Entering the world of real estate investing is definitely exciting. Just imagine the income that you can get from this passive type of business if you do it right. Becoming a new landlord for several properties can be overwhelming, and you might do or make a decision that can kill your profit. Here are the top 5 reasons I believe can kill profit that new landlords commit un-deliberately speaking from experience on most.
1. Over Rehabilitation of Properties
When managing an asset, whether it is single or multi-family property, of course, you want them to look more pleasing and comfortable for the tenants. On the other hand, one mistake that most landlords do is spending too much on the rehab cost.
It would be best if you can rehab the property depending on your target market class, not how you would want it to look as if you are going to live in it. This is something that can kill your profit because you are investing too much money and not able to get much more rent. Yes, it is important to look at several comparable properties.
2. Taking Too Long to Turn Your Units
Whether after you have acquired the property or your tenant had moved out, it is important if you can ensure that you have the contractors that are ready to go turn that specific unit. This assures that jobs such as repainting, repairs, re-carpeting, installing bulbs and even leasing can be done at the right time. Taking too long will surely drain your money and resources having contractors that are ready to help save a lot of time and opportunity cost.
3. Force Screening
Force screening for your application process is another leading profit killer for new landlords. Speaking from experience in my earlier days most new landlords are not doing a screening at all or very light ones which leads to them having bad tenants. This can be a huge headache for a landlord, and sooner or later you will be forced to go through the evicting process to get them out of your property. This can even be more difficult especially if you are in a non-landlord friendly location like Chicago.
There are several key criteria that can tell if you’ll have a good tenant during the screening process. In my own screening process, I make sure they can earn at least 3x the monthly rent, no eviction record within the past 7 years, no outstanding utility charges, and they should have a good rental history. If they don’t meet any of these requirements then that’s when I move to the next one.
4. Not Verifying the Rent Rate
Not doing enough due diligence when it comes to your market is something that can kill your chances of getting the income you want. What makes it useful if you do your research is that you can be able to push up the rent higher if you are updated with the market.
5. Doing Bandage Fixes and Repairs
This means that if there are some repairs to be done, bandage fixes and repairs is not a good thing as this will just increase the repair cost in the long run. For instance, if there’s a leaky roof, do not just apply a temporary solution like patching, it is best to replace as the repair cost will be doubled or tripled sooner or later.
In conclusion, there you have it, the top 5 leading reasons that surely kills a profit. These are the main reason that hinders newbies from getting the revenue they need from investing. Making mistakes is part of the journey in real estate investment, and I am not perfect even to this day by any means, but through the years with my experience, it has helped me learn from it and improve. I’m sharing this with you so that you can avoid the pitfalls of these profit killers.
P.S.
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