Many people dream about becoming a landlord in the US housing market 2020. Indeed, owning a rental property can be a very profitable venture for any real estate investor. However, being a landlord for the first time in 2020 can be very intimidating. With all the tasks and responsibilities involved in renting out a house, it is very easy for real estate investors to get overwhelmed and make mistakes. Learning some basic principles will make your journey as a first-time landlord much smoother.
Wondering how to be a landlord for the first time? Here are some things every first-time landlord needs to know:
You Don’t Have to Go Through the Process of Buying a Rental Property Alone
Buying your first rental property and getting it rent-ready is the first step towards becoming a first-time landlord. You can find rental properties by checking property ads in the media or driving around neighborhoods. But you don’t necessarily have to tackle the search and buying process alone. You can consult a real estate agent and even try networking with fellow investors. However, one of the most effective strategies for finding investment property is through real estate websites such as Mashvisor. Using tools like Mashvisor’s property finder, you can locate Airbnb and traditional investment properties for sale in the US rental market within minutes. Using the rental property calculator, you can analyze the performance of different properties based on metrics such as rental income, cash on cash return, cap rate and occupancy rate.
There Is Some Math Behind Setting Your Rent Price
Once you invest in rental properties, you need to think about your rental strategy. Ideally, the rent should be enough to cover all the rental property expenses, leaving you with positive cash flow. Here is the cash flow formula to keep in mind:
Rental Property Cash Flow= Rental Income – Rental Property Expenses
One of the ways to set your rent price is to look at what other landlords are charging for similar properties in the area. Some experts recommend the ‘1% rule’ when it comes to rent pricing. This rule states that landlords should charge around 1% of their property value every month. For example, a home worth $300,000 would mean rent of $3,000 per month.
Finding Tenants Requires More Than Just Listing the Property for Rent
Finding great tenants for your rental property will make your work as a first-time landlord easier and enjoyable. The first step to finding tenants is marketing your property. You can advertise your rental on local bulletin boards, online ads, your website, social media platforms, and local magazines or newspapers.
But the process doesn’t end there. After attracting some potential tenants, the next step is screening them to verify their suitability. Screening potential renters should involve the following:
- Verify their income – Ask for payslips to verify the tenant’s income history. Your monthly rent should not exceed one-third of the tenant’s total monthly salary.
- Credit check – Get a credit report of the tenant from each of the three credit unions: Equifax, Experian, and TransUnion. To do this, you will need the applicant’s full name, former address, and social security number. If the applicant has a poor credit score, it could be an indication that he/she will not be a reliable tenant.
- Background check – A background check will reveal if the potential tenant has a criminal record and whether he/she could be a potential threat to others.
Don’t forget to ask tenants for references from previous landlords. This will help you identify problem tenants early enough. Finally, be sure to adhere to housing laws when advertising your rentals or screening tenants. For instance, it is illegal to discriminate against a potential renter based on religion, race, color, disabilities, ethnic background, gender or family size.
Related: 8 Things That Make a Good Tenant
Purchasing Insurance Is a Must
Generally, rental homes experience more liability claims than primary residences. This is why every first-time landlord needs to have landlord insurance to cover their rental property and protect themselves from potential lawsuits. Landlord insurance might also offer loss-of-income coverage as an optional rider or as part of the standard policy. This means that you will be compensated in case a disaster such as a fire or a flood makes your rental uninhabitable.
Though landlord insurance covers your property, it does not protect your renter’s personal property. Therefore, you should also require your tenants to get their own renters’ insurance policy. This will protect you further from any potential lawsuits as a first-time landlord.
Understanding Local Laws Can Keep You Out of Trouble
Each state has its own rules and regulations governing how rental properties are managed. For example, do the laws in your area allow Airbnb rentals? Are their rent controls that determine how much you can raise the rent each year? What are the laws concerning tenant eviction? As a first-time landlord, be sure to get familiar with all the laws regarding building codes, evictions, rent increases, and everything else related to being a landlord. You can talk to other property owners or local real estate agents to learn what pitfalls you should avoid.
It’s Super Important to Keep Records
Keeping clean records of every transaction is very important for every first-time landlord. With good records, you will be able to enjoy tax benefits by writing off some or all of your listing fees, insurance costs, mortgage interest, and maintenance fees. If you are managing multiple rental properties, it would be advisable to use web-based systems such as Cozy or Quicken.
It is also wise to take photos of your rental property investment before tenants move in. You can then use these photos to assess damages when the renters decide to move out.
You Always Have the Option of Hiring a Property Manager
One of the mistakes first-time landlords make is trying to get everything done by themselves. If you don’t have the time or skills to manage your own rental property, you should consider hiring a property manager. This can be especially helpful for real estate investors that own apartments or multiple homes. The property manager will advertise the rentals, screen tenants, prepare the rental agreement, deal with maintenance issues, and handle evictions. Though hiring a property manager means a cut in your profits, it will be worthwhile in the long run.
Getting rental property financing, investing in real estate, and being a first-time landlord is not easy. However, applying the principles above will make your journey in the rental property business less stressful and assure a good return on investment.