So your friend was talking about the frightening amount of rent he’s paying for his place and the wheels in your head start turning. Owning a rental or two just might be a great way to bring in extra residual income. Plus, there’s all the equity you’ll gain as those renters pay down your note. What could be better?
The Road to Rental Success is Paved With Good Intentions
You should go into the “Landlord” business with your eyes totally open. Rentals are hard work, even if you only have one or two single family homes. Before you buy your first rental, take some time to ponder these finer points of being a landlord:
1. New tenants should always be considered carefully. Even your closest pal might have some really negative feelings about how a rental and the landlord attached deserve to be treated. You’re obviously not going to make a million bucks on your one house, but it would be good form of cash flow. Always do a background check and ask probing questions to learn more about the people who will be living in your house. Bad renters can be enough to sink your entire rental empire before it’s really taken off. If you have to gut the house and start over between tenants, there’s no way you’re going to win at being a landlord.
2. Think about rent collection now. How do you plan to actually get your money? Now is the time to think about this, before you have a tenant that can’t or won’t comply with your wishes. In this day and age, it’s not unusual for a landlord to require electronic payments. They’re simple to set up using one of many systems available online, depending on just how large you hope your rental empire becomes, and easy for tenants to use. When it’s electronic, there’s no question about that check that’s in the mail. One click and it’s done.
3. Get comfy with the legal stuff. Do you know what your obligation is to your tenants were your rental to be made uninhabitable through no fault of their own? Can your tenants withhold rent with no penalty if you don’t get that property fixed up fast enough? Can they crash in a hotel and charge it all to you during said repairs? There’s a lot of legal stuff to cover, it definitely helps to have a broker, property manager or real estate attorney in your corner. These professionals can also help you draft a rental agreement that protects both you and your renter.
4. Planning repairs and upgrades. Repairs and upgrades are best made before anyone moves in, that way you have full access to the property and can move a lot faster not having to remove furniture and personal objects. Repairs of a rented unit sometimes can’t be helped, so have a plan for how to handle them. Calling a home pro in can speed up the service and ensure the problem is fixed right the first time. Always check that your pros offer 24 hour service, in case of an emergency — otherwise you’ll be the one called in at 2 am to fix that busted pipe.
Upgrades also require plenty of forethought. Choose materials that are going to be easy to take care of and durable, even if they cost a little more. If you keep this rental house over the long term, making those choices early will mean not having to replace things like carpet every time a tenant moves out. Unlike your personal home, this house is an investment, so set it up in such a way that you get the most for your money across your entire anticipated ownership.
5. Dealing with eviction. This is a worst-case scenario, but have you considered what you’d do if a renter stopped paying rent? Do you allow one missed payment, then start the eviction process? More importantly, can you stomach the idea of eviction? Even the best renter can turn into a financial drain when there’s been a death in the family, they’ve gotten laid off or new debt is making it harder for them to make ends meet. If you can’t see yourself evicting a family whose breadwinner died, making it too hard to keep up with the rental payments, rentals might not be for you. A workable compromise could be to immediately hire a property manager to deal with the dirty details.
Ready to Become a Landlord?
Being a landlord has its ups and downs and it requires a lot of general knowledge that’s hard for any one person to really maintain. Let’s discuss the details before you make the “Landlord Leap,” and together we can decide if the rental market as a Landlord is the right fit for you!