TEN COMMON MISTAKES THAT MOST
By Lambert Munz MPM, RPM Arbour Real Estate Mgmt, Inc.
Being a property management company specializing in single family homes,
small residential and commercial properties, we have helped hundreds of owner's
manage their homes and small rental properties. We have found similar mistakes
that these owners have made while managing their own property. The following
are the ten most common. We hope this report will help you become better rental
1. Not screening each applicant.
Besides, the fair housing violations by screening some applicants and not others,
you are heading for trouble if you do not property screen your prospective renters.
Good tenants are a key to an enjoyable rental property investment. You should
have each interested renter fill out an application, which should be screened
according to credit, prior rental or ownership history, income, income stability
and criminal history. Your criterion needs to be consistently applied to every
applicant. You cannot believe the number of owners that have not checked with
us on our former tenants. When you advertise as an owner you attract the flakes
that avoid property managers. A property manager is an automatic qualifier, since
the flakes know that they have been hired to find qualified tenants. It is hard for
an owner to revisit a prospect with cash in hand, ready to move in today (they are
probably being evicted from their current rental} pay over market rent, even
accept a dirty home. Remember dirt attracts dirt.
2. Not following Fair Housing Laws
Rental owners are losing millions of dollars every year because of ignorance and
blatant violations of the Fair Housing Laws. It is against the law to discriminate
against anyone based on Race, color, Religion, Sex, National Origin, Handicap or
Familial Status. This is a Federal Law. Our State laws also include marital status.
Status with regards to public assistance, and depending on the municipality your
property is in, may also include affectional preferences and age. There are some
exceptions to the law if you are an owner occupant: however, it is best to consult
with your attorney or HUD before you rent.
3. Not keeping up on the rental market or not raising rents
Most rental owners simply look in the newspaper to see what other owners are
renting their property for and determining a rental amount. This is a way, but
certainly not the only way or the best way. Unless you rent out hundreds of
properties, you are not going to have the data and experience to effectively set the
rent. If you do not have professional management, try some testing. Start
advertising your property two months out. Set the rent higher than what you see in
the newspaper. See what response you get. If you get flooded with calls, you may
feel good, but this usually means your rent price is too low. It is a matter of
testing. If you already have your property rented, but do not increase the rent upon
renewal, you are not managing your investment effectively. Thinking that the
tenant will move or that you do not have enough time to re-rent the property are
typical excuses, however, they do not make you any more money. If your tenant
is serviced like a valued customer during the course of the lease term, a modest
rent increase will not scare them away. Tenants do not expect rents will never go
up and a modest increase each year, as the market dictates is far easier than a
large increase every so often. Exceptions are depressed markets where there is
more inventory available than prospects. We subscribe to rental survey service
that is on this web site. That may be of help, go to menu item Rentometer.
4. Not signing a lease
Many owners have the idea that a month-to month rental is the best way to go,
since they can get the tenant out easier; consequently, these owners do not sign a
lease. Although it is true that you would only have to give 30-day notice to the
tenant to vacate, if they did not, you still would have to evict them. By then, they
would probably be a month behind in rent. Having a good written lease is always
the best way to go. You reduce your risk and have a better understanding with
your tenant. Even if you decide to go month to month term, get it in writing.
5. Not doing a move-in condition report
One of the best ways to justify withholding money from a tenant's security
deposit is to have proof of the condition of the property prior to the tenant moving
in and again after the tenant move out. This can be in the form of a written report,
photos and/or videotape. Without such proof, you will be defenseless if it comes
6. Not giving your new tenants and renewing tenants Title X information
For most rental property owners and of December 6, 1996, the Lead Based Paint
Disclosure law went into effect. According to the law, every owner with a
property built prior to 1978 must give all new and renewing tenants a disclosure
and pamphlet on lead paint. Failure to do so could result in a $10,000 fine.
7. Not having the property ready for new tenants
If you have your tenantís move into your property without cleaning, repairing
items and painting, if needed, you are asking for more calls, complaints, and less
renewals. Good tenants expect to move into a clean, well-maintained property. By
doing it before the tenant moves in, you can work around your schedule, the
tenant is happier and you have to deal with fewer phone calls and enjoy fewer
8. Not maintaining the property
It is easy to defer maintenance because you are too busy to do it or do not have
the funds. However, it costs a lot more down the road when the item becomes a
problem. Set up a preventive maintenance schedule of changing furnace and A/C
filters, testing for carbon monoxide, cleaning gutters, re-caulking bathtubs and
floors, testing smoke detectors, cleaning under and behind refrigerators along with
general upkeep of your property. It does not have to cost a lot, but will surely save
you a lot. You may question "Why not have the tenant do these things?" The
answer is in a perfect world this should be expected, but donít trust that the
tenants will perform these tasks. The majority don't.
9. Not properly handling security deposits
Owners consistently violate security deposit laws, and end up losing in court.
Even if you are entitled to withhold the deposit, you must give the tenant an
accounting of it within twenty-one days (CA)* after they move out.
* = Timeframe varies state to state.
10. Not documenting
Itís been said "he with the most paper wins" In todayís litigious society, this is
very true. The simple handshake or verbal O K just does not do it anymore. Have
written leases, document your conversations, document your property condition
upon move-in and move-out, keep record of applications you denied and keep
accurate records of income and expenses. Your organization will pay off. It only
takes one time without proper documentation that can cost you a lot of time and
Lambert Munz is licensed with CA Dept of Real Estate 44 years as a broker. Commercial investments. Currently property manager with 27 years experience residential and commercial Hold two designations MPM Master property manager and RMP Residential Management professional awarded by National Association of Residential Property Managers Read chapter one of our new Book House Investors' Manual at www.arbourpm.com
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