In this article I will show you some tips to help you find the right property to become a landlord. I will also show you some of the tricks I use to make sure I can get a good return on my investment. So, read on and learn some trick to protect you from a landlord that isn’t a good tenant.
A landlord owns a property, and has to care for it and the people who live in it. In return, the landlord receives a percentage of the rent from the tenants. In some cases, the landlord will have to pay a mortgage to someone else, before being able to receive the rent.
You’ve probably already decided on your 2nd 2nd property to buy. But no matter how much you do your research, you’ll almost certainly still end up choosing the wrong property for your second property. Why? Because of the many important factors that you might not have considered.
How to Find Trustworthy Tenants
You’ve discovered a home and decided to purchase it. Congratulations on being a real estate investor! It’s now time to find someone to rent your home.
It’s not simple to screen renters. Every now and again, even the most seasoned landlord will have a bad renter. When filtering through candidates, the two most important things to look for are:
- Is this individual able to comfortably pay their rent?
- Will this individual take good care of my property?
The first question is much simpler to respond to than the second. Landlords often demand tenants to earn at least three times the rent amount in monthly take-home income. This increases the likelihood of the renter paying the rent and eliminates the need for them to choose between paying the rent and feeding their children.
I need pay stubs for the previous two or three paychecks as part of my tenant screening procedure. I also do a credit check to make sure they don’t have a lot of debt that will make paying the rent difficult.
Once a renter passes the income/credit test, you’ll want to learn all you can about them as a person. Most rental applications enquire about any criminal records or prior evictions.
A short look at their social media accounts will also reveal a lot about them.
While it’s OK to conduct some background research on your prospective renters’ backgrounds and habits, discriminating on the basis of race, religion, gender, sexual orientation, marital status, nationality, handicap, or the fact that they have minor children is prohibited under the Fair Housing Act.
Visit HUD.gov for additional information on housing discrimination and safeguards.
Personal references from former employers or landlords are very important to me. People can tell you a lot more than statistics can.
I took a risk on one of my current tenants since she had bad credit from a previous divorce, but she had a steady job and a great reference from a previous landlord, so I took a chance on her. She has always paid her rent on time, and renting to her has been one of the greatest choices I’ve ever made as a landlord.
How to Take Care of Your Home
There are just two options for handling the specifics of your rentals: do it yourself or hire someone to do it for you. You are the go-to person for every lockout, breakdown, missing rent check, and appliance malfunction when you manage your own properties.
As the only decision-maker, enforcer, bill collector, and accountant, you have complete control over your investment. You are also the only payee, so managing your units yourself will earn you more money.
Many landlords begin their careers by managing their own rental properties. Every landlord, on the other hand, is a single individual with a certain amount of time and energy. If you want to expand your real estate portfolio beyond a few units, you’ll have to outsource part of the labor.
A property management firm will relieve the landlord of a number of responsibilities, including:
- Rent collection
- Taking care of tenant concerns
- Making a repair request
- Displaying and advertising empty units
- Cleanings and inspections between renters are managed.
- Creating lease agreements
- Renters are screened and background checks are performed (though many landlords do this part themselves)
Each property management firm will have a distinct list of chores that they do and don’t perform, so if you choose this option, be sure to lay out their responsibilities in your contract.
A property manager’s fee for these services is usually about 10% of the rent, but it may be more or less depending on how many of the aforementioned duties they take on.
Pro tip: Make sure your payments to property managers are structured such that they get 10% of the rent collected. You won’t have to pay for management on units that aren’t occupied.
Things to Think About Before You Become a Landlord
While everyone would benefit from the high returns of being a landlord, not everyone has the time, money, or desire to do so. It’s a good idea to ask yourself the following questions before diving into this asset class:
- Will I be able to withstand the highs and lows? Real estate, like other assets, has peaks and troughs. When your renter phones you at 2 a.m. to inform you they’re out of water and moving out, things become a lot more personal than figures on a spreadsheet. Whether you want to be a landlord, it’s not a question of if you’ll have problems with your tenants; it’s a question of when. You must be mentally and financially prepared for the difficult times. They WILL take place.
- Is it possible for me to delegate? You can only do so much by yourself, especially if you’re investing in a place where you don’t reside. If you’re a control freak, landlording will be difficult for you since your time and energy will be stretched over more and more doors as your company develops. To guarantee that their company works smoothly, successful real estate investors build up processes and depend on a team of contractors, property managers, real estate agents, lawyers, and others.
- Is it possible for me to manage this as a business? It’s all too easy as a first-time landlord to deposit rent money into your own bank account or charge maintenance expenses to your own credit card. However, poor accounting makes tax time a misery (been there, done that), and if you don’t keep things structured, you’re sure to lose out on important tax advantages.
- Is it possible for me to keep my emotions out of my investing decisions? You want to restore that old three-story Victorian with foundation problems or rent to the tenant with the most interesting backstory. However, as a landlord, you must be willing to leave your feelings at the door. You’ll get to ride the emotions of evicting the tenant who couldn’t pay the rent in the first place or swallowing the expenses you sank into the Victorian’s collapsing foundation if you don’t make your investment choices based on rationality.
Whether you’re still not sure if landlording is appropriate for you and want to learn more about what it involves, check out our Should I Become a Landlord article, which goes over all of the benefits and drawbacks of being a landlord.
Without Becoming a Landlord, Here’s How to Invest in Real Estate.
There are options if you want to invest in real estate but don’t want to deal with tracking down rent checks or cleaning up after scumbag renters.
Landlording isn’t for everyone, but you can enjoy the profits and diversification of numerous real estate assets without ever leaving your sofa using real estate investment trusts (REITs).
High-value investors and hedge fund managers used to be the only ones who could buy REITs. REITs are now accessible to everyone with a smartphone thanks to applications like Fundrise. You may choose a REIT that fits your investing objectives with just a few taps—and your first investment will be considerably less than a down payment on your own rental property.
Being a landlord is not for the faint of heart or the indolent. Physical, logistical, financial, and even emotional labor are all required. Begin by performing the required research to locate a fantastic bargain and analyzing the statistics to ensure they are accurate. Obtaining precise cost estimates can assist you in avoiding costly errors in the future.
Take your time when screening renters once you’ve bought a home. By carefully verifying the applicant’s income, credit, and background information, you can ensure that you get someone who can afford your home and will treat it well.
Being a landlord may be taxing, but there are many methods to make it less so. Consider if it makes more sense to handle your rental properties yourself and retain all of the earnings, or to contract out the day-to-day tasks of property management.
You may even outsource the whole process entirely by investing in a REIT like Fundrise. Examine your financial and lifestyle objectives before selecting the best investment for your portfolio.
Finding the right property to become a landlord is an overwhelming task that you might not be equipped to handle alone. Landlords are faced with a wide range of property types, prices, and other factors that make finding the right property to do your business difficult. This article will give you insight into finding the right property, as well as tips to help you out along the way.. Read more about investing in rental property for beginners and let us know what you think.
Frequently Asked Questions
What to consider before becoming a landlord?
You should consider the following before becoming a landlord. -What is your plan for the property? -How much do you want to spend on repairs and maintenance? -What are your plans for the property in future? -Are you willing to take on any additional responsibilities that come with being a landlord?
Is it worth it to become a landlord?
It is worth it to become a landlord if you want to make money from renting out your property. However, the risks involved with this type of investment are high and can lead to financial losses.
Do you have to own the property to be the landlord?
No, you do not have to own the property to be a landlord.
This article broadly covered the following related topics:
- becoming a landlord
- how to become a rental property owner
- how to become a landlord
- how to become a landlord with no money
- investing in rental property for beginners