5 Common Mistakes New Landlords Make
Written by Connor Swalm
Jaime: Well, hi there. My name’s Jamie Swalm. I’m here with Connor Swalm and we are the hosts of the Landlord’s Resource. Brought to you by Swalm Property Management, where each week we educate and empower landlords just like yourself. Connor, how are you today?
Connor: I’m doing great today.
Jaime: Alright, well we’ve got a special show for you today. We’re going to talk about the five most common mistakes that new landlords make and so let’s jump right in. Let’s talk about the first mistake.
Connor: The first mistake that we see often made by new landlords, rookie landlords, is owning the property in your own name. So they’re not an agent of a company, they’re not a part of a company. They are signing as Mr. or Mrs. homeowner, they are managing the property as Mr. or Mrs. homeowner and they own the property as Mr. or Mrs. homeowner. That opens you up to a whole slew of liability issues that could crop up as a result. You’d really, for liability purposes, want to get your property owned and you’d want to manage your property as an agent of an LLC or however you end up setting up your corporate structure just for liability purposes. The second reason that it is also beneficial to own a property in a corporation instead of in your personal name is for tax implications. There are all sorts of tax implications that you could take advantage of or tax benefits that you could take advantage of if you own your property in an LLC. Now we don’t know, we’re not the professionals of this, but we hire accountants and we hire tax attorneys to help us figure out exactly how we should own our own property or how we should instruct our owners to own their property as well so that they can not only prevent liability from happening or they can reduce the liability as much as possible, but they could also save money on taxes as well at the same time.
Jaime: Yeah, and obviously we’re not attorneys, so we want to encourage you to consult with your attorney and your accountant. But our suggestion is don’t ever own property in your own name and I can tell you that we follow that advice. So the investment properties that we have there, we own in corporations as well. So short story is, don’t own investment property in your own personal name. I know that sometimes folks will talk about how I’m going to own under my own name and then I’m going to get an umbrella insurance policy to cover any incident that may happen. Not even in that situation do we recommend you owning it in your own name.
Number two is not giving the tenant proper notice for entry, and we see this all the time. So very often the owners, because they own the property, are kind of under the misunderstanding that when there’s a tenant in the property, they can show up at anytime, knock on the door or come in or just walk in or have a key and go in. That is not the case. So you cannot simply show up at a home if the tenant did not specifically request that you address something, you must give 48 hours notice at least to the tenant. Now if the tenant obviously requests that you come and do something, then that’s fine. But outside of the tenant initiating and having you come and do something specific in that home, you must give the tenant 48 hours of notice before entering the property.
Connor: And let me touch on that a little more. The Delaware Landlord Tenant Code states 48 hours. For some states it’s different, it’s only 24. For some states you might not even need to give them notice. But for Delaware, it is 48 hours notice at least. It’s not even just that, it must be done in writing. So let’s say you want to schedule an inspection, you need to send a letter via a certificate, first class, with certificate of mailing to every financially responsible tenant on the lease. You cannot mail one letter at a time, you need to mail three separate letters if there are three people on the lease, 48 hours in advance and it needs to state exactly when you’re going to be there and who’s going to be there and why you’re going to be there. Now, if a tenant requests maintenance, like for instance, we keep a lockbox at our properties so that our vendors have access to a home so that if a tenant is at work, which happens a lot, a maintenance issue that needs to get resolved can still be resolved quickly and efficiently and it’s less of a headache to the tenant as well. So in that case, if the tenant requested that maintenance, you don’t need to give them notice. They’ve requested that you go there, they requested that you fix the issue and you are able to go do it at that point.
Another example is also if it’s an emergency. So let’s say you have a duplex and the unit next to a vacant one, or in that case you wouldn’t need to request a access. Let’s say the tenant is away on vacation and the tenant next to them says, hey, there’s a huge leak in the property. Well at that point if there is damage being done to the property that you could solve, you are able to get access to the property at that time as well.
Jaime: So the third one is not following correct procedures for evictions. Now this is a big deal. So as a landlord, maybe you have a tenant that has stopped paying rent and you want to and need to get that tenant out as quickly as possible and following an eviction process so that you can put a new tenant in place so that you could have that new tenant begin to pay rent again. Not following correct procedures for evictions can significantly delay your ability as a landlord to get that tenant that is not paying, out. We see this all the time with landlords. Maybe it’s the first time they’re trying to do eviction. They really don’t know what they’re doing. They’re trying to muddle their way through it. So what are some of the most common things in an eviction process that you see landlords doing wrong?
Connor: Well first, we have a whole podcast that I’d encourage you to go take a look at on sending a five day letter. So the first part, and we have a whole podcast actually on the eviction process also that you could go take a look at. The beginning of any eviction starts with the correct five day letter. So that requires that you send it in the right way, you send it in the right amount of time, you wait to file in the right amount of time, and everything on your letter is correct. So there are things that you can include on the letter and there are things that you can’t include on the letters. So you need to make sure that you have all of that realized and handled. If you’re unsure of that, you could go look at our five to seven day letter on our website, or you could also take a look at our podcast episode on it. Now states differ, so what you need to send and when you need to send it differs between every state. But in Delaware, all of our advice would be for Delaware, which we’ve spent a lot of time and we’ve actually used to do incorrectly. So we actually spent a lot of time learning from our mistakes and also learning how to do things correctly from attorneys and the people who actually wrote the Landlord Tenant Code so that we could know what we should do and then also what we should tell other individuals to do or recommend that they do as well.
Jaime: We’ve spent a lot of time learning the Delaware Landlord Tenant Code and in particular the eviction process. And I would highly recommend that as a landlord, that you get help or professional legal help with the eviction process.
Alright, number four most common mistake that we see new landlords make is trusting your gut when placing a tenant. And we have seen some horror stories happen here. What’s the problem with trusting your gut?
Connor: When you trust your gut placing a tenant, you have no clue what you’re going to get. So a tenant could be lying to you straight to your face. We’ve seen that a tenant could not be lying to you straight to your face. They could just not be the person that they say they are and really your gut is not a hard set of criteria that you use to decide who gets to live in your property. Also, sometimes owners don’t think about the discrimination liability that comes with it. So anyone can make any case for any reason if your answer to why they didn’t get to rent your property was because of your gut. That is not a good answer. So we over here at Swalm Property Management, we have a hard line criteria. If you don’t meet those, you should not even apply because we’re going to reject you. And then based on that point, the only thing we have access to is the tenant’s name, their previous living history, their credit history and then their criminal history. And those three pieces of information that we get back, that is how we decide if we’re going to rent to that person or not. The homeowners, in our case, don’t even have access to that information, we can’t even disseminate that information to them. We make a decision, we bring it to the homeowner and we say, we’re going to rent you to this tenant for this reason. And then we move that tenant in and we go ahead and move forward. There’s never our gut. We actually don’t even see the tenant until the move in inspection. So there is no room for any discrimination, for any liability. It is really just the factual information that we’re giving that allows us to make the decision that we need to.
Jaime: Absolutely. There’s a big risk to landlords that are tenanting the property themselves. Unfortunately, in our society, there are renters that seek to take advantage of unsuspecting landlords and they’re very good at it. They’re all renters that no the landlord tenant code so well that they intentionally look for landlords that are trying to tenant the property themselves that don’t have a lot of experience. They know what to say in order to appear to be the perfect tenant. And then once they get into a property, they also know how to manage the system so that they are able to stay in that property as long as possible. Even through potentially multiple failed eviction processes. Especially if an owner is trying to go through an eviction process for the first time. And so trusting your gut is the worst thing that you can do as an owner when putting a tenant into your property. And the other thing is that in our society, a charge of discrimination in a landlord tenant dispute is a very big deal. That is the last thing that you want to have to go through as a landlord. The hassle, the amount of money that can cost is just potentially enormous. And so I don’t want to underestimate what Connor said that when we tenant your property, we follow the same procedure every single time with every single individual and that significantly improves your ability as a landlord to obtain a very high quality tenant. So don’t trust your gut, that’s number four. Number five is not budgeting correctly for cap ex costs. So go ahead and explain what cap ex costs are.
Connor: Cap Ex costs are really the cost of owning a home. So if you own it in an LLC, you’re going to be taking some amount of depreciation. That’s not just a free tax break you get. There’s an actual cost to your home. The more your home has been in existence, the more chances are the longer things have been there and that they’re going to need repair. So cap ex cost you could also define as those large ticket items that are going to need replacement. So for instance, we manage in Wilmington, if you’re in the city of Wilmington and your heater is 50 years old and it’s oil heat, there’s a good chance that if you get a cold winter, your heater’s going to break. I’m going to get a call from my tenant and I’m going to have to send someone who can get there in less than two days to replace your entire heater if it needs to be replaced. And that is a huge ticket item, we’re talking 8-9 thousand dollars at some point. Sometimes, some owners are not capable of sustaining that cost and if you’re not capable, if you’re not budgeting. So if you’re not capable of handling a large ticket item like that, like for instance, your roof, your heater, your AC unit, maybe there’s a huge plumbing leak that causes a lot of damage indoors, maybe a couple windows break, anything that could be huge. If you don’t budget for those ahead of time, then you’re not going to be prepared when they happen and a lot of bad things are gonna start to occur. Your tenant’s not going to be happy. Maybe they move out, maybe they break their lease. Maybe they withhold rent because the of the home they can no longer live in or maybe there’s a like a rights violation where they have no heat in the middle of winter, you’re not able to prepare it and at that point it is just a huge issue for the homeowner and all it would’ve taken to resolve is to budget correctly. So we recommend that every landlord, every homeowner have a certain amount of money set aside, they don’t touch, and that changes depending upon the size of the home and also the rent amount of the home. Every time we recommend a homeowner puts that money aside, it’s really to prevent an issue like that occurring so that when we go to get approval for a homeowner for something that needs to be solved immediately, there’s no worry. They have the money, we resolve the issue and then we discuss it later. And that’s really the best case scenario at that point.
Jaime: And that’s actually one of our criteria for taking on owners. When we’re on-boarding an owner, we talk about that owner’s ability to maintain the property in its proper form because the last thing we want is to work with an owner that doesn’t have the capacity to actually keep the house repaired financially. We had a recent situation, Connor mentioned Wilmington, where one of the owners that we manage a property for, had a pretty significant event occur in the property and they informed us that they did not have the resources to fix that event. Well, the bigger problem was that we were working with the Housing Authority, with that tenant, which we do frequently in Wilmington. And so when the owner could not fix that, the Wilmington Housing Authority got involved and it really created a significant issue that we had to get resolved. It would have been far simpler if the owner simply would have had the funds to actually repair that home and then everybody would win. So not budgeting effectively for cap ex costs is a big deal. Anything else that we want to close out with?
Connor: No, that’s pretty much everything. Be aware of these five things. If you have any questions, reach out to us, we’d love to answer it. We put out this podcast, we put out Youtube videos for your benefit, so that you guys can get some education. A rising tide lifts all boats, so we’d really like to educate landlords so that they start to perform better and as a result we get to perform better as well.
Jaime: Absolutely. And you can always get us at swalmpropertymanagement.com. Lots of free resources on our site to educate you as a landlord. Go ahead and leave us a like or review anywhere you can find us and we look forward to seeing you on the next episode of the Landlords Resource.