When you decide to purchase an income property for the first time, there is always going to be a bit of a learning curve. Especially if you decide you are going to manage the property yourself. Everywhere you look there are going to be friends and relatives with advice; magazine articles with tips and tricks; and of course TV programs with “what fors” and “how-tos”.
So to give you a different take, here is our list of the absolute things not to do. The things that are going to cause you all sorts of grief if you do them.
Do not assume the property will always be rented.
When most prospective owners imagine having an income property, they consider the cost, the management, and the asset they will own in the end. They often just assume that they will always have a tenant in place covering the cost of the mortgage and the maintenance. This can be a dangerous mistake. Before purchasing an investment property you will want to do a thorough evaluation of your financial situation and know that you are able to protect your investment if the process of finding a tenant takes longer than expected. It’s not enough to have the down payment. Don’t risk having your investment foreclosed on because you neglected to do a cash flow analysis.
Do not shortcut the screening process.
We understand that this can be one of the most arduous seeming parts of being the owner of an income property. You have a new investment and all you want to do is get a tenant installed and start getting the mortgage paid off. However, as much as this process can feel like it drags a bit, it pales in comparison to having a bad tenant that you have to fight to get rid of. So if you’re going to do it yourself, make sure you do thorough reference checks, credit checks, and interviews. Also, be sure to check out our Ultimate Guide to Tenant Screening in BC. If you feel uncomfortable with the screening process you may want to consider hiring a specialist for even just this portion of their property management services.
Do not lowball your rental price.
Sometimes while you are working to get a tenant in place it can be tempting to drop the rental price considerably just to get someone paying the mortgage. This is not a tactic you want to employ, mostly, because once you do the amount you will be able to increase the rent year-over-year will be capped. And your property, beyond the mortgage, is going to have regular maintenance costs, insurance fees, and eventually regular large-scale work, such as a new roof. You need this business to be generating income so it can afford to reinvest some of it back into itself. To do this well it’s important that you know the rental value of your property and price it accordingly. You will want to check the listings in the area and maybe even consult a professional to make sure your pricing is on target.
Do not think of your income property as a hobby.
Owning an income property is a business. Granted it can range from small business to large, depending on how many properties you own, but it’s always a business. A hobby is something you invest in with little hope of a financial return. You will want to make sure you have a separate bank account for deposits and expenses, a specific bookkeeping system, and that you are working with a tax professional to ensure you are paying what you have to and not what you don’t. If you treat this investment as a hobby that you dabble in, you are almost guaranteed to lose money.
Do not encourage a handy tenant.
I know it seems like an easy solution to a problem. There are maintenance items that need to be addressed and the tenant has offered to take care of them for you. Often for a slight discount on the rent. Don’t be seduced. Not only is there a possibility that your tenants could injure themselves in the process, creating a possible liability for you, they may actually make the problem worse. The same goes for hiring unskilled labour. It may seem like you are going to save money, but these immediate savings could turn into huge festering problems in the years to come. Make sure you hire proper professionals to look after your investment.
Do not accept handshakes.
It’s a romantic notion. A man is as good as his handshake. His word is his bond. Still, get it in writing. When you’re bringing on a tenant you will need to have a properly reviewed lease. And you will need to ensure that your tenant has read and understands what they are signing. If you ever have to appear before a judge over a dispute, you never want to be relying on your tenant’s promise to protect you. Likewise, when you’re hiring a contractor you need an iron-clad contract that states what is being done, when it is to be finished, and how much it is going to cost. If there are changes to the work required along the way, you need to make an amendment to the contract and have both parties sign off on these changes. This is an area where untracked changes and expenses can take a profitable investment deep into the red.
Do not neglect your tenant.
You’ve gone to great lengths to get a good tenant into your property. Do not neglect them. Make sure they are comfortable in the space and if possible find small ways to make their experience even better. You would be surprised how far a fresh coat of paint, new blinds, or installing an electric garage door opener will get you. And remember, having a tenant who pays their rent on time, takes pride in their home, and who is generally happy living there means a lot less work for you in the long run. If they take better care of the property it means less maintenance, and if they feel comfortable in the space it usually means they stay and you don’t have to go through that whole screening process again.
Do not assume your property is fine.
Even if you have a great financial advisor, you need to know what’s in your portfolio. So, even if you have a great tenant you need to go by for scheduled inspections. In BC a landlord is able to do general inspections once a month, provided they schedule them with the tenant in advance. That may be too frequent, but you should at least be inspecting your investment three times a year. Not only will it let your tenant know you care, you may very well be able to anticipate future maintenance problems well in advance by just having a look around.[inf_infusionsoft_inline optin_id=optin_11]