Property Management Blog

What 5 things cost landlords the most money?

Steve Schultz - Thursday, August 7, 2014
Property Management Blog

In my experience, some of the things that cost landlords the most money may not be very obvious to a lot of people.  That’s the reason why I wanted to share some my thoughts with you here.  Although there are many things to think about when it comes to rental properties, these are a few things that will hopefully get your mind thinking in the right direction.  So let’s jump right into what I believe costs landlords the most money. 

1.   Vacancy

In the Tucson market, the average “days on market” for single family homes has hovered around 45 days for several years.  “Days on market” is defined as the number of days from when the property comes on the market until it is rented.  So by reducing the days on market, we reduce the vacancy period.  In my experience, the most common cause of properties remaining vacant for a longer amount of time than is necessary is that the landlord sets the rental rate above market rents.  For prospective tenants searching for a rental, they can quickly determine how much is too much for a specific property.  The first things they look at is the rental rate.  In addition, the property being in less-than-perfect condition can cause the property to sit on the market longer.  The landlord attitude of “it’s just a rental” is the absolute incorrect attitude to have.  In our market, tenants have a lot to choose from and so as a landlord, you want to have the best property offered at the best price.  So as the property sits on the market, not only is the landlord missing out on rental income, but now the vacant property may become attractive to vandals, so repairing a vandalized property may become an issue.  Also, as the property sits vacant, the landlord will be paying for water to keep the landscaping alive, a cost that during a tenancy is the responsibility of the tenant.  Next is the leaking pipe that no one is there to witness and quickly shut off the valve.  This could lead to a large water bill or worse, a flooded house that requires even more money for repairs.  Although you may have been surprised that vacancy was number one, does it make more sense now?  

2.   Not screening tenants

I’m sure you’ve heard all the horror stories about bad tenants trashing properties and costing landlords thousands of dollars in damage.  A properly screened tenant is not immune to causing this amount of damage.  But more times than not when you track one of these horror stories back to the beginning, the tenant was never screened initially.  The story usually begins with, “they seemed like such nice people…”  Although in the rental business we can never reduce our risk to zero, a thorough tenant screening process is one of the best tools you can use to mitigate the risk you will face from the tenant.

3.   Non-paying tenants

Although non-paying tenants are often the result of not screening tenants, sometime they are a result of living life.  Things like death, divorce and job loss can put the tenant in a different economic situation which means they can no longer pay the rent.  If this situation occurs, sometimes the best solution is to mitigate the loss by working with the struggling tenant and immediately seeking a new tenant to rent the property.    

4.   Ignorance

Yes, I said it.  In our world, what you don’t know can hurt you.  Sometimes landlords don’t know the rental market so they price the property too low and miss out on income or they price it too high and are a victim of the vacancy problem mentioned above.  Or worse, maybe they get into legal trouble because they don’t know how to properly serve notice to a tenant or complete the eviction process.

5.   Maintenance

Finally, we get to what most people believe is number one, maintenance.  I recommend that landlords set aside $50 - $100 per month to cover the repair that will eventually be spent on maintenance.  One thing I tell all landlords is that although I don’t know exactly what will happen, I know something will happen.  Maybe the water heater finally quits working, or the air conditioner capacitor goes out, or the dishwasher is beyond repair and needs replacement.  There’s always something that will need to be repaired eventually.  But there’s another group of people that think once the property is rented, magically, the property will never need to be repaired again.  Avoid this thinking to prepare yourself for the reality of providing rental housing.