Do You Have What It Takes To Become A Landlord?
Want to become a landlord? You’re in good company! In today’s hot housing market, rents are on the rise, which may have you wondering whether it’s time to consider becoming a landlord and buying a rental property. After all, who doesn’t like the idea of raking in rent checks from tenants every month? Still, being a landlord isn’t a cakewalk; it takes work, and sometimes being a landlord may seem like you’re shelling out more than you’re bringing in from rent.
And let’s face it, knowing how to be a landlord and knowing how to be a good landlord to your tenants are two different things.
Just so you know what you’re getting into, here are some landlord tips on learning how to become a landlord who not only makes money from rent but also keeps tenants happy.
Figure out if you can afford to become a landlord
Renting out real estate on which you’re paying a mortgage is a balancing act. To be a successful landlord, you have to make sure that the money coming in from rent covers what goes out—or else you’re operating at a loss on your real estate.
Prepare for the worst: Since your rental property may sit vacant occasionally or require repairs, having a decent financial cushion is a smart move. Most real estate experts say that properties should be able to rake in enough rent in 10 months to cover your yearly costs.
Pick the right kind of property
Many components go into rental property selection, so make sure you identify your primary goal as a landlord, says Ed Laine, partner/broker of Miller Laine Properties, in the Seattle area.
“Is it good cash flow that you’re looking for, or do you just want something that’s low maintenance?” he asks. All other things being equal, you will want to choose a rental property close to your home, which allows you to check on tenants and house maintenance easily, to maximize your rental income.
As a landlord, Laine recommends asking yourself, “If the wind blew a tree limb through my tenant’s window at 2 a.m., how far would I be willing to drive to deal with it?”
You’ll also want to make sure the rental property meets all applicable codes. This handy rental property checklist helps you to assess your real estate with a critical eye to make sure it’s “rent-worthy” for tenants and—later on—helps you to double-check the property once your renter leaves to make sure it was left in the condition in which it was found.
Having good tenants can make or break your experience as a landlord, Laine notes. Make sure to interview and screen tenants thoroughly before offering them a lease.
Tenant screening companies make that easy, but there are some steps you can take yourself to prevent the need for eviction later. First, ask prospective tenants to agree for you to check their credit before signing a lease: Section 604 of the Fair Credit Reporting Act requires that landlords ask permission before running a credit check on renters. You can also check your state and county’s website, since most court information about renters is public record.
Last but not least, you will want tenants to sign a lease delineating the rent, when it’s due, and actions that could lead to late fees and eviction.
Understand liabilities you take on if you become a landlord
As the landlord, you’ll need to know the local real estate and renting laws that pertain to your property, lease, and tenants. You can read up on local laws at Avail.co, NOLO.com, and Municode.com.
Also know that you can be held liable for tenant injuries, so be sure you seek adequate coverage, such as landlord liability insurance and landlord property insurance. These are different from a regular homeowners policy and should be obtained if you are renting out a home regularly. Check with your insurance agent to see the options you can add to your regular homeowners policy to protect you and your tenants.
How to be a landlord tenants trust
You can’t just give tenants the keys after they sign the lease, cash the rent checks, and check out after they move in. Landlords are legally required to make repairs to their property—but that doesn’t mean you need to jump every time a tenant says a lightbulb needs replacing, either.
The key is whether the issue affects a tenant’s habitability. For example, if a property is without electricity, water, or heat for more than 24 hours, it will generally be considered uninhabitable for tenants, and you’re responsible for finding alternative temporary housing for the tenants until this issue is fixed.
But if the flaw doesn’t make living there unbearable for a tenant or is merely cosmetic, then the landlord is under no time constraint or any obligation at all to fix it.
However, happy tenants tend to stay put and pay rent, so you may want to consider responding to smaller requests if it’s no big deal.
Weigh the pros and cons of a property manager
Did the landlord responsibilities above give you pause? You have to know your limits as a landlord and dealing with tenants. If this all sounds like too much hassle for rental income, consider hiring a property manager like me, who can handle those details. Property managers might be a good idea to support your long-term investment—typically 8% to 12% of the monthly rent fees—for the headaches with your rental property it could save you down the road.
Property managers (like me) handle many of the mundane tasks of being a landlord, including screening tenants, performing background checks, taking security deposits, dealing with day-to-day issues, and taking tenant calls about repairs—while you just receive the rent payments.