Vital tips when considering becoming a Landlord

Right now, interest rates are low, the economy is sluggish and quite a few people are underwater in their homes. Many are looking to move, either for a new job or just to change locations. Instead of selling the property at a loss, renting it out is a viable option that can provide additional returns you just can’t find in a money market account.
While becoming a landlord can be fulfilling and even profitable, there are some downsides that can cause you to lose money and time. Keeping the following in mind will help make the process easier, less surprising — and more lucrative.

It takes a LOT of time

There is no easy way around it, being a landlord is not a 9 to 5 job — it’s 24 hours a day, 7 days a week. Have you ever had a pipe burst at a convenient time? Of course not. You will be out there, repairing things at 2 am. If you are not very handy, then you will have the added expense of hiring a professional to attend to the matter on off hours. There are also other things that add up to cost you time; lawn maintenance, snow removal, general maintenance, chasing down your renters for the monthly rent check and many other things, both expected and not.

Be able to carry the mortgage WITHOUT a renter

This is HUGE. If you can’t afford the mortgage without a renter for your property in a worst case scenario — then do not even consider purchasing a property or renting out your home. It is a bad idea. You are not going to hold on to an investment property that you cannot rent out, but you need to be prepared financially to handle worst case scenarios because you never know what could happen that could affect your ability to rent out your home.

Be realistic about your income

Ideally your principal and interest payment and insurance, otherwise known as your PMI, should not exceed more than 50% of your gross revenue. If you are bringing in $2,000 a month, you want your payments and all of your fixed costs to be $1,000 or less. That other 50% should be budgeted for maintenance, upkeep and building up a rainy day fund for when you need to replace the roof or when something happens. Be realistic. If your property cannot command a high enough rent to be double your PMI then I would carefully consider either not purchasing the property if you do not own it already or if you do — try to find a way to raise your rent.

Be picky about your renters

While in no way allowing for illegal discrimination you still need to be incredibly choosy in who you let live in a property you own. The best way to avoid an eviction is to have good tenants in the first place. Call their references, check their credit, and verify that their income is at least 4 times the monthly rent. If a potential tenant only makes $2,000 a month, yet the rent is $1,000 a month — it creates a margin that is too tight. If something happens to their income — you lose. Also request a security deposit equal to one month’s rent and the first month’s rent upfront.Clients that can afford these requirements are most likely in a better financial situation than a client who cannot.

Do NOT allow pets — Ever

This may sound harsh, yet pets can cost you thousands of dollars. Every time a pet owning tenant moves out, you will have to replace the carpet and repair any damages. Any security or pet deposit collected can disappear in as little as an hour with a new puppy in the house. What about outside pets? Do you really believe that your renter will look outside in the winter, see their dog covered in snow and not bring them inside? No. Outside pets become inside pets — and that costs you money.

Find a mentor

With all the ins and outs of becoming a landlord, it pays to be careful and cautious going into it. If you have never owned an investment property before, find someone who is experienced in real estate ownership and being a landlord. They can help guide you through the pitfalls and answer questions as you go along.

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