Owning a rental property is an excellent source for extra income and real estate is one of the best investments to make in Toronto right now. Successfully managing your rental property, however, requires experience and a business frame of mind. Without it, you can quickly lose money, sleep and time by making these TOP 10 Costly Mistakes.
1. No insurance
Legal disputes with your tenant can arise, rent can go uncollected and units can get damaged. As a landlord, you may also be held liable for injury to your tenant or their guests. Protect yourself, your investment and your income source with insurance.
2. No tenant insurance
Your insured as a landlord, but you must also ensure your tenant has insurance. If your tenant causes damage to the property (fire – in the worst-case scenario), or if anyone is hurt on the property during the tenancy, you need to know that you’re not going to be stuck with the bill.
3. No background checks or tenant screenings
You must know who lives on your property. You must ensure your tenant can pay rent on time and can take care while living on your property. Tenant screenings are complete with references from current employers, credit checks, online searches and face-to-face meetings.
4. Verbal lease agreements
When disputes arise, verbal agreements are untrustworthy and cause problems. Well documented agreements help you set your expectations with your tenant – and can also help you understand their expectations of you. Protect yourself with signed, written leases.
5. Poorly written lease
Your lease outlines exactly what you expect from your tenant and what steps you can take if they fail to live up to your agreement. At a minimum a lease should include:
- The names of all tenants
- The terms and nature of the rental
- The amount of rent and when it’s due
- Any penalties for not paying rent on time
- Maintenance and repairs responsibilities
- What activities are not allowed
- When you, as the landlord, can access the property
If you’re unsure about your lease, consult your lawyer.
6. No move-in inspection
Before the tenant moves in, visit the property together. Prepare and bring a checklist with you:
- The state of each room, the walls, the floors, the appliances
- What needs painting
- What is broken
- What’s not working properly
- Everything – down to the lightbulbs!
Explain clearly your expectations and if a dispute arises later about the condition of the property, you can produce the checklist. Make sure the tenant signs two copies of the list, one for each of you.
7. Free rent for repairs
It’s tempting to ask the tenant to take care of repairs, but this arrangement is too easy to abuse. How can you ensure the repairs will be done properly – or at all? And, offering free (or discounted) rent negates your income source, which defeats the purpose of buying a rental property!
8. Not using certified cheques, transfers or bank drafts
The first and last month’s rent are the only payments you’re guaranteed to receive. Personal cheques can bounce or take days to clear. With certified cheques, transfers or bank drafts, you’re sure the money is there.
9. Allowing tenants to renovate
Tenants cannot renovate or make alterations to your property without your permission. There is potential for damage to your property and if anyone is hurt, there could be legal trouble. When tenants propose alterations (and will pay for them), make sure you select the professional to do the work.
10. Not using a property management company
Buying a rental property is a wonderful and profitable investment. Reaping the reward for your investment, however, requires experience and a business mindset. The easiest way to avoid mistakes as a new landlord is to work with a property management company. A good property management company take cares of your headaches, makes sure you have good tenants and a well-maintained property.