lot of times you're only looking at appreciation, or just the cash flow, or you're really not looking at anything at all and you just want to own and investment property because that's what everybody else is doing. You want to make sure you're doing as a real estate investor or a landlord you want to make sure that the numbers add up and they fit the goal you’ve set. If you're looking for a certain cash on cash return you want to obviously focus on the cash flow of that property. The cash flow is going to be all the income that's coming in, minus the expenses, minus the debt you're going to pay down if you have mortgage on that property. Whatever the amount left over each month or when you ever you multiply by 12 you get the yearly cash flow for that property. You can use that information to tell you if it fits your goals. Let’s take it a step further and make sure that this is going to be a great real estate investment by analyzing the appreciation of this property. That says if you purchase a property in an area that's highly populated or where people want to live and have the history of the real estate values going up then obviously that may also add into your decision and be icing on top of the cake. If you're getting good cash flow each month and own a property in a location that shows signs of appreciation… then you’ve got a really god investment property.
Mistake #2: Another mistake I see landlords and investors make is on the flip side where a lot of people that reach out to us and we manage property toward never bought the property that they want to rent out now as a true investment property in the first place. As a result there really wasn't any need to run numbers, so the problem I see with them having now is that they don't really run the numbers when they decide whether they want to sell the property or if they want to rent it out. A lot of times people will purchase a property with the thought of living there long term however a job transfer comes up or something changes in their life and they have to move out of that property. As a result, they have to do something with the property and there are really only two options. You either sell the property or you rent it to a tenant. Many times people don't want to deal with the hassle due to the stigma with being a landlord. Thinking you will be dealing with tenants, phone calls, and maintenance requests. Also the fear of having the house turn into a money pit. As a result, many times people's first instinct and best option is to sell that property even if it's going to nest them a negative number. Make sure you run your numbers for both the selling option; as well as the renting option and see which makes the most financial sense.
Mistake #3: The third mistake I usually see real estate investors and landlords make and that is that they're short-sighted and they lack long-term thinking. Real Estate is a long-term asset; it's not stocks where you can buy and sell within minutes. Make decisions based off the long term investment just not short term results. Really consider investing money into the property to maintain it so that lack of maintenance doesn’t cause big repairs down the road.
Mistake #4: The next biggest mistake I see investors and landlords make is that they don't treat their property as a true business. You are offering your home (a product) to a customer (the tenant) in return for some type of compensation (rent). This is the definition of a business. Every business offers a product or a service in return for compensation. Most small businesses fail within the first five years, and real estate isn’t much different. Make sure you treat your rental property as a business and not just a rental home. Put time, effort, and attention towards the success of your rental “business”. Planning for the short term; as well as, the long term, while incorporating sound business decisions will help with your success.
Mistake #5: Not enough time, money, energy, or homework is put into the tenant placement process. Finding the perfect tenant is THE most important part of the rental process. If you don’t have experience finding quality tenants or have a track record of not doing so well, outsource your tenant placement needs to a professional that knows how. This is not an area to skimp on. The tenant in your property will dictate your experience as a landlord. They can either make your life easy or hard.
Mistake #6: Not reading legal documents (leases, management agreements, etc.). Many times Landlords and Investors call our office in Houston to transfer management of their property. Unfortunately, they are not able to do so right away because their current property manager will either charge a cancellation fee or not allow them to cancel at all until their contract is over. Make sure you know what you’re getting yourself into before you sign on the dotted lines. This also applies to Leases. Know what you’re responsible for as a landlord, know what you’re tenants are responsible for; as well as what your property manager’s role is.
Thats our take on the top 6 mistakes Houston Landlords and Investors make with their rental properties. To make sure you don’t make one of these mistakes, visit our website at www.HoustonPropertyManager.com or call our office at 281-972-4566.
