Being a landlord is seen as an attractive career option, especially for those who want to earn money through multiple streams of income. Unfortunately, not everyone makes it as a landlord. It takes a combination of skills to be a good landlord, including managing your finances properly, building reliable relationships with tenants, and knowing and respecting the rental laws that apply in your state.
In this article, we will provide tips on how to be a good landlord and what considerations to keep in mind.
Manage Your Finances Properly
Proper financial management is a necessary part of being a good landlord. Therefore, if you aim to be one of the best, you must have an effective plan to develop your property and ensure its steady growth.
Unlike other investments, the rental income from a property is almost guaranteed. But it also requires active involvement in managing and maintaining your balance sheet. Handling your finances as a landlord will require taking small steps at first, but over time, it will allow you to achieve your dreams of having your own property while staying on track financially.
Landlords must keep an eye on the expenses incurred while renting out their property and adjust their budgets accordingly. To do this, landlords must understand and follow certain practices:
– Control your cash flow. This involves making sure that there is enough money coming in from renting out your property. To better grasp your cash flow as a landlord, you should consider conducting a monthly financial analysis to identify any overspending and potential areas for improvement.
The calculations that you perform should include what you spend on operating expenses (utilities), property taxes, insurance costs, and loan payments for your property. You will also have to calculate how long it takes an average tenant to pay their share of the rent each month.
– Identify potential hazards before they hit you. Every landlord needs to be aware of the different risks that come with renting out a property. With this in mind, landlords must be extra careful when it comes to identifying potential hazards. They are the ones who will ultimately have to bear the cost of any damage to their property, which could affect their finances significantly.
Get landlord insurance to protect your investment. Did you work hard to get your rental? Solid investments are investments that have mitigated risks. By getting landlord insurance, you can mitigate your risks even further!
One of the most common hazards found in rental properties is mold and lead. A good landlord should thoroughly inspect the property and keep up with regular maintenance to minimize these risks.
Many people who think of becoming landlords expect this decision to bring them a fortune from the beginning. However, they do not think to put some funds aside to prepare for expenses during the process. – Have savings before renting out your property.
To keep your finances balanced and avoid huge expenses, you should set aside money for maintenance, repairs, and taxes.
– Always respect your financial obligations. As a rental property owner, you are responsible for paying your fair share of taxes. This is especially important because you are providing housing to tenants and generating income that helps fund public services.
The common taxes that landlords must pay are:
- Property Tax: a percentage of the rental price that goes to the government for roads and infrastructure upkeep. It is calculated based on the value of the rental property, and the property tax can vary depending on location.
- Income Tax: another common form of taxation for all income earners. It is meant to help fund those who can’t afford to pay these types of taxes. This includes landlords who rent out their properties or those who earn through other means such as investments or work-related incomes.
– Separate rental property finances and personal finances. Dividing the funds for these two is a good idea if you want to budget for both and obtain a clear financial picture of the costs associated with each. Separating bank accounts, credit, and debit cards can prevent financial distress and avoid confusion regarding income and expenses. It will also enable you to keep both rental property finances and personal finances under better control.
– Keep up with the changes in the real estate market. The rental market is constantly changing, so landlords should be on top of their game to avoid being left behind. Keeping up with the current trends in the market can ensure that they are staying ahead of the competition.
– Get professional help. Suppose you are missing any of the previous skills and do not have the necessary time to manage your finances. In that case, it is best to hire a third party to handle the daily financial operations of your rental investment. They can help you save on your expenses and prevent you from losing money.
Maintain a Good Relationship with Your Tenants
If managing finances is something you can handle successfully, you already have one of the essential skills of being a landlord.
Tenants are a significant part of the property’s success, so the next must-have skill of being a good landlord is the ability to maintain a good relationship with tenants.
Good landlord-tenant relationships require frequent communication and understanding between both parties to develop trust and ensure the relationship stays strong throughout the tenancy.
To foster quality relationships with your tenants, you must follow these bits of advice:
✓ Keep constant communication. This is important to maintain trust and peace of mind. It also makes it much easier to communicate back and forth about any problems that arise. For this reason, a good landlord should start communicating with their tenants from day one to build a solid and long-lasting relationship with them.
✓ Go through the lease together. When signing up for a new lease, you should always check it with your tenants in the first place to make sure you are both on the same page and that everything will work out according to plan. Analyzing the lease together will ensure that everyone understands what they agree to, avoiding future conflicts and lawsuits down the line.
✓ Keep your property in good shape. Property maintenance is an essential aspect of being a good landlord. Despite that, many landlords tend to neglect their property and make it less of a priority. This decision can result in significant losses for them, including higher utility bills, costs of repairing the damages, and fines from local authorities for not meeting specific legal responsibilities as a landlord. It also could affect your profitability and the safety and quality of life in the rental for your tenants.
✓ Resolve maintenance issues promptly. Landlords should be proactive and have an effective way of dealing with maintenance issues. It can put their business at risk if they do not fix issues fast enough. By resolving problems quickly, they can provide a better service for their tenants and receive an assurance that those maintenance issues will not worsen.
Invest: Just investing in a $300 dollar repair can help mitigate future vacancy losses
✓ Be transparent. Landlords should be transparent with their tenants and disclose all information about the property before having their tenants sign a lease. A good landlord should disclose the condition of the building, its history, and any past issues they have with the property.
To improve the transparency in these relationships you must ensure that all parties involved are looking out for each other’s best interests.
✓ Empathize with their problems. Good landlords can understand tenant problems so that they can create effective solutions for them. Empathy helps you know what your tenant is going through, thus increasing your chances of solving their problems or handling them better.
For example, having empathy can help you figure out why your tenants have been late on rent payments and what they need to move forward with paying the overdue amount faster.
✓ Respect their privacy. Today, privacy is a fundamental right. To be a good landlord, you should respect the tenant’s privacy by knowing what they consider private and how to have healthy and professional boundaries.
If this doesn’t seem important to you, keep in mind that if landlords cannot respect and honor tenants’ privacy, there are high chances that it will lead to legal consequences.
What to Avoid in the Relationship with Your Tenants
It may seem obvious, but most of the things you should avoid in your relationship with your tenants are the reverse of what you need to do to build a great professional bond with them.
However, there are three things a landlord should avoid at all costs.
X Treat the screening process with indifference. In the U.S., the screening process of tenants has been made mandatory by law, and it is a step that landlords should not take lightly. Screening tenants involves checking their identity, credit score, employment history, criminal background, and other essential points to decide whether these tenants are suitable to live in your rental unit.
Related fact: Statistics show that 1 in 3 U.S. adults have some type of criminal record.
X Go over what you signed. It is vital to go over what you and your tenant agree to in the rental contract. Every good landlord knows their tenants’ rights should never be overlooked, no matter the circumstances. Make sure to read their lease before signing it to avoid any possible future legal issues.
X Unfair eviction. Although this should be done as a last resort, it might be the only choice left in some cases. Eviction can happen for many reasons, but it typically occurs when tenants have failed to pay rent or violated their lease agreement.
Did You Know? Eviction fears were running high in early 2021 — 4% of renters had received eviction warnings, while 17% were concerned about being evicted even though their landlords had not issued warnings.
Tenants can sue their landlord in case of unfair evictions. To avoid legal repercussions, landlords should give tenants ample notice on their rental contracts and provide them with an opportunity for mediation if they cannot agree on a resolution.
Know the Law
Let’s say that your finances are under control, your monthly income is satisfying, and your relationships with tenants are great. Despite having these factors go well, poor knowledge of your legal obligations as a landlord can lead to future trouble.
Knowledge of the law is necessary because it protects both landlords and tenants when there are legal issues such as damage or theft, noise complaints, conflicts, animal problems, health concerns, and more.
These are some of the laws every landlord must know:
- The Fair Housing Act – In reaction to the rise in housing discrimination, the Fair Housing Act was founded in 1968 to prevent landlords from discriminating against tenants on various bases, including race, religion, and national origin.
Under the FHA, landlords may not discriminate against tenants based on their physical or mental limitations or disabilities, refuse to allow an individual with children into a rental property, or evict them because they have special needs.
- The Fair Credit Reporting Act- is a federal law that governs how credit reports are collected, used, and shared by lenders.
Like any other business owner in the U.S., landlords must comply with this law when checking their potential tenant’s credit report before approving them for a rental unit.
When a landlord rejects an applicant based on the credit report they reviewed, they must send them an adverse action letter notifying them that they have been denied because of it and provide information about the address of the reporting agency.
Therefore, all landlords must know about this act because they might be sued if they don’t follow it correctly.
- State-required disclosures – The frequency and the location of the disclosures vary. For example, in Washington state, all leases must disclose the landlord’s policy on lead paint inspection and remediation, while there is no such law in Florida.
This means that some disclosures required by law may not be as mandatory across other states, so knowing the disclosures required by their state is vital for any landlord.
- The Landlord-Tenant Act – This law was made to regulate the rights and responsibilities of landlords and tenants. It covers everything from creating a new lease agreement to how the land can be used in common areas, like hallways or parking lots.
A good landlord should always be familiar with their state’s version of the Landlord-Tenant Act to take legally correct actions and have an easier time navigating any conflicts that may arise.
- Eviction Rules And Procedures. The laws governing evictions have changed significantly over the last few decades, increasing efforts to defend tenants and provide more excellent protection against discrimination.
Landlords often experience legal trouble when evicting their tenants for no reason. Although it is a complicated process, it is possible to evict tenants without breaching their rights.
To comply with this law, a landlord must undergo a lengthy and complex process before evicting a tenant. It includes sending written notice of intent to end the tenancy, giving time for response, gathering evidence, and possibly court proceedings (depending on the circumstances). The tenant has a few days – usually ten – to vacate after receiving this notice.
The Bottom Line of Being a Good Landlord
The idea of becoming a landlord is very appealing to many people nowadays. But some of those people don’t want to attempt it when they find out what will be required of them if they were to become a landlord. The truth is, not everyone who wants to enter the real estate business by renting out property will be successful at it.
All things considered, being a good landlord means more than just taking care of the property and collecting monthly rent. It involves managing your finances properly, building and maintaining a good relationship with your tenants, and respecting all the legal requirements associated with the rental process.