6 Common Property Management Mistakes and How to Avoid Them

Thinking about purchasing a rental property? Are you deciding between self-management or hiring a property management company? Surely, you can handle a tenant on your own. After all, how hard can it really be, place and an ad, put up a “For Rent” sign, interview a few tenants, collect money, and they move in?

Hear what a fellow Real Estate Agent shared with us regarding “managing” a property on his own and the mistakes he made along the way. To protect the identity of the Agent, we will refer to the agent as George.

George says “Recently, I found myself in a unique situation. I am a Licensed Real Estate Agent, and I work in Property Management. I purchased a rental property of my own, and thought, “how hard can managing my own property really be?” Surely, my years of working in Real Estate and Property Management taught me something, I got this!”

Mistake #1: Qualifications in Property Management

Now, I know that properly qualifying a tenant is the foundation for ensuring a good tenant is placed in the property. It is important to have set qualifying guidelines such as debt to income ratio, credit score, employment history, etc.

Normally I pull credit and verify employment and current residency. But this time I allowed family members to refer this person. So, I sat down and had a meeting with the tenant.  I still ran the credit, but before I pulled it, I did ask the qualifying questions:

1. How long have you been at your current resident?
2. How’s your credit?
3. Have you ever been evicted?

I tend to not worry if a person has a short sale or a foreclosure since many people took out bad loans and this has caused them to now become a renter.  This has never come back to burn me, so I wasn’t concerned about it this time. Give people the benefit of the doubt! Ha, little did I know how hot the fire was going to be this time.

Mistake #2-Listening to others

I pulled the tenant’s credit, and yes, there was a red flag on their credit.  I overlooked it and felt like it was okay because this person was referred by two of my family members. These family members knew this individual well, knew the back story and convinced me to give the tenant a 2^nd chance. After all, my family members have good credit and have been in their homes for over 20 years. Surely, they wouldn’t recommend someone that would burn me, right? Wrong…

Mistake #3-Business is Business

I broke my #1 rule that my mother and grandparents always taught me that business is business. Guess mama knows best! My first clue that there was a problem occurred when my tenant stopped paying rent on the 1^st of the month and started paying on the 7^th of the month. I gave a 10-day grace period before applying late fees, really who does that? I know better, 5-day grace is enough, it’s not like I am made of money and can float the mortgage on my back. Once again, she was referred by family, so I cut the tenant more slack than I normally would have.

Mistake #4-Proper Notice

The end of the lease was approaching, and boy, was I glad to see this mess come to an end. Just give the tenant notice to move out. In California, if a tenant has lived in the property for less than a year, a 30-day notice to vacate is proper notice. Had the lease gone longer than one year I would have to provide a 60-day notice to vacate.

Once again, I was the “nice guy” forgetting my number 1 rule business is business. On April 10^th, I gave her a 60-day notice to move out. I wanted to give the tenant time to find a new home and not just “kick the tenant out.” Crash and burn…the tenant didn’t pay rent on May 1st.

To ensure the tenant received the notice, I sent a certified letter informing them they were to move out in 60-Days. The tenant confirmed receipt of both the personal posting and the certified mail.

No more mister nice guy. This has gone on for far too long. I posted a 3-day Notice to Pay or Quit. I tried to serve the tenant directly but would not answer the door and looked at me through the window. I took a photo of the notice and her in the window. I followed up with a certified letter.

Once again, the tenant confirmed via text message receipt of the notice on the door.

Mistake #5- Selling the Property

Carrying this mortgage and my personal mortgage is EXPENSIVE and breaking the bank account. I have used all my savings just floating this property. Time to Sell.

Not so fast, this is a bad idea, and I know this. If a property management client called and said they wanted to sell and we were facing an eviction, I would recommend waiting to put the house on the market until after the eviction. Why would I not follow my own advice? Desperation, pure desperation.

Clearly, the tenant is not going to cooperate with showing the property. In fact, the tenant missed several showing appointments, costing me the potential sale of the property. And to make matters worse, the water heater went out.

After several text messages back and forth, the tenant believed she didn’t have to pay rent since I was selling the house. I hear this all the time in Property Management, somehow the owner placing the property on the market indicates “free rent.” While this might be a negotiation token used by owners to encourage tenants to show the property, it is not an automatic thing.

Mistake #6- Eviction

Working in property management, I have been through the eviction process many times. Most of the evictions go off without a hitch, so when it came time to file the eviction, I was confident that I could handle it myself. Really, it’s just a matter of going to Downtown Los Angeles, filing the paperwork, and paying the fees to start the eviction. I got this! Wrong, again.

The eviction was filed on May 26^th in Downtown Los Angeles.  Now, I live roughly 50 miles away. If you know anything about traffic in Southern California, that equates to a 2-hour drive on a good day. Most days it could take 2.5 to 3 hours. All this driving back and forth, trying to come to a resolution, cost me nearly $500 in gas, wages lost, parking fees.

This time I took the train to avoid the traffic and high parking fees. The cost was roughly around $300 to file the paperwork myself. By filing the paperwork, I saved about $500 in attorney fees. But here is the real kicker….my court date was not for 6-months after filing the paperwork. The court encouraged me to work it out with my tenant. Really, what do you think I have been doing? I would not be here filing paperwork for an Eviction if my tenant was willing to “work it out.”

Hindsight is 20-20. I decided to call an eviction attorney. I was advised that if I had used an attorney, I would have received a court date about 20-days after submitting the paperwork. So, that $500 I saved by filing my owner paperwork is really costing me $12,000 in lost rent alone. That is a semester of college for my child. This is an expensive lesson.

Moral of the Story

Here is my advice to anyone who thinks they know what they are doing….stick to what you know. I thought I knew “property management”, boy was I wrong. What I know is the concept of property management, not realizing the process we do day in and day out has a true purpose in the big picture of property management.

1. Do not break your own rules because you feel sorry for a person. Even if they are willing to pay a higher security deposit.

2. Document everything.

3. Get an attorney to handle your eviction because your time is much more valuable than dealing with this yourself.

4. Hire a professional management company to take all this stress off you.

This experience has taught me to appreciate the processes and systems that I use every day working in property management. I have a greater appreciation for our qualification process and sticking to our guns, not placing a “square peg in a round hole”. You will most likely get burned if you deviate from your pre-determined qualifications.

Still deciding between self-management or professional property management, check out our blog below.