The first thing you need to know is that people that are new to the property management business (read: landlords) FAIL within the first year.
Being a landlord is simple... it's just not easy. You have to put in the hard work AND make sure you have a decent reserve of savings for the expenses you couldn't possibly foresee, particularly because you don't know what you are doing yet!
Most people decide to become a landlord while they are still working a 40-hour per week gig! The pitfalls are obvious; you won't have a lot of time to devote to responding to prospective renters, showing your property, running credit reports, checking with their employers, dealing with maintenance requests, screening vendors... and on and on...
If you aren't able to do the work up front, how could you possible do the work required to evict a bad tenant? Not to mention the costs associated with eviction and the money lost as property owner.
Pitfall 1: The biggest mistake you can make as a new landlord is to accept the first potential tenant that comes along because you are worried about paying the mortgage. This desperate outlook can cost you big time down the road.
Do not be desperate! This will kill your chances at being a successful landlord!
If you are really interested in becoming a great landlord and are just starting out, you may want to hire a professional property management company. That way, you can learn through watching. Let them screen tenants, handle phone calls in the middle of the night, deal with evictions, court and collecting back rent.
The cost is usually somewhere between 5% and 10% depending on where you live and how many responsibilities the property management firm handles in the contract. Although this price may seem high, it is nothing compared to what it will cost you to not know how to run your property efficiently (to say nothing about having to unload it quickly because you can't cover the mortgage).
Pitfall 2: Not having enough cash to cover unexpected expenses. You cannot just assume that the rent you charge will cover your monthly expenses. You better bet that there are costs you can't possibly foresee as a new manager that will arise. And as Murphy's Law dictates, it will always happen when you lease expect it!
Let me give you a hypothetical: Let's say you take the first prospect that comes along. She's happily paying her $1200 rent every month when all of a sudden, she stops paying (beautiful girls in Hollywood think they can get away with anything!)... suddenly you are put into the position of having to evict this young starlet... which you didn't predict taking nearly 3 months and time off work to show up in court and the time it takes you to file for a Writ of Judgment (more on that in another article), etc... and before you know it, you are $3600 short on back rent and another $600 in the hole for court costs! Whoops! Hadn't thought that far ahead, had you?
And, well, young Miss Garbot didn't care for the way you wouldn't give her special late rent privileges so she also dug her fingernails down the walls in your apartment... it's always the beautiful ones with the flawed logic! ☺ After 4 weeks and another $1550 to get the glitter out of the carpet and make the unit rentable, you begin listing your unit again and if you are lucky, you are able to begin collecting rent again about 5 months later. But remember, during this time without rental income, you are still paying for utilities, the mortgage, taxes, court costs and janitorial services... You could lost upwards of $10,000 if you aren't careful!
You have got to set some money aside to survive these types of situations if you want to make it as a landlord. And if you are able to, it is often advisable to borrow a minimal amount of mortgage so your payments are lower, allowing more positive cash flow. This will make it less painful when these unexpected costs raise their ugly heads.
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