Classic business philosophy teaches that a great part of survival and subsequent success lies in an operation's ability to reduce mistakes. The cost of repairing the mistakes is inversely proportional to the amount of profit potential of the operation. In other words... "Mistakes Kill the Profit Margin!"
As landlord's, we don't want to do damage to the precious
profit margin we fought so hard to nurture. A landlord's profit margin
struggles every day to survive, grow and flourish in a sea of predators,
competitors and government regulators. Below are the top 10 threats to you
thriving profit margin.
1-Poor Screening
The costliest mistake is accepting a new tenant without
properly screening. An undesirable tenant will often have a poor rental and
financial histories. Landlords should review previous landlord relations,
credit reports, courthouse records and income. It is probable that if they have
not met their obligations with previous landlords, then chances are that they
will repeat their behaviour with new landlords. Many landlords have faced
horrific situations where tenants have stopped paying rent while employing
legal manoeuvring to avoid eviction. Others have faced tenants who moved in and
initiated criminal activity, which adversely affected other tenants and neighbours.
Either of these scenarios translates into expensive ordeals where the measures
of rectifying the situation can threaten the financial stability of the
landlord.
A thorough screening also involves verifying that the person
who is applying is the same person that submits credit/criminal info for
screening. A picture I.D. should be cross-referenced with the application.
Landlords must make sure that there are no omissions, inaccuracies or
inconsistency in the actual application. Due diligence will certainly save
landlords much money and stress.
2-Lease Preparation
Having a poorly prepared lease is very costly because it is
the document that legally binds the landlord to the tenant. It is the rules of
the relationship that dictate conflict resolution, financial responsibility and
terms of execution. Without a professionally prepared lease the landlord stands
to forfeit many of the rights afforded to the owners of the property. Landlords need to employ leases that are
designed to protect them and their property and not the other way around. Many
generic leases do not take into account the values of the landlord. Therefore,
a custom lease would assure the landlord that their interests are protected.
Many times, landlords receive requests for agreements after
the lease has been signed. Landlords will use their best judgment when deciding
to agree to a proposal but must never neglect to put the agreement on paper. A
verbal agreement is always vulnerable to a false interpretation by the tenant.
3-Rent Collections
Landlords must always enforce the terms of rent payment as
it is written in the lease including late payments and fees. If not enforced,
the landlord runs the risk of creating a dangerous precedent that will
certainly cost the landlord dearly. If a tenant fails to pay rent for two
weeks, then legal notices and actions must be initiated as soon as the law
allows. Landlords should not accept partial payments. The courts interpret
receiving partial payments from tenants as an acceptance of terms by the
landlord. The eviction process is subsequently terminated for that rental period
while landlord's costs increase.
If a tenant has had a poor history of paying rent on time, a
landlord should consider not renewing the lease. Being late consistently is a
sign of financial trouble and future uncertainty for the landlord. Poor payment
habits can be a precursor to bankruptcy or evictions.
4-Law and Regulation Ignorance
Many landlords get into rental business without learning the
rules of the game. To get a perspective of the folly of not knowing the rule, imagine
trying to play basketball without knowledge of the rules. You would become
paralyzed from the constant rule infractions. It would be impossible to win.
Translated to the rental business: Knowledge of the Laws and regulations can
make the difference between a profitable venture and a loser.
Landlords must familiarize themselves with the states'
Landlord/Tenant Act. Every state has different laws; therefore, due diligence
must be taken by landlords to educate themselves. Landlords must also take the
initiative to draw upon with the experiences of other landlords. Many landlord
advocacy groups exist in most communities and the Internet.
Finally, it encouraged for landlords to develop a
relationship with a real estate attorney that specializes in the rental
industry. Having a knowledgeable supporter on your side can relieve a lot of
uncertainty. A landlord must never wait
to the last minute to develop a relationship with an attorney because the
requirement of immediate response will prove to be costly.
5-Poor Response to Service Requests-
The number one reason that tenants do not renew their leases
is poor response and execution for service requests from the landlord. Tenants expect a constant inspection,
repair, and preservation of the general conditions of their rental home. This
also includes a timely repair or replacement of parts for appliances.
Everything has to be in working order and problems must be addressed quickly
and courteously. To facilitate an efficient delivery of maintenance requests,
the property manager's best method of receiving these requests is actually
answering the telephone. When the manager is too busy to actually answer the
phone or the request comes at an odd hour, many properties utilize apartment
call centres. This resource allows properties to always have a human responding
to the needs of their tenants. The apartment call centres are industry specific
and have a direct, open communication with the maintenance and property
management. Maintenance requests should be supported by a shared calendar that
documents the request cycle: creation, delivery, execution, completion and
follow-up. Maintenance requests, if implemented properly, should be a team
effort that will lessen and distribute workload through the property staff.
6-Not Employing Good Customer Service
Running a rental business is just like any other business in
the sense with respect to employing good customer service. Many landlords
forget that they would not be in business if it weren't for the customer.
Practicing good customer service not only reduces tenant turnover, it also is
one of the primary forms of marketing. Word of mouth advertising is the time
tested, most effective way to promote any business. In the long run, a positive
approach to communicating with your tenants will reflect in the profitability
and value of a property. On the other hand, poor customer service will take a
toll on the general conditions of the property. Tenants will not respect the
property by not cleaning up after themselves or not following the property's rules
and regulations. Therefore, poor customer service may result in high turnover,
high vacancies, higher operational costs and lower profits.
7-Not paying taxes
Many landlords do not have their rental income as their
primary source of income and neglect to report their income to the government.
Others fail to pay property taxes because they don't reside in the property.
Failing to declare income and ignoring property taxes can cause very expensive
recovery efforts. The government will assess taxes, add fees, add penalties and
assign interest. Other costs will come from attorney fees, added accountant
charges and personal time. In extreme cases, landlords may get their property
confiscated.
8-Not waiting for the funds to clear
In a rush to fill the occupancy, many landlords make the
mistake of allowing the tenants to move in before the funds are cleared. The
scenario of tenants moving into a property too soon has caused numerous
headaches for landlords having to initiate eviction procedures without ever
collecting any rent or deposit. Always ask for money orders and certified
checks or simply wait for the funds to clear the bank.
9-Not conducting a detailed premove-in inspection
Neglecting to have the tenants complete a premove-in
inspection can result in damages to a property that cannot be documented by the
landlord. Payment for rent must not be accepted until this inspection is
completed.
10-Not keeping a professional landlord/tenant relationship
Landlords must always uphold a professional relationship
with tenants to avoid the pitfalls of not employing the codes of conduct that are
based on the stipulations outlined in the lease. The professional relationship
is based on the landlord realizing profits from the rental business. Changing
the nature of the business relationship threatens the ability for the landlord
to collect rent.
Disclaimer:
This article is presented solely as an example and is not meant to replace
qualified financial advice. If you or someone you know require up to date
financial or legal help, seek qualified assistance. No content on this site
should ever be used as a substitute for direct legal counsel from your lawyer
or a qualified attorney.
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