Receiving money on a monthly or weekly basis in the form of rental income because you have an investment property sounds great, doesn’t it? Still, you need to work hard if you plan on becoming a landlord and making tons of cash from income properties. But how to become a landlord? We have prepared a guide with all the things you need to know. Are you curious? Then keep on reading!
#1 Becoming a Landlord: What Should You Consider in Advance?
Becoming a landlord might turn out as a lucrative strategy. However, you should act smart! What is meant by that? First of all, you should understand if managing rental properties is “your thing.” Becoming a landlord is not only buying an investment and renting out a property. It is also being up to date with landlords’ rights as well as tenant’s rights.
What else is expected from a landlord? He/she should choose the optimal rental strategy. Then, decide on the amount of rent he/she will charge, find a good tenant and finally, maintain the investment property.
Still, considering this as your career path? Then, keep on reading to find out how to become a landlord.
#2 Becoming a Landlord: Choosing the Optimal Rental Strategy
When you plan to cross your real estate career with rental properties, the first step is choosing the optimal rental strategy. Why consider the strategy first? Well, do you want to become a full time real estate investor or part time real estate investor? With Airbnb rental properties, it is more likely that you are going to be a full time real estate investor. On the contrary, with traditional rentals, you will more likely fall into the category of a part time real estate investor. So, let’s explore both strategies: long term rentals and short term rentals.
Why is renting out a property for a long term considered to be a job for a part time real estate investor? Well, you may have a couple of long term rentals and still keep your primary job. All you need to do is to schedule routine maintenance checks and fix up the property when needed to keep your tenants happy. Other than that, your property will generate rental income without requiring too much effort from your side. To learn more about long term rentals, make sure to read “How to Succeed as a Real Estate Investor with Long Term Rentals.”
Airbnb Rental Properties
Airbnb income properties are considered as a more time-consuming strategy. Why is that so? The occupancy rate is everything when dealing with an Airbnb investment property. You are in this business to make money, so you need to do everything possible for your guests to feel satisfied. This way they will leave positive reviews which will attract more potential visitors. It is a known fact that Airbnb rentals generate higher rental income per night compared to traditional rentals. This is why answering any questions, maintaining the property and monitoring the market is crucial when planning on becoming a successful real estate investor. Therefore, the investor dealing with Airbnb rentals is a full time real estate investor.
#3 Becoming a Landlord: Deciding on the Rent
Do not think that your job as a real estate investor is done after purchasing an income property. You should ask yourself the question: “How much rent should I charge for my house?” It is a very delicate aspect. On one hand, if you ask for too much, your income property will stay vacant most of the time. On the other hand, if you ask for too little, you will not be able to cover all the rental expenses. Thus, your property will generate negative cash flow despite the fact that the demand for the investment will be high.
Let’s examine the best way of deciding on the rent when becoming a landlord. The first step is researching the market in order to estimate the property’s market value in comparison to its real estate comps. For this step, it is advised to use Mashvisor’s investment property calculator.
Here is an example which will help with answering the question “How much rent should I charge for my house?”:
The value of the rental property is $300,000. In this case, you should consider charging your tenants approximately 0.8% of the property’s value. However, if the property’s value is $90,000, then consider the optimal rent to be approximately 1% of that value. This is a simple rule that the majority of landlords follow. Keep those numbers in mind when becoming a landlord. For a more in-depth answer to the question “How much should I charge for my house?”, make sure to read “Question of the Day: How Much Rent Should I Charge?”
#4 Becoming a Landlord: Finding Tenants
Finding potential tenants is not as easy as it may look. Due to the recent tendency that many people prefer to live in long term rentals over buying an investment property, the demand for rentals has significantly grown. When becoming a landlord, you should be prepared as you will encounter many bad tenants. So, how can a landlord avoid the bad tenants and rent investment property out to only the good ones? Well, when becoming a real estate investor, you should be familiar with the term “tenant screening.” Basically, tenant screening refers to the prior background check of the potential tenant. The main idea behind tenant screening is to evaluate the likelihood of a tenant to meet the terms of the rental agreement. Tenant screening does not apply for Airbnb rentals as you cannot check every traveler in detail.
Additionally, to find a good tenant, you should present the tenant’s rights in the lease agreement. Typically, tenant’s rights include laws that protect the tenants from discrimination, privacy invasion, and theft of security deposits. In order to start renting out property to a good tenant, you should become a good landlord!
#5 Becoming a Landlord: Hiring a Professional Property Management Company
How to become a landlord and invest less of your time and work? Well, the answer is obvious: you should hire a property management company. Let’s explore the benefits of hiring a property management company. Usually, there is only one main advantage. A professional property management company deals with the property, while you focus on other activities. Avoiding bad tenants, calculating the rental expenses, and maintaining the property are just some of the tasks of a property management company. Your task when becoming a real estate investor is only to buy the investment property.
The downside of the property management company is the costs that they charge for their services. Ultimately, your rental expenses increase and you get less profit. Interested to learn more about hiring a professional property management company? Make sure to read “When Hiring Professional Property Management Is a Must.”
These are the aspects of rental properties that you need to know about when planning on becoming a real estate investor. Curious to learn more about this topic? Make sure to sign up for Mashvisor to receive our blogs and offers. Click here.