Working part-time or full-time as a landlord can be a great way to enjoy a certain amount of independence and earn relatively passive income. However, as with any business venture, there are certain risks involved and not everyone is cut out to be a landlord. You must have the right personality, entrepreneurial spirit and financial resources to successfully manage properties. Here are some factors to consider as you explore whether becoming a landlord is the right career choice for you.
Do you have the funds to cover a down payment and repairs?:
Keep in mind that becoming a landlord requires a certain amount of upfront investment. You will need to purchase a property and complete any repairs and updates. Depending on the condition of the property, this could range from installing a new roof to replacing carpet and putting on a fresh coat of paint. Even minor repairs will mean that you have to invest time and money. In addition, as you are making repairs, your property will be empty and not earning any income. You need to make sure that you have the funds to weather this period.
Tips for purchasing a rental property:
Your journey to becoming a landlord begins with finding the right rental property. Purchasing a new property that doesn’t need any repairs or updates may seem like the way to go, but this will translate into a higher purchasing price and monthly rental amount, which will make it more difficult for you to make money. Going the fixer-upper route can save you money on the purchase price, but it doesn’t take long for repairs to go over budget and past schedule.
If you are planning on keeping your full-time job and working on repairing your rental property yourself, keep in mind that you may be sacrificing valuable time with your family. One solution is to hire a property management company that can help you locate and refurbish properties. While this also comes at a cost, it may be the right option that provides the best value long-term.
Another option is to find a tradesman on Angie’s List
or Home Advisor. As a landlord, especially an out of state landlord, you absolutely need people around you to rely on. Don’t underestimate the talents of a handyman. Frequently they’ll have a list of sub-contractors in the area that they’ve worked with in the past that they can recommend if you’re asking for something that’s over their head. And once you get going, these sites are a good source to find a cleaning crew as well.
It is up to you to evaluate how much money you want to spend upfront and how much extra time you will have to dedicate to making repairs and preparing your rental for a tenant. This will help you find the right rental property and maintain a work/life balance that prevents you from becoming burnt out as a result of taking on landlord responsibilities.
Are you risk tolerant?
Being a landlord comes with certain risks. While you can anticipate some events and try to prepare for the worst, you will face challenges. Some people are able to deal with these stressors and manage problems better than others. If you typically avoid risk, then managing rental properties may not be the right move for you.
Here are some of the common challenges that you may face as a landlord:
Trouble renting your property
There are situations where your city as a whole has a healthy rental market, but your property may be located in an area that isn’t quite as desirable. This can make it difficult to find ideal tenants and you may experience longer periods of vacancy.
The housing market will change over time. You may have started renting at a peak time, but circumstances could be different once it is time to find a new tenant. A drop in home loan interest rates can lead to more home buying and less demand for rentals. It is important to be financially prepared to weather these periods.
When the housing market tanked in 2009 and the Great Recession began, homeowners were left under on their mortgages and many had no choice but to go into foreclosure. While this was a particularly bad period in the history of the US economy, it is an example of what can happen.
Hopefully, if you purchase a newer home, you won’t have to worry about making any major repairs. With newer homes, there is also a good chance that your major systems and appliances are covered by warranties. However, that doesn’t mean that you can’t be hit with an unexpected repair bill. As a landlord, it is your responsibility to promptly address any issues and make sure that your tenant has a functional and habitable environment. If you don’t have the reserve funds or resources to make repairs, you could find yourself in a difficult position.
Tenants who don’t pay on time
If you are counting on rent to be able to pay the mortgages on your properties each month, late payments can affect your own financial health. The best way to avoid this is to have additional funds on hand, but if you are a new landlord and working to build your wealth, this may not be a possibility. Even if you thoroughly vet your tenants and choose the best possible candidates, there is no way to guarantee that you will be paid on time. Your tenant may be experiencing a loss of employment or other financial hardship that in turn, begins to affect you.
Possible evictions (last resort)
If your tenant has broken the lease agreement, you may have to go through the eviction process. This can be a lengthy and expensive undertaking. Not only will you have to pay legal fees, you won’t be collecting any rent during this period.
Ways to Reduce Risk
While it is important to be aware of the inherent risks that come with being a landlord, there are steps you can take to minimize risk and help you avoid any costly and stressful situations.
Be careful about where you purchase property
Keep in mind that most tenants will want to be close to amenities like grocery stores, restaurants and entertainment. If you can also choose a location that is near schools, public transportation and other conveniences while also providing a safe neighborhood, you will have a better chance of consistently renting out your property.
Stay on top of regular maintenance
You may be able to avoid major repairs and the big bills that come with them by practicing regular maintenance. This will not only keep your property in great working order, but allow you to identify problems before they have the chance to turn into major issues.
Thoroughly vet tenants
The best way to avoid late payments and having to go through eviction proceedings, is to take the time to screen tenants correctly to begin with. Make sure that they have a decent credit score, a positive rental record and that they earn enough money to cover the cost of rent along with other expenses. While there is no fail-proof system, you can do your due diligence to protect yourself from bad tenants.
Create a detailed lease
There are no such thing as ‘handshake deals’ while renting your property. It is imperative that you have a state-specific lease signed before move-in. If you don’t have a lease that you use, or you want to upgrade your lease to ensure that it gives you the most protection possible, you can purchase one at www.keycheck.com. This legal document will include important protections for you as well as your tenant. If you have properties in multiple states, the good news is that you won’t have to buy separate leases. In addition it can be reused for future tenants.
Invest in adequate insurance.
As a homeowner, you must have a certain amount of insurance coverage. Your city and or state may also require landlord insurance. Even if it isn’t a requirement, it is a good idea to invest in plenty of coverage. You may even want to consider requiring your tenants to have renter’s insurance. This will make sure that everyone is protected for a wide range of unpredictable circumstances, including theft, natural disasters and home repairs.
Do You Know How to Market Your Property?
Your duties as a landlord will change once it is time to find a new tenant. While the property is occupied, you are probably focused on collecting rent on time, making repairs and dealing with maintenance. Once your tenant puts in their 30 day notice, you will need to shift gears into a marketer and make use of all the available tools in order to reduce the amount of time your rental sits empty. Vacancy is a profitability-killer.
Tips for Marketing Your Property
Post plenty of pictures
The more information people are able to view online, the better. This means posting plenty of high-quality photos taken at different times of the day and even the year. Don’t make the mistake of taking pictures while your current tenant is living there. Potential tenants will be turned away by a messy house that is full of someone else’s belongings. They want to be able to imagine what it will look like with their own furniture and possessions.
Include a 360° video tour
Today’s consumers have high expectations when it comes to online listings. You can take your listing to the next level by including a 360 degree tour of the property. This is a great way to provide a better sense of space and scale and help people narrow down their choices. It may also save you from having to constantly show the property to people who quickly realize it isn’t the right fit.
Pay attention to marketing copy
Take the time to write some compelling marketing copy. Really sell the property and the neighborhood. The more detailed information you include, the better. Be sure to list all the amenities that come with the home and include driving and/or walking distances to schools, grocery stores, public transportation and other important locations.
Include a discount
Consumers love to feel like they are getting a deal. You can really make your listing stand out by leading with a discount offer. Even offering $100 off the first month’s rent can make a help spark interest in your property.
Here are the 5 Best Ways to Market Your Rental Property
Use your social network. This means spreading the work among your friends, family and colleagues. You should also publish postings on your social media accounts. Facebook groups are very popular and can be a great way to connect with people in your area.
Put out a “For Rent” sign. This tried and true, low-tech mode of advertising shouldn’t be overlooked. Often times, people in your neighborhood will see the sign and pass on the information to their own friends and family who may be looking for a place to rent.
List your property on free websites. There are plenty of popular, reputable and free websites that will allow you to list your property without a charge, but you need to be aware that online scammers are real and they frequently spoof ads of reputable landlords like you for the purpose of defrauding travelers with your property information. Unfortunately it happens all of the time. If you use free sites, a good rule of thumb is to take it down when you don’t need a tenant anymore. You’ll also have to weed through a lot more unqualified applicants to find that one right tenant, however free sites can be useful.
Create your own website. There are so many inexpensive services out there today that allow you to create your own website. This is a good idea if you’re thinking long term because it allows you to market your property the way you want to (afterall, no one knows your place/neighborhood better than you do). Companies like Wix or SquareSpace are very popular and make it very easy to do.
Hire a professional property management company. Yes, working with a real estate firm or property management company will cost you money, but for some people, the fee is worth handing over some of the work (marketing, screening, showings, and repairs). Plus, they typically have access to additional resources that will help them successfully market your property and connect with potential tenants.
Pricing Your Rental Property
Another aspect of properly marketing your property is making sure that you are charging a fair market value while also earning some revenue. As you might imagine, pricing your rental too high can make it difficult to find a tenant. It is important to research other properties in your area and decide on a fair price. You may even want to tour available rentals to get a better idea of the types of amenities, appliances and other extras that they are offering.
Remember that being a landlord is not a get rich quick scheme. You won’t be able to inflate the price of your rental and expect to find tenants.
Extended vacancies are bad for your bottom line. You need to be prepared to pursue conventional and creative routes for marketing your property. If marketing isn’t something you have the time or patience for, then you will want to hire a professional.
Being a landlord isn’t for everyone and that is okay. For the right person, it can be a rewarding business opportunity that can turn into a full-time job. The first step is to understand the unique demands of the job and make sure that you know what you are getting into before you take the leap. If you have a job now - keep it. Real estate is a perfect ‘side-gig’ that can help build your skills, keep you busy, and build wealth slowly over time. Do your research, make sure that you are financially prepared and that you have the time to take on more responsibilities. Armed with the right knowledge and preparation, you can enjoy a successful career as a landlord.
KeyCheck.com is a trusted source for landlords to get free tenant screening reports and order custom leases for any state. Our credit check reports include the most accurate credit, background, and eviction data available to ensure you have the best information on the tenant you’re screening. The best thing a landlord can do is to have a system that works and repeat the same process for each tenant. www.keycheck.com