Rental property investments can be financially rewarding. But they can also open the door to a long list of potential problems for new landlords.
Here are three mistakes new landlords often make, and how to avoid them:
1. Skipping the screening process. Running a credit check on potential tenants helps you avoid what could be costly surprises down the line. You may also want to run background checks. Either you or the potential renter will need to pay for these reports, but it’s a small price to pay for peace of mind.
2. Assuming you’ll always have tenants. Even in high-demand markets, there’s always some time between when a person moves out and a new one moves in, and that’s time when you’re not receiving rent payments. Experts suggest having a savings account with about three months’ worth of rent in it to cover these gaps.
3. Getting the wrong insurance. If the insurance you have on your rental property is inadequate or, worse, entirely the wrong kind of coverage for a rental, you’ll be in hot financial waters when faced with property damage. Talk with your insurance agent to be sure you have the appropriate types of coverage for a rental.
Also, be sure to learn about what tenant qualification criteria are prohibited under the Fair Housing Act: hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview
