Tips For New Landlords

Tips For New Landlords

Starting as a landlord is not easy. Here are some tips for new Landlords. They will help you get started and earn profits.

KEY TAKEAWAYS

• Our tips for new landlords help newbies and experienced ones as well.
• Learn how to find a rental property that attracts tenants.
• We provide hyperlinks to 3 Free online rental income calculators.
• Find out how to find “up and coming” neighborhoods to buy rental properties.
• How to screen applicants with hyperlinks to Free online tenant screening reports,
• Learn how to document the condition of your rental before new tenants move in.
• Learn more about being a landlord by viewing hyperlinks to our recent blog posts.

 

 

Tips For New Landlords

 

Let’s clear up one myth about rental properties. Rentals are not passive income if you intend to become the landlord. Rentals as passive income only happen when you make the investment and sit back while someone else does the work.

As you will read here, it takes lots of time and energy to act as the landlord. Yet, if you can handle it, you will save money by not hiring a live-in manager or a property management company. Ask yourself this question: “Is it worth it?”

Now, for our important tips for new landlords.

 

1. Find a Rental Property That Attracts Tenants

 

Ever hear of “curb appeal” when selling a house? It’s a real estate industry term used to describe how to make a house appealing when buyers drive by. Curb appeal involves new paint for outside walls, an enticing entry and front door, freshly mowed lawn, and beautiful landscaping. It appeals to car occupants. It beckons them to get out of the car for a closer look.

The same principle applies to a rental that attracts tenants. Would you want to live in a run-down house? Maybe you are poor and that’s all you can afford? Yet, tenants with money want to live comfortably.

Housing experts like Motley Fool’s Millionacres claim you “make your money when you buy, not when you sell a rental”.

Here are some practical tips:

• If you buy a fixer, fix it up before you try to rent it.
• The more a rental is attractive, the more potential tenants will want to rent it.
• You don’t have to make it lavish. It depends on the quality and income level of tenants you want to rent to.
• Make your upgrades practical and long-lasting. For example, tiling the floors to save money later on. It takes the worry out of kids, pets, carpet damage, or scuffed hardwood floors.
• A fresh coat of interior paint every three to five years (depending on condition) is a cost-effective way to refresh a rental. New tenants will like the newer look, cleaner smell, and brighter appearance.
• Use neutral colors when painting a rental as they appeal to more tenants. Bonus: Use a semi-gloss as it’s easier to clean.

 

2. Crunch the Numbers before Buying a Rental

 

Look for a rental property that produces reliable cash flow every month. Take into account repairs and maintenance costs. Expect vacancies after your tenants move out. Rarely can you line up a new tenant to immediately take the place of the one moving out.

Maintenance and vacancies could consume up to 20% of your expected annual rental income. Prepare for this when you calculate your expected yearly profits.

Look for a good rent-to-price ratio. Experts suggest at least 1 percent of your final purchase price. For example, if you buy a house for $200,000 you should expect to rent it for at least $2,000 per month (1%).

Here are free online rental income calculators and a guide to understand them to help you make these estimates.

• Rental Property Calculator from Calculator.net includes purchase costs, income, recurring operating expenses; and projected sales price based on value appreciation, years held, and sale costs;
• Rental Property ROI Calculator from SparkRental calculates your Return On Investment (ROI) based on your up-front investment costs and recurring costs;
• Rental Property Returns and Income Tax Calculator from RentWell calculates your income tax based on your purchase price, monthly rent, days vacant, and income tax percentage; and
• Rental Property Calculator & 7 Other Helpful Equations from FortuneBuilders explains what rental calculators do and what they mean. A great guide to understanding rental calculators.

 

3. Know What Tenants Need

 

Every area around the country attracts different residents based on these types of factors:

• Local income ranges from poor, middle class, to wealthy;
• Local economy where availability of jobs (or not) determines migration;
• Infrastructure where public transportation, road conditions, and accessibility to schools, work, and amenities like shopping, eating, and entertainment are nearby; and
• Crimes and safety conditions day and night.

 

4. Buy Rentals in Desirable Neighborhoods

 

What’s a “good” rental property? It’s located in a desirable neighborhood or one that’s up and coming.

How do you find an “up and coming market”? Read these two blog posts we recently published:

1. “How to Find a Growing Real Estate Market” and
2. How To Buy Real Estate “In The Path Of Progress”.

Desirable neighborhoods offer perks like easy access to public transportation, secure parking spaces, and security & safety features (like well-lighted streets). They also have amenities like nearby parks, schools, shopping, restaurants, and entertainment.

Families are considered good tenants because they tend to stay for a longer time. They look for low crime and safe neighborhoods for their children.

Singles are more transitory like students that vacate during the summer months,

 

5. Vet Your Applicants

 

Vetting applicants helps get the best tenants. Set up a system to check out the applicants to weed out the bad ones. Bad tenants will cost you money either due to damages worth more than the damage deposit or having to evict the tenant creating more expenses.

Create an application system that requires the applicants:

• Full name;
• Complete contact information
• Employment history;
• Current and last three addresses;
• Proof of income;
• Credit check approval; and
• References from past landlords (not the current one who may want to get rid of a bad tenant).

When you get too many applicants or start owning multiple rentals, consider using online tenant screening reports to save you time like:

• MyRental;
• National Tenant Network;
• RentPrep; or
• SmartMove.

 

6. Don’t Spend Your Rental Income

 

When the rental money comes pouring in you may be tempted to start spending it. That’s a bad idea because you need cash reserves for emergencies.

Set aside at least six months’ worth of property maintenance and mortgage.

Vacancies may last longer than you anticipated. Or, you may spend money hiring a lawyer to evict a bad tenant and pay for damages after the eviction.

 

7. Document the Condition of Your Rental Before New Tenants Move In

 

Take photos of every room and the outside. Use a digital camera with the date stamped in, A good witness who signs off on the photos in case later needed. Or, take stamp-dated video footage as evidence of the condition of the rental before the tenant moved in.

Prepare a detailed checklist of what is included in every room. That they are in good condition signed by your tenant and yourself and dated with an original for each of you.

Later on, if items or fixtures are missing, holes appear on doors and walls, a pet-stained carpet, or water damage; this signed list and photos will come in handy.

Just before the tenant moves out conduct a walk-through with the list and photos (or video).   

 

8. Require Renters Insurance

 

If you have a mortgage, your lender will require homeowner’s insurance. Know the difference between full replacement value and insurance for the purchase price in case the rental becomes a total loss.

The renter needs renter’s insurance to cover personal items that your homeowner’s policy won’t cover. Otherwise, your tenants can sue you for their personal loss.

Also, look into liability umbrella insurance to cover serious personal injuries or death due to accidents or calamities.

 

9. Who Pays for Utilities?

 

Your lease agreement must make it clear who pays for the utilities. Electricity, water, gas, trash pickup, and sewer costs may be partly paid for by you under state or local rental laws. Make sure you know the law.

 

10. Learn More About Being a Landlord

 

We published many blog posts here helping newbie landlords and offering tips for experienced ones too. Check out some of our blog posts like:

• “How To Become A Landlord In California”;
• “How To Get Started As a Landlord”;
• “Landlord Mistakes Limit Profits (What You Need To Know)”;
• “What Threatens Rental Investments the Most?”; and
• “Top Rental Features Attract Good Tenants”.

 

Final Tips For Landlords: Sometimes You Need Property Management Services

 

After reading some of the things involved with being a landlord you may decide that it’s too much time and responsibility.

Don’t worry! We got your back.

If you own rentals in San Diego County, we can help you with all your landlord needs. No matter if you own one or more rental properties, or large apartment complexes, we can help.

WeLease Property Management Company serves the greater San Diego area.

Contact us for some or all your landlord needs.

 

 

Steven Rich, MBA – Guest Blogger

 

 

 

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