Do you envision yourself becoming a real estate investor in rental property? Buying a rental property to become a landlord can be a fantastic long-term investment strategy which can provide streams of passive income. However, as appealing as it is, becoming a landlord can be overwhelming and complicated. Following the right steps when deciding to invest in a rental property is important. Here is a step-by-step guide on how to become a landlord.
Decide the Type and Location of the Property to Purchase
The first step on how to become a landlord is to decide where to buy the rental property and the type of investment property to purchase. The type and location of the property will influence your total rental expenses and the potential return on investment. It is important that you purchase an investment property that is in a stable or growing location. Choosing a location that is near where you work or reside will also make it easier for you to manage the property. You can check online for prices at which comparable rental properties in the same neighborhood sold for as well as the market rents in that location. This will give you insight on what to pay for a rental property and what you can rent it out for. It will determine whether buying that particular property is viable.
Apart from the location, finding the right type of rental property is also imperative when you want to know how to become a landlord. There are several options available. For instance, you can decide to pick a single family home, a multi-family unit or even an apartment building. Your choice for the type of rental property will be determined by your cash flow goals as well as your budget.
The type of property you choose will also determine the amount of cash needed for repairs. Large properties will usually have more potential profit but they may have more rental expenses, such as repair costs. Different types of properties will also have different options for financing. Moreover, tax deductions will be different for different types of properties.
Understand the Landlord-Tenant Laws
Another part of understanding how to become a landlord is knowing the landlord-tenant laws. These laws are put in place to ensure the protection of both the tenant and the landlord and help to maintain a good landlord-tenant relationship. Understanding them will help you ensure that such laws work for you and not against you. These laws relate to drafting leases, fair housing practices, the eviction process, tenant rights, landlord rights, among many others. To ensure that you comply with the landlord-tenant laws, it is essential that you have the right legal experts on your team. For instance, a real estate attorney can help you file an eviction if the tenant is not paying rent.
Find a Good Tenant
Finding good tenants is another integral part of how to become a landlord. The kind of tenant you have will determine whether you will have a positive or negative cash flow, especially for long-term rentals. To find good tenants, you first need to advertise the property properly. You then have to conduct tenant screening. This is where you vet the potential tenants before renting out the property to see whether they are suitable. Employment verification, credit check, criminal background check, eviction records and past landlord references are some of the things required in the tenant screening process. Though this may be a tedious process, you shouldn’t leave anything out since the history of the tenant is usually a pointer to whether he/she will pay the rent on time. A landlord can choose to do tenant screening by themselves or by using a tenant screening software or service.
Related: 8 Things That Make a Good Tenant
Draft a Lease
Knowing how to get good tenants is not the end when you want to know how to become a landlord. In order to keep the good tenants that you’ve found, you will need to put in place policies and procedures that will not only benefit you as a landlord but also ensure fairness to the tenant. The tenants are supposed to know what is expected of them. This should be part of the lease agreement. A good lease should include such things as the standard terms, monthly rental rates, the deposit amount, pet policies and penalty for late rent payment.
Management of your rental property is also an important area you need to understand on how to become a landlord. Depending on the money and time you are willing to invest in property management, you can pay someone to do it for you or do it yourself. Managing the property yourself will save you money in property management fees but it is time-consuming. However, it will give you great practical experience for the future.
Instead of managing the rental property yourself, you can choose to hire a property management company. If you have many rental properties to manage, own properties far from where you live or have a tight schedule, you can outsource management. Some of the services offered by property management companies include property advertisement, helping prospective tenants view the property, screening prospective tenants, drafting tenant leases, the collection of rent, handling maintenance requests and contractor supervision.
To maintain happy tenants who pay rent on time and are likely to stay longer, the rental property should be maintained well. Apart from keeping the tenants happy, maintaining the property is an important part of how to become a landlord since it will save you the high costs of doing repairs that arise when you fail to handle issues as they happen. You should check on the property frequently to know what needs to be replaced or repaired, what works and what doesn’t. Ensuring that the property insurance coverage is up to date is also part of maintaining the property. By maintaining your rental property properly you are able to ensure that it remains in good shape and keep the tenant in the property. You should set aside a certain amount of money to cover the maintenance costs.
For you to become a landlord, you will need much more than just the financial resources. The above steps on how to become a landlord will help you set up well as a landlord. You can use the tools and insights that Mashvisor offers to learn more about how to become a landlord.