Pitfalls to Personal Real Estate Investment Management and How to Avoid Them

real estate investment management
Most investors are DIYers who dive in with a mission to build wealth doing personal real estate investment management of their own growing portfolio of rental properties.

And why not?

They want to minimize costs and maximize profits.

But they also envision doing so without all the headaches and horror stories all those other guys have.

In this article, you will experience a very common story that is shared by real estate investors who landlord their own properties.

If you are trying to decide whether you should manage your own properties or pass them over to a property manager, then this article should help you.

Thinking of a Master Plan

As a real estate investor, you know it’s important to do all you can to maximize the positive cashflow of every property.

So, when it comes to the management of the property, you may automatically think of self-managing the property and not give a second-thought to outsourcing this work.

I’ve seen a common storyline of real estate investors that manager their own properties. This commonality boiled down to one word is ‘headaches.’

Here’s how it goes.

A new real estate investor will land that first tenant.

Excited to have monthly income on the books, you gladly work to make all the repairs that your tenant has an issue with.

Placing the Tenant

There are many moving obstacles in a leasing transaction, tenant placement and rental term.

The first obstacle you need to overcome is making sure the property is ‘rent-ready.’

There are several questions you should ask that will help you prepare your property. Some of these questions you should add to your list are…

  • Should the walls be painted?
  • Does the carpet need to be replaced?
  • Is the toilet or sink leaking?
  • Will my unit pass the lead inspection?

Once you address all these factors you should then put your real estate rental property on the market for rent.

At this point all you do is sit and play the dreaded wait-game.

If you’re like most of us, your thoughts race constantly – wondering how long it will take to rent.

For many, a month passes and they start to lose money. This time is scary and most wonder if they have made the right decision to become a real estate investor.

Or, prospects bite but don’t commit.

Now once the property does get a taker, you are eager to rent the property out and negotiate with the first real prospect that shows interest.

Once you get a committed prospect, you perform the credit and criminal check in order to screen the prospect.

They look clean, so can now get them to seal the deal by offering half off the first month’s rent.

The Lease

One of the big mistakes that real estate investors make when managing their own properties is in using the wrong lease agreement.

Many investors who manage their own properties use the same old lease agreement they’ve used for a decade. Maybe, it was created by an attorney 10 years ago and it’s simple, so you use it.

Most investors go ahead and fill in the basic terms of their new lease, sign it and get their new tenant to sign.

You may forget to add an additional addendum, including the lead and pet addendum that may be an issue.

Happy to finally have the unit filled and a little positive monthly cash-flow from the deal expected to come, many don’t take a second look at this critical condition of a lease contract.

So, let’s a few months go by and the tenant has been decent.

They pay late almost every month, but you don’t want to say anything or file a failure to pay, because you don’t want to lose them. You think to yourself, they pay every month – just late.

And in your situation, late rent is a lot better than no rent.

However, as a private landlord, there are many areas you fall victim to and you may not even know it.

By using a lease that is not up to date, you are opening yourself up to major liability. Leases should be reviewed by an attorney yearly.

Additionally, you need to understand the addendums that are required to go with a lease, which are based on…

  • Age of the property
  • Property in a neighborhood with an HOA
  • Policy on pets
  • And so on

One of the big pitfalls that most personal real estate investment managers make with their rental deals is violating their own leasing terms.

Tenant Blues

For example, if you put someone in the unit that was not a great candidate, and they have red flags, these may come back to haunt you.

Some people place a marginally qualified tenant in the unit just to get it rented, and then change the terms of the lease.

For instance, if you state in the lease that rent is due on the 1st and late by the 5th, and then you don’t charge a late fee or you don’t file failure to pay through the courts, you, the Landlord, are violating the lease.

You are now allowing the tenants to dictate new terms of the lease, without even knowing it.

This usually happens because you don’t want the unit to sit vacant and lose you money.

Here’s another scenario I’ve seen that many landlords deal with.

They get a call from the police stating that they did a raid on the landlord’s property and arrested the tenant for selling drugs. They ask the landlord to come secure the property because they had to break down the door.

So, the landlord finally has enough and they decide to evict the tenant for lease violations. They decide to send the tenant a letter stating they violated their lease and are terminating their lease.

The letter contract gives them 60 days to move out.

At day 61, the tenants are still in the unit. So, now the landlord has file with the courts for tenant holding over.

Let’s say YOU are the landlord.

How do you feel at this point?

After all, the process of filing with the court takes a while, and all the while you ask yourself how you got into this mess.

Once the tenant finally is out of the unit, you go in and see there is a lot of tenant damage.

“Are you kidding me? I just painted and put down new carpet right before this tenant moved in!”

In many scenarios, the tenants owe the landlord so much money for the rent they stopped paying once a filing was made on them, plus a host of new damages left by the tenant.

This leaves landlords wondering how they will ever re-coup the money. Especially a bad situation if the tenant hadn’t been there a year.

Now, you are starting to think that being a landlord isn’t worth it anymore because you aren’t making any money.

A Better Way

While that statement is accurate, being a self-managed real estate landlord, before giving up on investment properties altogether, you should take a leap of faith and entrust your rental property to a professional property management company.

In some cases, a real estate property management firm has the knowledge to place A+, well-qualified tenants, so you don’t have to worry nearly as much about them.

They may also use the most current Maryland lease contracts and addendums, as well as understand how to handle the tenants during their tenancy.

A good property management company will treat this as it should be treated – as a business, with you-the Investor, as their client.

Another benefit of using a property manager is that they look out for your best interest while making sure the tenant pays on time and enjoying the rental, so they become long-term tenants.

Building your passive income real estate rental portfolio does NOT have to be filled with disappointment, regrets and headaches.

If you want to remain objective and focused on growth, instead of getting bogged down in an ocean of tenant issues, then you should seriously consider hiring the right rental property management company.