Landlording is Easy...if You Stay Away from the Most Common Mistakes.

Owning rental homes, if you do it correctly,  can be a great source of passive income and a great way to increase your wealth through equity build up.  It can also be a big problem and monetary drain if you do it wrong.  One of the biggest mistakes, and ultimately the biggest drain financially, is when their is a problem with the lease paperwork, and the leasing relationship between the landlord and the tenant.  All of this needs to be taken care of before the ink dries, and should be in writing...and signed by both parties.  That last part may sound obvious, but you would be surprised at how many leases are delivered and agreed upon, but never signed.  They're worthless.  A renter knows this, you should too.  


Here are some of the biggest mistakes landlords make when they set up their leases and relationships with their tenants:

1. If rent is not paid on time, waiting to send out "demand for payment" longer than the next day.  The eviction time is a long process...in Michigan it can take up to 45 days.  If the tenant doesn't pay, and you go to court, you could lose rent payments for more than just the one month they are a "non-pay".
   
2. Giving a free month of rent when they move in.  You may think this is an incentive to attract a paying tenant, when in fact it is more of an incentive to attract a NON-paying tenant.  Don't start out your tenant/landlord relationship setting a precedent that allows them to think they can have rent free months.  If you want to give away free months go ahead, but make them earn it.  Make sure they pay on time (this means cash in hand, not on the way) for at least 6 months before you give them a free month.  There are ways to handle this by using online rent collection services.  These service collect the tenant's rent and deposit in your bank free to the tenant, at a very small monthly charge to the landlord.  This is well worth it to both parties.
   
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3. Having a "shoot from the hip" qualification precess and application fee.  Make sure that part of the requirements are based on debt/income (net) ratios...that are spelled out in writing.  If the tenant has been turned down before and might be concerned about that happening again, let them see the paperwork with the qualifications before they submit any fees.  If they think they won't qualify, you both saved time and money.  You can always credit the fee towards the security deposit.
               ...speaking of the Security Deposit,
   
4. Giving away part or all of the Security Deposit or discounting move in costs.  If a tenant baulks at this, do you really want them as your tenant?  If they can't come up with this now, they are a risk to you if they damage your property and there is no SD to get the repair funds from.  Maybe they know something you don't?  Know what the maximum is that you can collect in the state your rental is in...and start there.  Did you know that the SD is actually still owned by the tenant...and not the landlord?  You must deposit it in a bank separate account, and let the tenant know where that is.  The landlord can't touch it unless it is used for repairs, etc...when the tenant leaves.
   
5. Not providing disclosures.  This is critical in today's lawsuit happy world, you're just opening yourself up as a target.  Houses built before 1978 require landlords to provide a lead based paint pamphlet and a signed disclosure as part of the lease agreement.
   
6. Not doing a thorough screening of you tenants.  This is particularly important to filter out those with multiple evictions.  Have a written policy on this with NO EXCEPTIONS.  Don't let the applicant blame the past landlord for the eviction either.  If they are using that as an excuse they are telling you upfront they will do the same to you.  Make sure as part of the screening process you investigate the tenants background, rental history, eviction reports, credit reports and criminal reports along with proof of income.  Protect yourself before they move in.
   
7. Not using move in and move out checklists for every tenant...and actually using them in a dispute.  It is so easy for a tenant to blame you for a problem by saying "that was there when we moved in"...even though everyone knows that wasn't true.  Have it ALL in writing, in detail, and SIGNED by all, as part of the lease before they take occupancy.  You know they won't do it after.
   
8. Using your own lease.  Make sure the lease you use has been approved for the state the house is in...and don't make up your own.  Not every state has the same legal requirements and protections.
   
9. Not providing the tenants, as part of the lease paperwork, what qualifies as an emergency, and what qualifies as something the tenant needs to take care of.  With this in mind, one of the important criteria for this involves safety of the tenants and potential damage to the property.  This means you should suggest the tenants get their own rental insurance and it would be a good idea if you could provide them the name of a source for that.
   
10. Not knowing the laws and regulations of leases in the state your rental is in.  This should be obvious.  Not every state has the same laws for leasing, but you need to know that they are in place to protect both the tenant and the landlord.  Know them, so you don't have to find out what they are in court.

If all of this sounds like a lot of work, it can be, but it is more work if you make the mistakes stated above, and you end up losing all your profits...and maybe more...including the house itself.  This is one reason why a lot of landlords use Property Management companies to handle this.  They deal with this on a daily basis, are usually very reasonable (if you can't afford it I question why you bought that rental to begin with) for the security they provide to the landlord.  Taking some of your profit out to pay for a service like this will be worth every penny.  In all cases, please consult your professional legal advisor before you make a move.