5 Expensive Real Estate Investing Mistakes You Must Avoid
Are you looking to launch your landlord career? You could end up losing money before you make it!
We’re looking at the most common mistakes that new landlords can make when they’re starting out – so if you’re new to the game, you can dodge these errors!
What’s the most expensive mistake you’ll never make again? Get in touch via the comments below and tell us all about it!
Mistake Number 1: Rushing into it
If you’re a brand new landlord, you’re probably champing at the bit to get started. After all, the fairytale is that landlording is easy, right? You invest and then you sit back and let the money just roll in.
Well, if you’ve seen any of our other blogs or videos (which you should – they’re great!) you’ll know that the reality is a little different, with plenty of pitfalls around legislation, getting the wrong tenant… it can really be a minefield!
So rushing into things is easily the most costly mistake you could make:
- You could get the wrong property. Just because you see something in your budget and like it, doesn’t mean you should buy it! Take the time to view the property and think about how you’d market it – is the property in good shape or will you need to do work on it? Is it well situated, are there schools, doctors, transport hubs nearby? Is someone really going to want to live here or are you going to be struggling for tenants?
- You don’t get the property set up properly. You could be so focused on a fast turnaround, you don’t take the time to do necessary work. This could be as simple as getting a professional clean, sprucing up the paintwork or as extensive as redoing the kitchen or bathroom or getting new carpets. Taking the time to get the property in the best shape possible is worthwhile – it will appeal to tenants and you won’t be playing catch up later when your tenants start complaining about issues in the property.
- You don’t take the time to find the right tenant. Again, this is about being so focused on getting the property let and making money that it could cost you dearly later. The dream tenant is someone that wants to stay long-term (so you don’t have to worry about finding a new tenant anytime soon); pays on time; takes care of the property and lets you know of any niggles before they become big expensive problems. Meet the tenant, get a feel for who they are and be sure to reference!
Rushing is something that can bite you further into your journey too! When your tenant is leaving, it might feel efficient to have a new one in within days, but give yourself the time to thoroughly inspect the property (so you can make a decision about the deposit) and check if there are any updates that need to be made. Yes, you want to avoid a void period, but taking the time to check could catch problems that would be more difficult to fix with a tenant in situ – so take your time!
Ultimately, this could cost you a lot of money over time, as you attempt to fix up the property piecemeal OR you could find yourself with rent arrears due to finding the wrong tenant.
Mistake Number 2: Trying to go it alone
As a brand new landlord, you have a decision to make – do you self-manage or work with an agent?
Now, the right choice for one person might be the wrong choice for another. But some new landlords decide to save themselves the expense of an agent and go it alone – and regret it. So we highly recommend that you base the decision of whether or not to work with an agent on more than just the cost.
- Do you have the time to manage the property? If you have a full time job, are you able to respond to tenant requests in a timely manner? If your job is intense or requires regular travel – an agent really might be your best bet.
- Do you understand your responsibilities? Whether you work with an agent or not, you need to understand the laws that govern you as a landlord, but when you’re starting out, it’s handy to have an expert to guide you through everything you need to know and to do.
It’s ok to need support and to pay for it – and it will save you in the long run!
Mistake Number 3: Not knowing the law
As I said, knowing the law is incredibly important, whether you work with an agent or not. Ultimately, it is your property and therefore the buck stops with you, so you are responsible for checking that your agent is on top of everything they should be.
So whether or not you choose to work with an agent, make sure you know the law and keep an eye out for updates – like the Rental Reform Bill.
- What does your tenant need when they move in? There are multiple things you need to ensure your tenant has when they move in, from valid gas and electrical safety certificates to the Right to Rent Guide.
- How to protect the deposit. You have to ensure that the deposit is protected in a government approved scheme and that your tenant has all of the information about this within 30 days of submitting their deposit.
- The laws around eviction. This is the last straw for any landlord, no one wants to have to evict anyone. But one day, you might have to, so make sure that you understand how to do that legally and above board.
- A legally binding tenancy agreement. Writing your own is a big no-no! You’re far more likely to make an error – potentially an illegal one! – by writing it yourself.
Like we always say – there’s a lot more to landlording than people think, so it’s imperative to understand everything you can about the laws that bind you so you avoid a raft of huge fines.
Mistake Number 4: Forgetting to protect the deposit
I just mentioned it, I know, but this is so important it’s worth saying twice!
Life is busy, especially if you’re a self-managing landlord with a full time day job. So it could happen that life gets a little busy… and you forget to protect the deposit.
As a reminder:
- You have to protect the deposit in a government approved scheme – either MyDeposits, The Tenancy Deposit Scheme or The Deposit Protection Service
- This MUST be done within 30 days of receipt
- Your tenant has to be issues with the Prescribed Information which will confirm the deposit amount, the property the deposit is for and full contact details for everyone involved
If you don’t do this – you could be liable for compensation 3x the deposit amount – a costly mistake indeed!
Mistake Number 5: Not getting insured
If you have a buy-to-let mortgage, you will have to get Buildings Insurance. However, you may be tempted to leave it at that – after all, that’s all you HAVE TO have, right?
Well, we really encourage you to get a full suite of protection. Yes, it means paying more money, but it could save you BIG TIME in the future.
- Rent Guarantee Insurance. You’ve referenced your tenant, you know they’re good for it, so you definitely don’t need this… right? Well, what if they lose their job? What happens then if they can’t make the rent? That’s right, you’ll be paying the mortgage out of your pocket. RGI means that should your tenant fall on hard times, you’re not dipping into your savings to make the repayments.
- Home Emergency Insurance. It’s a brand new property OR you’ve just forked out a load of cash to improve it, so there’s no way you need emergency cover. Hmmm… but what about storms? Floods? Broken windows? There’s no way you can ever really know what might befall your property – so get covered!
- Contents Insurance. If you’re renting your property furnished, cover the furniture too. Yes, you can keep the deposit for any damage, but there’s always the possibility that the deposit won’t cover everything you need, so insure yourself!
There you have it, the most costly mistakes that you could make as a landlord – now you know what to look out for and how to avoid them!
Are you a landlord that made some spendy errors when you first started out? Tell us all about it in the comments section below.
