Top 7 Mistakes Landlords Make

Mistakes are easy to make. Even for landlords. There are things you can do that will have a bad impact on your tenants and your relationship with them that you might not think about. Here are 7 mistakes I am pleading with you to avoid.

1. Disobeying The Golden Rule.

The number one mistake you can make as a landlord is not treating your tenants by the golden rule. Just because you may have the gold doesn’t mean that you should treat your tenants however you want. You are running a business, and your tenant is your customer. How is your customer service? Do you treat your tenants the way that you would want to be treated if you were them? You may draw a hard line because you have the right to do so on any number of issues, but if you always treat the tenant as a valued member of your team, they may one day say that they love working with you and that they would love for you to buy more real estate and be your anchor tenant. Don’t miss out on that opportunity.

2. Not Knowing Your Tenants.

Treating tenants according to the Golden Rule does not mean sticking your head in the sand and being unaware of what is going on. Don’t make the mistake of not doing due diligence on the financial health of your tenants and being unaware of their business practices and their reputation in the marketplace. You need to know how shifts in the economy are affecting your tenants. It’s true that you have a signed contract with them so they are obligated to pay you, but you will want to know if a downturn is making it difficult for them to function. Similarly, you will want to know if their business is growing and they need more space which perhaps you can satisfy by bringing them to another one of your properties, but you will also want to know in case they end up trying to leave to get more space because they are doing so well.

3. Helping Financially Unsound Tenants.

Assuming you know if you have an unhealthy tenant, don’t make the mistake of helping them out when they are in a downward spiral. Tenants can get behind in rent for various reasons, and in many cases it is in your best interest to work with them so you don’t have the headache of finding a new tenant or evicting them if they are in a slow period of their business. However, if you have avoided Mistake #2 and you do know the health of your tenants, you will know if a tenant is late on rent because of a short term issue or if it’s due to the tenant poorly running their business. If that’s the case, the hole will get bigger and bigger and you will get more and more frustrated.

4. Assuming Others Care About Your Property.

Just because a tenant occupies space and is in and out of it every day, or just because you hire a property management company, does not mean that they are going to care about it like you are. Always inspect what you expect, don’t make the mistake of fully outsourcing the care of your property without periodically checking in. You may be pleasantly and unpleasantly surprised with what you find.

5. Not Billing According to the Leases.

Know the leases you have in place. Know when rent is due, know what the late fees are, know how triple net expenses should be billed, know if there are tax escalators that should be tracked, know when tenants need to notify you about renewal options, know the parking plan for the property, and enforce those rules. It’s incredible what happens to your late rent payers when they start getting billed 25% late fees.

6. Not Walking the Loading Docks.

I had a client who began managing a neglected and terribly underperforming multi tenant industrial building that was under managed, under utilized, way under rented, and filled with tenants who did not abide by their leases and left trash everywhere. It was a sad situation. This new manager made one very simple change, she started walking the loading docks and stopping in at these businesses. She didn’t play hardball, she didn’t demand they get their acts together, at least right away. She asked about their businesses, what they liked about the property, what they wished was different, and then she started making changes. Instead of being a faceless name on a lease agreement, she created a relationship with the tenants and showed that she cared. All of a sudden, the trash started getting picked up and rent started coming in on the first of the month, all because she walked the loading docks.

7. Don’t Be Cheap With Legal Expenses.

You’re a smart person. But please, please, please, use a commercial real estate attorney to write and review leases. Ok, so attorneys can cost a few hundred dollars an hour. If you own commercial real estate of any scale, avoiding a small error in a lease or for example getting a personal guarantee right will pay for itself many times over. Hire the right attorney that specializes in commercial real estate and don’t be cheap

Owning real estate can be a great way to preserve and build wealth, but avoiding some of these mistakes can significantly improve your and your tenant’s experience which only leads to peace of mind ultimately a more profitable investment.

I’m David Skinner, and this is the CRE Coach, where together you and I are lifting the hood on Commercial Real Estate.