So You Think You Can Be a Landlord? 7 Things to Consider…
First-time homebuyers are a declining group. Historically, 40 percent of homebuyers have been first-time buyers, calculated yearly from July to June. But that percentage continues to shrink, even if the true homeownership rate among millennials climbed ever so slightly last year.
If you’re already a homeowner, your wheels might be spinning right about now — if people aren’t buying starter homes, then the rental market has to be booming, right? It is in many areas, particularly where unemployment is low, the population is high, and homes aren’t overpriced.
You might think you’re ready to become a landlord, but learning how to be one by trial and error is not necessarily the best way.
Here are seven tips to consider before you take the plunge:
1. Ideally, you want to live near your rental property
That way, you can check on it periodically (after giving your tenants proper notice), take care of repairs yourself, and show the property when it’s time to re-rent it.
2. Know landlord-tenant law
Most states have specific landlord-tenant provisions that cover issues such as security deposits, what sort of access to your rental property you can expect to have, and how much notice you need to give your tenants when you want them to leave. There also are federal laws you need to know, such as habitability and anti-discrimination laws.
Ron Leshnower, real estate attorney and author of Fair Housing Helper for Apartment Professionals, says that “many landlords gloss over housing discrimination laws because they assume that as long as they’re not racist or sexist, they needn’t worry about fair housing violations.”
But fair housing liability traps can arise in many ways, so it’s important that you fully understand the law and ensure that you aren’t breaking it.
FREE DOWNLOAD: New Jersey Landlord-Tenant Law
3. Make sure you can enforce the rent being paid on time
This seems like a no-brainer, but if you get too friendly with your tenants, you might just let them slide a couple of weeks here and a partial payment there. Before you know it, your tenants are six months behind.
But that doesn’t mean you shouldn’t treat tenants with respect. Creating rapport shows respect and makes the job of collecting rents and dealing with repair requests that much easier.
4. Screen potential tenants
It’s worth the time to do a background and credit check on all potential tenants. Use an online tenant-screening service for this. Credit score alone is not always a reason to accept or deny an applicant, but it is a useful screening tool. You should also conduct an interview and check their references.
Your Patrick Parker Realty Listing Agent takes care of all of this for you. We run all prospects through tenant-screening after completion of an application. Don’t underestimate the importance of using a Listing Agent when renting.
5. Customize the lease
If you don’t hire an attorney or a property manager, you can use a standard lease form from Nolo, for example, but you should tweak it to fit your situation. For example, if you allow pets, specify how many, what kind, and any rules that apply.
Again, this is where having a Listing Agent will come in handy. They have the lease custom to your state’s laws and applications and will walk both you and your new tenant through any customization should it be needed.
6. Inspect the property regularly
Always do a move-in and move-out inspection. This should go without saying. Take pictures to establish a base line and complete a Rental Property Condition Checklist and suggest your tenant do the same and submit it to you so you’re on the same page from the get-go.
FREE DOWNLOAD: Checklist of Rental Property Condition
Consider having language regarding inspections clearly written in your lease documents. Maybe you want to conduct an inspection at six months. If you find problems, consider issuing a compliance notice and re-inspecting in 30 days. Eventually you’ll find whether or not this will be necessary in the future.
7. Understand this is not a get-rich-quick scheme
Being a landlord is not just sitting around collecting a big wad of cash each month. You’ll need to spend some money to ready the property for tenants, buy landlord insurance, register as a landlord in your town, acquire a C.O. and pay property taxes. If you’re taking out a mortgage, be prepared to fork over at least a 20 percent down payment.
Think of being a landlord as part of your overall investment strategy and realistically aim for getting around a 5 percent return on your investment.
Are you a Landlord with tips to share? What lessons have you learned? What lessons have you learned the hard way? Sound off in Comments, on the Patrick Parker Realty Facebook or Twitter pages and don’t forget to sign up for the monthly Patrick Parker Realty eNewsletter for more articles like this delivered straight to your inbox.