If you’ve owned rental property for a while, you may have noticed your margins are shrinking. Expenses are rising faster than rents, and small mistakes can cost you thousands. If you’re not actively protecting your income, you’re probably taking the hit for financial losses you don’t have to take.
Self-management is more expensive than ever
Trying to manage everything yourself seems like an easy way to save money, but it’s often the fastest way to incur avoidable financial losses. In today’s economy, even expected losses hit harder.
With more tenant-friendly laws being passed – including laws banning no-cause notices to vacate – it’s getting harder to make business decisions that keep you profitable. For example, in some areas, you can’t force a tenant to move out just so you can charge market rent to a new tenant. Even if you’ve been giving someone a major discount for years, you’ll have to gradually raise the rent according to state and local laws.
Whether you make improper deductions from a security deposit or fail to make timely repairs, one wrong move can cost you thousands in a civil lawsuit. That’s where professional property management can help. An experienced property manager won’t just handle logistics for you. They’ll protect your profits if things escalate. When you need to sue a tenant for unpaid rent or property damage, they’ll have all the documentation needed to prove your case. Without professional management, you risk having to scramble at the last minute to gather your evidence, and if you did something wrong – even accidentally – you’ll probably lose your case.
That’s exactly what makes professional property management a risk reduction strategy. For example, Houston property managers from Green Residential protect their clients by enforcing lease terms consistently, documenting every interaction, and acting fast when there’s a problem with a tenant. By the time the need for a lawsuit arises, they’ve done everything by the book and have a clear paper trail to prove their case.
People are skipping rent
While many people skipped out on rent during the pandemic, it’s still an ongoing problem. Unpaid rent is a massive profit killer, and while you can evict tenants who don’t pay, you won’t recover your losses unless you pursue the matter in court.
The only way to reduce the risk of missed rent payments is to tighten up your tenant qualification standards and only rent to people who fully meet those requirements. For example, since the cost of living is at an all-time high, you might want to require income to be three times the monthly rent and skip anyone with a bankruptcy. Exceptions used to make sense but that may work against you today.
Property damage is more expensive to fix
The cost of everything has risen to great heights, and that includes the cost of repairing property damage. Even if it’s something you can fix on your own, like damaged drywall, the cost of materials is sky high. If you have to hire a contractor you can expect to pay a lot.
The cost of repairing property damage caused by a tenant might exceed their deposit. In the past, typical deposits covered small repairs, but that isn’t the case anymore. You can sue a tenant for damages their deposit doesn’t cover, but that doesn’t mean you’ll get paid.
Illegal subletting has become commonplace
Since rent prices are sky high, many tenants are illegally renting out rooms behind their landlord’s back. They’re not even asking to add someone to the lease. In some cases, it’s not a big deal, but extra tenants create more wear, use more utilities, and increase landlord liability. They also gain legal status as a tenant after a certain period of time, and can be difficult to remove without filing a formal eviction lawsuit.
If tenants illegally rent to someone who violates applicable HOA regulations, you’re the one who will get fined. Since you can’t remove someone immediately, you could end up paying thousands of dollars or even losing your home by the time you get them out.
Rental property is not passive income
No matter what YouTubers claim, owning rental property is not passive income. It’s a business that requires your full time and attention to stay profitable. And with skyrocketing inflation, one small mistake can cost thousands of dollars.
While many property owners are experiencing a profit crunch, it doesn’t have to happen to you. Most financial damage is preventable by holding high standards, enforcing lease agreements, documenting everything, and taking legal action when necessary.
The landlords who stay profitable through these difficult times will be the ones who are proactive rather than reactive.