When you’re entering the real estate industry as a new landlord, it’s easy to assume that the process will be much like what you’ve seen on renovation TV shows. While picking out beautiful wholesale cabinets and paint colors are parts of the process, there’s so much more to the job of being a landlord. As you embark upon this journey, put the following tips into practice.
1. Organize Your Business Finances
As a landlord, you’re conducting a business. While putting the rental check into your personal bank account might be tempting, you should open a separate business account. Your business finances and expenses need to be accounted for and properly documented to pay taxes, receive tax breaks and more. It’s also wise to create a proper budget for your business.
Those expenses add up quickly, whether the house needs a new roof or a new tenant. Also, tenants are not as invested in caring for your home as you are. Keep that in mind before you purchase the most expensive hardwood flooring. Instead, you might want to consider high-quality, durable vinyl plank flooring that requires almost no maintenance.
2. Prioritize Proper Business Practices
In addition to requiring your tenants to have rental insurance, make sure you have the proper coverage you need for the home. When problems occur, it’s always helpful to have insurance cover as much of the damage as possible.
Know and adhere to the rules of your local government. This includes knowing how many tenants can live in a home and how many bedrooms can be legally rented.
Lastly, make sure you understand all of the HOA’s regulations. Some require prior approval for interior renovations. If so, before you take advantage of a free kitchen design tool, check with your homeowner’s association to learn about the rules of what you can change. If you’re doing major work that requires going underground, get the necessary permits before beginning the work.
3. Research the Area Before the Purchase
Do your due diligence before purchasing a property by paying attention to the value of the surrounding properties. It’s never good to purchase at the top of the neighborhood’s property value because there’s a strong chance your property will decrease in value.
Pay attention to the city’s plans for the area. Look into the businesses that are coming to the area. If certain big businesses establish a presence in the community, this will attract more renters in the future.
4. Consider Third-Party Services
While real estate ownership can be developed into a great passive income stream, it can still be time-consuming. This is why building systems that can decrease your energy expenditures as a landlord is important.
You can invite third-party services into your business in several ways. Instead of collecting the rent check yourself, hire a third party to send reminders about rental payments and processing. Hire a landscaping company to mow the lawn and maintain the grounds. Maintenance issues can easily be outsourced. When creating your list of third-party services, find ways to work those fees into the lifetime of the rental lease.
5. Study the Market Rate
With real estate, it’s important to consider the long game. It’s not uncommon for businesses to take three to five years before getting a return on their investment. Even though you might want to pay the mortgage down in the next two years, be mindful of how much you can charge a tenant based on your property value.
Do some research to find out how much other landlords charge for rent in your area. If renters can get a much better rental rate, they will go for it. Know what your property is worth, and make sure your rental rates are realistic yet competitive to attract the right tenants consistently.
6. Develop a Process for Property Upkeep and Maintenance
No landlord wants to deal with flooding due to frozen pipes. While this travesty is common, it’s avoidable. Hire a maintenance worker responsible for staying on top of simple check-ups. Whether it’s an issue with the plumbing, a broken stove or a call to a professional to clean the gutters, hire a worker who can be the eyes and ears of the property.
When you have more than one property, this is almost essential. The maintenance worker can also serve as the point of contact for issues related to the home operation. If the landscaping company isn’t doing a thorough job, the maintenance worker can foresee the process of hiring a new company. If you’ve hired a cleaning service to do a quarterly deep-cleaning session of the home, the maintenance worker can serve as the supervisor of the process as well.
7. Establish and Reinforce the Rental Agreements
Even if you’re renting a room to a friend, always work with a written agreement. This is still a business, and to preserve the integrity of the process, get everything in writing. Make sure the tenants are clear on what’s expected of them. Give clear guidelines on the rules surrounding noise ordinances and more. Details such as securing a mail key, taking out the trash and snow removal need to be explicitly stated to avoid future misunderstandings or potential lawsuits.
8. Factor in the Vacancies
It’s not uncommon for landlords to experience a gap between tenants. At that time, it’s challenging because you’re technically losing money. To avoid a financial disaster, find ways to financially plan for a gap in occupancy. Even if this means you turn your property into a temporary rental for vacationing tourists or traveling professionals, get creative in filling the rentals with great rental candidates.
9. Invest in Landlord Education and Networking Opportunities
Learn more about ways to build your business as a landlord. Invest in your real estate education by attending seminars, conferences and networking events. Learn more about how other landlords use the tax codes to effectively and legally build profitable real estate investment businesses. Purchase books on tax codes, real estate and business to expand your capacity and earning potential as a landlord.
Learn from Experience
As you work to build a sound business as a landlord, these tips will ultimately impact the way you operate. Be committed to adopting these tips, learning from your experiences and growing as a real estate professional. In due time, the landlord process will operate like a well-oiled machine.
