If I’ve learned anything over the years it would be to embrace your mistakes and turn them into profitable lessons. I suppose you could look at it as a sort of tuition for some good education. Trying as these lessons can be, it is paramount to truly learn what you need to adjust to become better at what you do. As most any investor knows, if you have not made any investment mistakes you probably have not made any investments.

The beauty is you do not necessarily have to make these mistakes yourself; you can also learn from the mistakes of others. So I would like to share mistakes that I have either personally made or have watched investor-clients make.

1. Being too quick to fill a vacancy
I often see new investors fall prey to this one. I know I did when I first started. The thought of not collecting a rent check freaked me out and, boy, did I pay for that. It is easy to drop your standards when a unit is about to become vacant. Emotions take over and a prospect comes to you waving cash at you. Sure, they do not represent the perfect tenants, and their income is lower than I require, but they are nice people and they have the cash for the deposit and first month’s rent. Besides, I will start negative cash flow next week if I do not rent to them. Three months later, I struggle to collect rent, and month after month is a fight to get paid. I tell myself, “I wish I had held out for better tenants.” Like so many others, I have learned it is far better to have a few weeks of vacancy while finding the best tenant than to hurry and rent to a bad apple. As Anthony Robins says, “We tend to look for immediate gratification.” This is often at the expense of long-term gratification.

2. Treating tenants as an income source instead of valued customers
Having an investment property business is no different than any other business. We need to work hard to obtain customers and treat them well so they will return. I was a landlord at the age of 18, and I viewed tenants as my income source. I have since learned this valuable lesson: they are an integral part of the business and need to be treated as valued customers. I do continue to see investors treat tenants as an income source instead of a valued customer. Tenants needs to be nurtured so they feel like valued customers and are willing to return at time of lease renewal.

3. Failing to clearly define rules and boundaries
One of my most valued lessons in life is setting boundaries. I have learned that during the first week or two of tenancies, boundaries automatically are being set. The big question is, “Who is setting the boundaries?” Either you are, or the tenants are, but indeed boundaries are being established. Take the reins here, as this is your chance to establish great business practices.
I create a list of expectations that I give to clients at move-in when I do the walk through inspection. This list should outline the parts from the lease about policy and procedures, which includes what they do as a tenant and what you do as a landlord.

4. Trying to become friends with their tenants
As a young landlord, years ago this was a tough one for me. I felt the pain of the tenant’s hardship money stories, but I learned that if you work with them once, they will expect it always. Again, boundaries are being set here. I also see a lot of landlords try to be friends with their tenants. You want to like and trust each other, but you are in a business relationship and it should stay that way. Developing a close relationship makes it difficult to manage from a logical business person’s perspective. Emotion-based decisions have very little place in running an effective business.

5. Failing to keep property maintained
I tend to be a perfectionist, perhaps to a fault. I may have spent more on maintaining a property than needed. However looking at hundreds of properties each year, I continue to see a large number in disrepair. When talking with sellers, I find that the common theme is they want to increase cash flow and do so by ignoring repairs or simply doing inexpensive “bandages” on a property. In reality, it creates unhappy tenants who move frequently, which actually results in lower cash flow. The repairs themselves that get ignored devalue the property. My experience tells me that to maintain maximum cash flow you want to maintain a property in great condition.

6. Missing opportunities on multiple-year leases
As investors, you all know that tenant turnover is the single largest expense we encounter. You do not have to continue to carry that burden. This is an expense you want to address, not simply accept. I have found great success in offering two- and three-year leases. It immediately goes to identify tenants who want to stay long-term. I have even used escalators to increase rental rates each year. Both ways your cash flow will be more consistent and your tenants who desire to stay will know what the future has in store for them as opposed to wondering what is going to happen on their move-in anniversary. You also want to treat these tenants well so they continue to renew leases.
7. Being a landlord instead of being an investor
This one may be subjective but it comes from my experiences working with hundreds of investors. I find it to be a common denominator that separates the most successful investors from the ones who struggle to advance. The most successful investors spend their time investing instead of being landlords. As a licensed real estate broker, I am always asked if I will manage my client’s property. I always state that managing property is a full-time position. To be effective at it, you need to devote full-time attention to it. Perhaps one of the biggest mistakes is trying to be effective as a part-time landlord. I have found that property management companies have systems in place to be much more effective. While there is a fee associated with using them, the time you save allows you to spend time investing and enjoying life, which of course is why you invest in the first place.

“To achieve your dreams you must embrace adversity and make failure a regular part of your life. If you’re not failing, you’re probably not really moving forward.” This is my favorite quote from the book, “Failing Forward: Turning Mistakes into Stepping Stones for Success” by John Maxwell.

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  • Larry Arth

    Larry Arth is the founder and CEO of Equity Builders Group, a Florida-based real estate investment group. A 36-year veteran of real estate investing, Arth also is an international consultant and speaker who each year assists hundreds of investors, both foreign and domestic, in realizing their investment potential. He analyzes locations for economic strength and for the largest and most sustainable returns and, most importantly, sustainable turnkey investment. His focus is offering turnkey investments to the passive investor. Visit his website at www.howtobuyusarealestate.com.

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