5 Common Reasons For Rental Property Mismanagement

By on January 29, 2014

Just like trading in the stock market is not for everyone, managing rental properties is not for everyone as well. If you really have to dabble in real estate for your investments while knowing that you are not suitable to be a landlord, at least avoid situations where you have to play the role of an active landlord. There are many ways you can play a more passive role in property investing. The most passive form will probably come from REITs or being a sleeping partner in a partnership. Saying that, most investors love the ins and outs of real estate to get into it in the first place.

Property mismanagement presents eagle-eyed investors the chance to acquire properties that are not performing to their potential. Often times, landlords do not realise how much they want to sell the property until a serious buyer comes along. If you are lucky, an owner is at breaking point and would jump at the chance of closing on a quick sale.

5 common reasons for mismanagement

1) Lack of knowledge and expertise of the local market. This often results in charging rental that are above or below market rates. When you are charging too little, you could be making a monthly loss. While when you charge too much, you could find it tough to find tenants.

Many investors take the time to look at national data to make their investment decisions. But in terms of real estate for the individual investor, local data is more relevant than at a national level. Focusing on local data can also help you to identify niches that are hidden from the masses. It is not surprising to find that the rental you are able to essentially charge with stability is very far off from the national average.

2) Failure to positively respond to tenant requests. The picture in your head of how a landlord collects recurring payments without having to do anything is not realistic. This is because other than the “behind the scene” tasks which you have to routinely complete, you also have to attend to tenant calls which can come at any time of the day. Some stuff could appear trivial to you, but it could mean an emergency to a tenant. For example, you might have no fear of bugs. But for some people the sight of a single cockroach can cause great anxiety to others to the point of a mental breakdown. Solving tenant issues is your responsibility as a landlord.

rental property managementIf you have a good tenant screening system in place, you would be able to find the type of tenants you want. But as humans are difficult to judge, you will never know you are going to get until you sign someone up as a tenant. Sometimes, one tenant alone can cause you to spend hours each day contemplating their issues. Imagine what can happen when you start expanding you operations. If you are not a people person with patience, you could be looking at a miserable career as a landlord managing rental property. You can consider hiring managers to do the job for you or just stay away from landlording altogether.

3) Negligence. Negligence can occur in many ways. But when it comes to mismanagement, it if often the negligence of maintenance that causes problems. Maintenance issues can compound to much bigger problems when left unattended to. Much like failing to change the engine oil of your car for 3 years. Very soon the engine will break down and you are faced with a bigger problem that will cost you a bomb.

Common maintenance that you should conduct includes elimination of pests, touching up the paint, checking for leaks and seepage, etc. If you had managed to actually rent out run down apartments, there is also a likelihood that tenants who are willing to put up with these shortcomings to negotiate terms and conditions in their favour.

4) Lack of skills and expertise to select regular tenants. Let’s not even talk about tenants from heaven or tenants from hell. You will be fine as long as you are able to secure regular tenants who respect the property and pays rental on a timely basis. The objective of screening prospective tenants is not to find tenants from heaven. It is actually to filter out tenants from hell. If you are skeptical on how bad things can get, you will only know the full force of their destructive nature when you run into one. Horror stories from experienced landlords could be exaggerated to a certain extent. But there is no smoke without fire. It is better to avoid than to have you own experience on this undesirable area of managing real estate.

5) Failure to collect rental on a timely manner or take legitimate steps to evict non-paying tenants. Cash flow is the life-blood of operating rental property profitably. Late payments not only causes you cash flow problems, but they can cost you interest charges as well. You are not running a charity here. Allowing 1 week of lateness opens the door for tenants to stretch to 2 weeks, then 3 and 4 and so on. Pretty soon you find that you have effectively forfeited a month’s worth of rental. You cannot let tenants get away with this.

According to the terms of the law and the agreement in the lease agreement, there are many legitimate reasons that give you the right as a landlord to evict tenants. When your patience has finally run out for particular tenants, your best option could be to start the eviction process as soon as possible. The longer you go without payments, the more losses you make. If you choose to go this route, always remember to keep track of the local law governing eviction processes. Also keep track of everything so that you have documents that legitimize your actions.

Problems with management always fall into one of 4 types of mismanagement that concerns tenants, maintenance, finances, or record keeping. It can be a tall order to be well versed in spotting properties with any of these types of issues. So you can start off training your eagle eye by becoming an expert on 1 type at a time. What you will want to learn are tell tale signs that identifies a specific category of problem. After which you will have to be well-informed on how to alleviate these problems at as little cost as possible.



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