Becoming a landlord in The Woodlands, Texas, can seem easy enough. After all, there are thousands of properties to choose from and plenty of prospective tenants. Just buy an investment property, make a few renovations, and start pocketing more money each month than the monthly mortgage payment. Sounds easy enough.
Unfortunately, successfully managing your investment property requires the mindset of a business professional – which you might not have quite yet if this is your first time dealing with tenants, complicated landlord-tenant laws, collecting rent, making sure tenants pay rent, financial calculations, setting rent prices, and all the details it takes to profit from a rental property.
Without experience, it can be easy to quickly lose money, time, and sleep by making these common new landlord mistakes (which you can easily avoid by hiring a property manager):
1. Taking a Deposit
One of the first issues many landlords come across is when it comes to taking deposits from prospective tenants. On the one hand, this seems like an easy way to immediately earn some money, and it may be tempting to accept a deposit from a tenant even before you have shown the property.
However, this money is not yours to spend. If a potential renter gives you an application deposit, it must be returned to them if they’re not approved to rent your property.
Additionally, security deposits must be held in escrow until the end of the lease agreement and either returned in full or with an itemized deduction list. Too many landlords run into issues when they don’t separate security deposits and application deposits from their actual rental income.
2. No Formal Lease
One of the biggest mistakes landlords make is not having a formal lease agreement in place. Many laws exist to protect tenants’ rights and the landlords who care for them. If you don’t have formalized lease agreements that outline the terms of your rental contract in writing, you will have no leg to stand on when trying to prove that your tenant owes you rent or that they broke a rule after moving out. Property managers are experts at providing new landlords with legally-sound rental agreements.
3. No Relationship with an Attorney
There may come a time when a tenant feels the need to sue you, including for injuries and emotional damage they sustain on the property. While the worst-case scenario is losing in court and being forced to pay a hefty amount, there are other reasons you should always have an attorney on hand when becoming a rental property owner.
For one, if your tenant signs a formal rental agreement, this will typically be enough to protect you from most issues they may raise about the property’s conditions during their tenancy. However, even if it isn’t, having an attorney on hand to represent you can make the process of resolving tenant complaints go much more smoothly.
After all, if your tenancy ends poorly and you end up in court because of it, having an attorney there to negotiate with the tenant may be the difference between winning and losing your case.
4. Accepting Sub-Par Renters
A quality tenant is not necessarily someone just paying rent on time and never complaining. A quality renter will also care about your rental property and may even complain when something is not right with the property. This is good because you’ll be able to fix problems before they start.
But, even tenants that don’t seem to be an issue may be costing you in the long run. They might ignore problems or not take pride in keeping a clean and sanitary living environment. Not only can these types of renters end up costing you more money, but they can leave you with much a lower-quality rental property. Ignored maintenance issues are also one of the biggest mistakes new landlords make.
That’s why it’s so important to put potential renters through a thorough tenant screening process, including getting references from previous landlords. Tenant screening is something property managers can help you with.
5. Not Familiar with State and Local Housing Laws
In most states, landlords must offer renters a certain number of protections to ensure they can legally rent properties. In Texas for, example, local and state laws dictate that the rental unit meets sanitary and safety standards and that it complies with building codes as well as all local ordinances.
Renters also have rights in most states, so it is important to familiarize yourself with these regulations before renting out a unit. In addition, these laws will often apply no matter how good your intentions are, so you should make sure to check on them before taking any action.
6. Neglecting Tenants and Your Property
One costly mistake new landlords make is not paying enough attention to their tenants. As the landlord, checking in with your tenants and on the condition of your property is essential for maintaining a good relationship and avoiding any legal issues that may come up.
For example, if you ignore your tenants’ requests or don’t provide them with information on changes to their lease, they will often feel as though you are neglecting them. This could lead to not paying rent next month or filing a complaint with the city about your property.
In addition, if you don’t check in with your tenants from time to time, they may also feel as though their tenancy isn’t significant to you and start causing problems on the property. Experienced landlords know that all it takes is a reminder that you care about them as tenants and they will correct any undesirable behavior.
8. Not Taking Advantage of Tax Benefits
If you own rental properties in The Woodlands, you probably want to take advantage of all the tax benefits available to you as a business owner. Inexperienced landlords lose money simply because they don’t use the tax deductions they’re owed as landlords.
For example, you should file all the necessary business expenses. In most cases, this includes rental marketing costs for finding new tenants, filing fees, utility deposits, property management company fees, and even mileage to visit your rental properties.
In addition, if your Houston area rental property is a second home or an investment property, it may be tax-deductible as well. However, since taxes can be very complicated, you should contact a property manager or ask your accountant about the deductions available to you.
9. When Is It Legally Possible to Start an Eviction Process?
One of the most common mistakes new landlords make is misusing eviction notices. You can get in trouble with the law by evicting someone illegally, such as when a tenant hasn’t broken the terms of their lease. In Texas, a lease violation allows the tenant a 3-day notice to quit before the landlord can file for eviction.
It will be essential to know what kind of notice your area requires and when you can begin acting against the tenant. For example, some states only require a 30-day notice, while others require as much as 120 days. If you go beyond these deadlines, you may have to start with the waiting period again.
10. Not Understanding Rental Market Trends
If you don’t understand The Woodlands rental market, you could lose money. For example, if you buy a home where people are looking for rental properties, but your rent price is too high, your property may sit vacant, losing cash flow.
Long term, this could result in such a decrease in the returns of your property that it no longer makes sense to own it. On the other hand, you may purchase an investment property and rent out at too low of a price, which will only eat away at your profit margins over time.
There’s no way around it – understanding rental market analysis and knowing what is competitive in your area is one of the most important things you need to do when getting into real estate and trying to attract quality tenants.
11. Hobby Versus Business
One of the most common mistakes new landlords in The Woodlands make is treating their investment as a hobby. A separate bank account for rental income, bookkeeping services, property managers, and tax professionals are all great resources for a successful business, and not using them could lead to losses.
Even if you believe you can handle everything yourself, there’s no need to risk your investment when it is possible to manage your property correctly from the start. By choosing a team of property management professionals, you can avoid common mistakes landlords make and protect your real estate investments.
Final thoughts…
New landlords can make these mistakes, lose money, and end up out of business as a landlord very quickly. Other oversights such as not having the appropriate insurance in place, failing to learn about fair housing laws, and not correctly documenting all transactions can become very costly mistakes. When all you wanted was passive income, you can end up losing a lot of money.
But there’s an easy solution. Residential Leasing & Management Corp, with an office in The Woodlands, TX, has more than 40 years of experience with BBB accreditation and an A+ rating.
Not all Greater Houston property management companies are the same, and we understand how important it is for you to find success as a new landlord and make money. That’s why we use every possible opportunity to help you keep your rental properties full, manage tenant concerns, and help you achieve a positive cash flow.
Contact us today if you need professional property management to protect your investment and have more free time and peace of mind in The Woodlands, Texas.
