Buying a rental property and becoming a landlord is something many people dream about. That’s because owning a rental property is one of the best investment strategies for generating passive income in the long term. However, being a landlord involves much more than just buying a rental property. This is why you need a comprehensive guide to becoming a landlord.
Wondering how to become a landlord? Here are the first steps to becoming a landlord:
1. Decide What Rental Property to Buy
Deciding what kind of investment property to buy is the first step in learning how to become a successful landlord. To become a rental property owner, you could choose to invest in condos, single family homes, multi family homes or even an apartment building. The type of property you purchase will determine how much you will spend and the potential cash flow.
Another important factor to consider when choosing an investment property is the location. Be sure to invest in an area that is already vibrant or is up and coming. Find out what comparable homes in the area sold for and check the average rents in the neighborhood. This will give you an indication of what you are likely to pay for a home and what you can anticipate in rent. To make your work easier, you can use a rental property calculator to crunch the figures.
2. Get Familiar with Landlord-Tenant Laws
Part of knowing how to become a landlord is getting to understand the landlord-tenant laws in your area. These laws are enacted to protect both the tenant and the landlord. Therefore, it is very important to know these laws to avoid the hassle of unnecessary litigations, redoing paperwork, and messy evictions.
Some of the things you need to be familiar with include:
- Lease lengths
- The eviction process
- Maximum security deposit amounts
- Tenant’s rights to repairs
Besides understanding the landlord-tenant laws, it is also advisable to have some legal experts on your team. Such real estate professionals will provide the much-needed help with law compliance. For example, a real estate attorney could come in handy for filing an eviction, drafting a lease or even updating you on fair housing laws. In addition, the attorney will also inform you about relevant building codes and zoning regulations. This will help you avoid unnecessary violations and fines.
3. Locate Good Tenants
What you need to know before becoming a landlord is that the kind of tenants you get for your rental property could make the difference between a negative and positive return on investment. Tenants can make your experience as a landlord a nightmare or an effortless task. Since they play a very crucial role, you need to learn the basics of how to rent a house to tenants.
The first step is to advertise your rental property well. Your ad should have a short description of the property, as well as clear photos highlighting different aspects. Photos of the bedrooms, kitchen, bathroom, and even the outside will be the tenant’s first impression of the rental property. You can place your ads on popular real estate sites such as Trulia, Craigslist or Zillow. Besides advertising, consider placing a ‘for rent’ sign in the front yard of the property.
The next step in getting good tenants is vetting. Though this can be a tiring and time-consuming process, it will help you get rid of potential tenants that will only cause trouble and damage your investment property. You can carry out tenant screening manually or use a tenant screening software or service. Here are some of the things you should look out for:
- Employment verification
- Credit rating
- Criminal background
- Prior landlord references
- Eviction records
4. Have the Tenant Sign a Lease
If you want to become a good landlord and retain good tenants, you should have procedures and policies in place that will work in your favor, while also being fair to the tenant. From the onset, the tenant should be aware of what is expected of him/her. One of the best strategies for retaining good tenants is having a good lease. Besides the monthly rental rates and deposit amount, the lease should include details such as pet policies and the penalty for paying rent late. You could also have some policies for rewarding tenants. For example, if someone pays rent upfront for a full year, give them a discount. Discounts can also be offered for referrals.
5. Manage the Rental Property
Managing a rental property is one of the most demanding aspects of being a landlord. The responsibilities of a property manager include the following:
- Advertising the rental property
- Showing the property to potential tenants
- Vetting tenants
- Drafting leases
- Collecting rent monthly
- Handling maintenance requests
- Supervising contractors
To avoid incurring property management fees and rental commissions, you could choose to manage the property yourself. While this is a great opportunity to get hands-on experience, it will cost you lots of time. If you don’t have the time or skills to manage your rental properties, consider hiring a professional property management company. The fees will vary depending on the amount of work involved.
6. Maintain the Rental Property
Maintaining your investment property will ensure that tenants are happy and enhance the chances of a long stay. Check the rental property often to see what works and what needs to be replaced or repaired. Maintenance could involve things such as servicing HVAC units annually, getting gutters cleaned or even pest control. Keeping property insurance up to date is another important aspect of maintenance. Remember to put aside a percentage of the monthly rental income to cater for maintenance costs.
With these tips for becoming a landlord, anyone can learn how to become a landlord. However, while learning how to be a landlord, don’t make the mistake of underestimating the rigors involved. However, if you take time to prepare well, learn as much as you can, and get the right team around you, you can be assured of a successful real estate career.
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