3 Things You Should Know Before Becoming a Landlord
When it comes to investing in real estate, buying a rental property can be extremely profitable. However, becoming a landlord involves a lot of responsibility. Check out this article to find out what you should know before taking the plunge.
A lot of people advise wannabe landlords that there is a lot of work to be done from the decision to invest in real estate to actually buying your first rental property. While this is certainly true, the work doesn’t stop when you finally make a purchase. Becoming a landlord isn’t like winning the lottery; it’s more like a part-time job. While the return on investment can be appealing, there are also plenty of responsibilities that come with the gig.
Owning property is a tough business. You need to understand how the market works, find a place that would be attractive for potential tenants, and provide a safe environment for them. Also, you must make sure that the renters you allow to move in are responsible and reliable people. Trust me, it’s no fun to keep reminding a tenant that rent is due or that stealing cable from the neighbors is a big no-no. Finding the right people to rent out a home to is key if you want a stress-free career as landlord.
Before taking the plunge and assessing your possibilities, figure out if you would be a good fit for the position. Do you have good communication and people skills? Are you organized and detail-oriented? Will you be able to maintain a certain level of professionalism when dealing with tenants? If your answers are positive, here are a few things you should know before diving in.
1. The Basics of Real Estate Investment
When you’re not familiar with the market, making a good real estate investment can seem overwhelming. You need to figure out which neighborhoods are popular with renters and if an investment can be profitable or not. Intercontinental, a real-estate corporation from Boston, has a comprehensive list of industry resources to get you started. The real estate section from About.com is another great source of useful information. Bigger Pockets can also be a good start when it comes to real estate investment basics.
Next, you need to figure out how you will finance your real estate adventure. Buying a home as an investor rather than as an occupant often requires a higher down payment. If you’re already paying for a mortgage, you will need good credit and a low debt-to-income ratio to qualify for another one. However, the rent can help you pay off the loan more quickly and slowly build equity, which is always a plus.
Also, you need to familiarize yourself with the laws involving landlords and tenants. They generally vary from state to state and it’s likely you will have to comply with a plethora of regulations. Search online for a state government website that outlines the laws and rules you need to be aware of.
2. Your Responsibilities
Your main responsibility as a landlord will be to provide a safe, functional living space for your tenants. You need to make sure that the property is up to local and federal housing code. City and county housing authorities establish standards for structural integrity, lighting, ventilation, and so on. Many authorities also require landlord to install safety measures — like smoke alarms or fire extinguishers.
Once the tenants move in, you will have to repair and maintain the property. You will be responsible for everything from a leaky faucet to a missing floorboard. If you fail to address these issues in a timely fashion, someone can get injured by an unresolved issue and sue. By the way, this is also why liability insurance is a must.
Last but not least, you will also need to keep your tenants safe from crime. Stairways and common area will need to be well-lighted, main doors need to have deadbolts, and windows should have locks, especially if they are accessible by a fire escape.
3. How to Find the Right Tenants
In order to find good tenants, you will have to start by advertising your property in the right places. Free websites like Craigslist may sound appealing, but they’re not always reliable. Paying for an ad on sites like Rentals.com will offer you more exposure and a greater chance of finding someone reliable. Make sure your ad is well-written and appealing, since you’re looking to attract renters with a stable income and higher level of literacy.
Once you have potential tenants to choose from, check their backgrounds. There are plenty of services online that help you with this process. Verify their income, credit history, and perform a criminal background check as well. Ask them to fill out a detailed application form and talk to their references. Remember that you’re looking for someone with a consistent lifestyle, so look at their prior addresses and employment history. Do they switch homes or jobs frequently? If that’s the case, they might not be long-term tenants after all.
However, your aim find the perfect tenant does not make you exempt from adhering to the Federal Fair Housing Act. Read up to ensure you’re not making tenant decisions based on race, sex, gender, religion, disability, or family status.
Being a landlord is not an easy gig. However, with the right tenants, the job can be extremely rewarding. Besides earning some extra cash, renting out a property is a lot like managing your own business. You get to make all the decisions on costs and take all the necessary steps to protect your asset. If you’ve always dreamed of investing in real estate, now might be the perfect time to see your dream come true.