Follow these tips on how to get started as a landlord.
Thinking of renting your house? Or, breaking into the real estate landlord industry?
Investing in real estate gives you greater control than investing in stocks which may experience a stock market crash. But, becoming a landlord requires plenty of time, lots of stress, fixing things, listening to lots of complaints, and dealing with tenants’ personality quirks.
Here’s a summary of how two people tried to do the same. Based on true stories.
Both had the option to sell their homes but wanted to avoid paying a real estate agent’s commission. Instead, they thought keeping the house could lead to building wealth.
How to Rent Your Properties
John and Sally (not their real names) rented out their homes when they bought bigger homes. They experienced different results.
John looked for an easy and quick way to become rich. He found out that owning a rental property and managing it himself was not the solution for becoming rich in a quick and easy way.
John hated the entire experience. His renters never paid on time, trashed the house, caused lots of damages, making John’s life miserable.
On the other hand, Sally found terrific tenants. They cared for the house and yard, never woke up Sally late at night with problems, and when moving out the house looked nicer than when they moved in.
Want to avoid John’s misery?
Follow these tips to experience Sally’s success.
Screen Your Tenants to get Started as a Landlord
Tenants make or break deals. You need to work at finding good tenants. Your options include hiring a property management company or a real estate agent to find tenants. Or, do it yourself.
Place ads in many print and online newspapers, forums, neighborhood groups, social media channels. Then, run background and credit checks, and check references on every prospective tenant. Verify what they claim in their application forms. Make sure no past evictions history exist. Finally, make sure their income is stable.
Never simply follow your gut feeling about a prospective tenant. The best scam artists know how to arouse good feelings about their lies.
Remember your future wealth and early retirement depend on how your tenants treat your house, pay rents, and move out.
Know the Laws related to Landlords
Don’t rent to strangers without first knowing the federal, state, and local anti-discrimination and habitability laws.
You can’t discriminate against tenants based on:
- Natural origin;
- Familial status;
- Disability; and
Also, you need to know the laws about:
- Security deposits;
- Your access to the property;
- Notices you must give tenants before evicting them; and
- Many more things.
If you don’t know these laws, remember that:
“Ignorance of the law is no excuse”.
Hire a real estate lawyer or take courses covering these topics.
Understand Landlord-Tenant Lease Agreements
Buying a standard lease agreement online or at a bookstore (do any of them still exist?) doesn’t cut it.
You must customize leases to meet your expectations and preferences. For instance:
- Do you allow pets?
- What kinds of pets (reptiles, exotic animals, pit bulls)?
- How many pets?
- Do you require leashing pets in common areas?
These only apply to pets. Many other items need specific wording in lease agreements.
Establish Clear Expectations with Your Tenants
Like telling your children to “Go clean your room”.
Many simply shove things under the bed and into the closet. Then, claim they’re done. By not setting clear expectations, your child is technically correct. But, you don’t get the results you wished.
The same applies to your tenant. You must establish clear expectations with your tenants. As a landlord, this means using a solid lease agreement specifying what you expect your tenants to do.
Your lease agreement specifies the types of emergencies warranting an immediate call for help. The best ways to contact at certain times in the day or night. What you expect about paying rent (on time or a small grace period). Especially specify what happens if they are late.
Establishing clear expectations upfront saves you time and frustration.
Maintaining the Property as a Landlord
Regularly inspect your rental property. Do you live close by to your rental?
Your lease agreement must specify how often you inspect the property. Every three months allows you to keep an eye on the property without bothering the tenants much.
Documenting the move-in condition of the property with photos and a list of current conditions of the:
- your included appliances and furniture;
- the A/Cs;
- water heater; and
- front and back yards, etc.
You and your tenants sign and date the document with each having an original and/or copy.
Before your tenants move out, issue a notice of inspection a week or less before the move to verify the condition of everything listed in the move-in document.
Developing a Sound System when Starting as a Landlord
No, I don’t mean speakers. Rather, a solid systemized process for conducting business. How tenants pay rent (cash, check, credit card, PayPal, etc.). What you do when tenants pay rent late.
This includes setting up a proper bookkeeping and accounting system from day one. Preserve all records of income and expenses for the IRS, your insurance provider, and in case a tenant sues you.
A sound system for conducting your landlord business reduces your work and stress.
Maintain Reserves to Protect Your Landlord Business
Many landlords fail due to lack of preparation. It’s important to set money aside for emergencies.
The major problems with rentals revolve around things breaking. A water pipe breaks resulting in unexpected plumbing costs. The air conditioner breaks down. The water heater stops working. The roof leaks. It all adds up as money goes down the drain.
Expect these breakdowns to happen. Prepare for them by setting aside reserves. It’s the cost of doing business as a landlord.
Never Manage Everything Yourself as a Landlord
Outsource what you can’t or don’t want to do yourself. Landlords must remember that a jack of all trades is not a requirement.
Managing the property yourself requires:
- Advertising vacancies;
- Taking phone calls;
- Finding good tenants (reading applications, interviewing, background checks, showings, etc.);
- Collecting rents;
- Fixing everything that breaks down; and
- Maintaining all included appliances, A/C, water heater, furnace, etc.
Doing all these yourself often leads to stress, wasted time, mistakes, and feeling bad when you’re not good at it.
Eventually, you’ll get smart. Hire a property manager.
That’s right, from that day on you’ll feel less stress, save time for family and friends, sleep better, and stay healthy.
Maybe you like doing some of the things listed above. But, for the ones who don’t know how to or just hate doing, outsource it.
Don’t be like John. Be like Sally. Own a wonderful profitable rental requiring less work and stress. You may find renting as the perfect foundation for building your wealth leading to early retirement.
Also, we recently published a post here about how to avoid landlord mistakes. Here
If You Need Property Management Services in San Diego
We published a post here about how to get started as a landlord and knowing when you need a property manager. Here
Steven Rich, MBA – Guest Blogger
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