Are You Ready to Be a Landlord?
The decision to buy rental property and become a landlord is certainly a big one. Before you plunge into buying a property for the passive income, make sure you’ve considered what it takes to be a landlord.
Limber up, set a schedule to reach your goal and start training for the responsibility of being a landlord with these six crucial considerations.
Do the math
Becoming a successful landlord means running the numbers on any rental property you plan to buy. Before you make a purchase, you should know how much it will cost per month, the monthly rental value, repair costs, borrowing costs, maintenance, and vacancy costs. The cost of vacancy is one of many hidden costs of being a landlord and it can add up quickly. Don’t forget the property won’t always have a tenant, whether you are forced to evict or someone breaks the lease.
Be prepared for the time and financial commitment
As a landlord, you will be running a business. Along with the time and money necessary to maintain your property and screen tenants, you will also need to be ready to handle tenants’ needs. If you do not have the time to dedicate to the role of landlord, you can hire a property management company, but this will add a cost of around 10% of each month’s rent and possibly a finder’s fee for each new tenant.
Location is everything
It’s important to know what renters are looking for in your area and to whom you plan to market the home. A fixer-upper in a neighborhood that is less desirable will probably have a low price tag, but it may not give you the best return on investment. Location is a key factor in choosing the right rental property. You can usually charge more for a property near public transportation, in a good school system (in the case of a single-family home), or close to major employers.
Have a maintenance plan
When anything in the property breaks or needs to be replaced, have a plan in place and a go-to repair company. Prompt action to address issues will keep tenants happy and make them more likely to renew their lease when the time comes. That means you should start working on your handyman skills or consider working with a property management company. A property management company like the one at First Team can help you with vendor negotiation for repairs plus tons of other landlord responsibilities like resident acquisition, background screening and more. Speaking of which…
Prepare a strong tenant screening process
You can avoid many potential landlord issues with a thorough screening process for potential tenants that is done according to local and state law. Be sure to run background and credit checks on potential tenants and contact previous landlords. Doing the leg work up front will save you the hassle in the long run. However, if you do run into trouble, make sure you’re prepared with legal counsel.
You may need an attorney
You will need to be well-versed in local and state guidelines and laws to be a landlord. You may need inspections of the property before you can rent it out, and you will need to understand landlord and tenant rights and responsibilities in your area. You may also need the assistance of a lawyer if you ever need to evict a tenant. Be sure you choose a qualified attorney, specializing in real estate law to avoid legal pitfalls.
In summary
Becoming a landlord will probably be a bigger challenge than you expected, but it has the potential to give you years of passive income along with increased property value. Work with Ellie to assess your situation and find out what the best course of action is when it comes to your real estate portfolio. Ellie has been a landlord for over 15 years and can share her experiences with you!
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