Late payments. Extended vacancies. Destructive tenants. Evictions. 

When you own a rental property, these are all words that strike fear into your heart. 

After all, when you invest your time, money, and effort into a rental property, you want to be confident that you’ll see good results. While investors’ goals can vary, most rental property owners are looking for a steady stream of income to cover costs and provide a tidy profit.     

That reliable cash flow is exactly why it’s so important that you manage your property well.  Poorly managed properties lose money, plain and simple.  

So, what pitfalls should you be watching for?  We’ve found there are usually five main ways that properties lose money. Here’s a closer look at each of those and how they can negatively impact your bottom line as an investor: 

1. Careless resident selection 
You don’t necessarily want to choose the first applicant who finds their way to you just to fill the space. It’s important to take the time to screen your applicants properly so you can choose quality, long-term residents. This helps avoid late rent or the need to evict residents, which lead to more tasks you have to perform while generating less revenue. Here’s a tip: while a resident who wants to move in immediately might seem eager, it’s often a red flag—so dig a little deeper. If they’re being evicted or even if they’re just poor planners, that doesn’t bode well for your future relationship with them as renters. 

2. Poorly written leases 
During the screening and move-in processes, you need to set residents’ expectations about the way maintenance, damages, deposits, etc. will be handled. Consider building maintenance costs into the lease and walk residents through those costs as well as the entire lease so they will understand what they are responsible for. 

3. Misunderstanding market rates 
Investors often assume their property can command top-of-market rates and of course, that’s sometimes true. However, it’s often the case that the owners haven’t realistically assessed the neighborhood and where their property ranks among the competition. Why the blind spot? Many owners are too focused on their ideal monthly rent and will hold out until they get it. What sometimes happens is that a property may sit empty for a while before being occupied, which—when you crunch the numbers—essentially negates the higher rent. What happens most often is that the property sits empty and then the owner still needs to drop the monthly rent, resulting in a significant loss. It’s much more strategic to understand exactly where your property falls in the market and charge the correct rent from the start.  

4. Not accounting for HOA costs 
In some areas, like Las Vegas, almost every rental property is located within an HOA community. However, many owners don’t realize that there’s a true art to managing relationships with HOAs. You or your property manager must have good communication with both the HOA and the resident as well a system for ensuring any issues are resolved promptly. (It doesn’t happen often, but homes can be repossessed if HOAs put liens against them and the owners aren’t aware of any issues.) Again, this is another reason resident selection is so important. You want someone who will maintain the property and follow the rules. It’s also important to use the lease to address how violations and fines will be handled. 

5. Not under- or over-improving the property 
If you make any improvements, you want to be sure that your home stays on par with others in the neighborhood. For example, if no other properties in the neighborhood have granite countertops, you’ll be hard-pressed to recoup that investment through higher rent. The opposite is true as well: If you don’t improve the home enough, you may experience extended vacancy or a below-market rental rates in addition to attracting residents who aren’t invested in maintaining the home. 

As you may have gathered, proper management is the most important piece to ensure you see a return on your investment. That’s why it’s important that you (or your property manager) have a comprehensive strategy in place that covers everything from selecting the right residents, ensuring your lease covers all reasonable costs, pricing the property correctly, managing your relationship with HOAs, and “matching” the property to others on the block.

Want other tips on the best ways to make the most profit and experience the least stress? Be sure to download our Comprehensive Guide to Property Management!