1. Not Inspecting Properties Regularly

A few years ago I had a resident who did $18,000 in damages to my duplex. Whose fault was that? Mine! If I’d followed my own policies and procedures, I wouldn’t have incurred that damage. I didn’t screen the resident properly, and I didn’t get a landlord reference. If I’d done these things, I wouldn’t have rented to her, because I learned too late that she’d destroyed the unit she lived in before. In the first month, she did $800 worth of damage to my duplex, destroying the carpet and dirtying the place. In the second month, she did another $2,000 or $3,000 worth of damage. But I didn’t inspect it until the eighth month. By then, there was $18,000 worth of damage.

If I had inspected in the first 30 days, I would have stopped the damage at $800. I recommend inspecting every single one of your properties after the first 30 days of residents moving in. When you inspect your property after 30 days, the residents will know you’re serious about caring for it.

About every 8-12 weeks, I either fly to Nashville or have someone local inspect every one of my units. It takes me a day to look at all my units. My leases say that someone from my rental company can go in on the second Tuesday of the month, during normal business hours. We’re going to come in and inspect for repairs and maintenance. We may check the air conditioner, change the air filter, and spray for bugs. The residents are given notice that we’re coming in. Remember, you cannot go in without giving your residents some type of notice; it’s their residence.

2. Not Charging Residents for Damages

In my opinion, the only damages owners should be responsible for are normal wear and tear; residents should pay for any damages they create. About 90 percent of the time when I send my plumber to fix a broken toilet, he pulls out Beanie Babies, hairbrushes, and more. Who should be paying for that? The resident. So when residents move into my properties, they sign a damage disclaimer in addition to the lease. This disclaimer says, “You and your guests are responsible for the damages you cause: This is an estimate of costs, it may cost more.” Then, if a leaky sink costs $75 to fix, my management charges residents $150. If a doorjam costs $80, I charge them $160. (I like to keep things simple and multiply by two.) Most repairs include holes in the wall, stains in the carpet, leaky sinks, broken toilets, missing window screens, and so on. I can’t always collect on everything, but unpaid damages become unpaid security deposits.

3. Paying for a Repair or Construction Job before it’s 100 Percent Completed

I used to get ripped off by contractors. After five years of losing hundreds of thousands of dollars, I decided to research successful people and imitate what they do. When governments prepare contracts for multimillion-dollar construction projects, they include a provision that I suggest you include in all of yours: a 10 to 20 percent holdback. This means that payment of 10 to 20 percent of the entire amount is held back until the repair job is 100 percent completed-including the cleanup.

I hired a contractor to do a $60,000 rehab on a house I’d purchased. After working on it for six weeks, the contractor said he had just finished and wanted his payment. I called my inspector, who told me the work looked good, but two doors were off their hinges and trash had been left in the yard. I couldn’t sell it or rent it like that, so I called the contractor at 4p.m. on a Friday. He knew I was holding back $12,000-that is, 20 percent of the total he was owed. Guess when he went to put on the two doors and clean the yard? At 4:12 p.m. that same day. If I had paid him all the money, he may or may not have come back.

4. Not Having a Per-Day Penalty for Contract Work That’s Not Finished When Promised

Make sure you set up a per-day penalty for work that’s completed after the deadline. This makes a big difference in getting what you want in a timely manner. Here’s a good example. I bought a five-bedroom, three-bath property in a historic district for $18,000. It needed $18,000 in repairs. I put a total of $36,000 into this house, and it was appraised for $95,000. I saw that as a good deal-a home run. My contractor friend said he’d have the repair work done in six to eight weeks-drywall, paint, carpet, air-conditioning, and kitchen work. Since he was my friend, I gave him almost all of the payment up front. Unfortunately, it took him almost a year to complete the job, because he spent his time on other jobs, too.

So, instead of having $36,000 invested in it, I had the cost of capital, carrying costs, stress, headache, time, phone calls, overhead, insurance, taxes, liability-more than $50,000 worth of hassles. When he was finally finished, I called my Realtor (I love working with real estate agents!) and said, “I want to blow this property out the door. Even though it’s worth $95,000 with all the work done, let’s blow it out at $75,000.” I just wanted to make $25,000 and move on; I was tired of dealing with it.

I held an open house the first weekend, and 33 people showed up. They all loved the house, but no one made an offer. Why? To them, the price seemed too cheap, so they thought something must have been wrong with the house. Then we raised the price to $94,900 and sold it in three weeks, possibly to the same people who saw it when it was priced at $75,000. The lesson, in addition to not prepaying the contractor, is to never show or rent a home until it’s 100 percent finished, and to price it right.