It is important to define what success means for a particular field to track your results. Success represents more than just renting out a property or room in their own homes for an extra monthly income for rental property investors.
The achievements of successful landlords can be measured by how much money they can produce on an annual basis, the size of their property portfolio, the ability to allocate finances, whether they have adequate law knowledge, and their ability to cope with the market changes and crises. We will cover the key elements of how to become a successful landlord and highlight some common pitfalls.
Profit on an annual basis
A landlord's annual income in the US ranges from $28,490 to $123,790, with a median salary of $55,380. The middle 60% of landlords make $55,380, with the top 80% earning $123,790.
Those who manage to achieve the highest profits can expect to live comfortably on that income, given that the average monthly expenses for one person in America are $3,189 ($38,266 annually). Many landlords choose to use their portfolios for their retirement. It's a great way to supplement their retirement.
However, some factors play into how much profit a landlord can make:
Frequency of renting properties. Renting out a property frequently brings more financial opportunities because the landlord's earnings are affected whenever the property remains vacant.
Related fact: Statistics show that 6.4% of rental units in the United States are vacant — 31.5% are available for rent, and 66.7% are put up for sale.
To avoid losing out on money, landlords should rent out their properties as soon as possible. This can be done by improving the property, appealing to potential renters, implementing a strong advertising strategy, or working with an agent to guide them through the rental process.
Location of the property. Some say this would be the most important factor to consider for investors. The truth is that a property in Missouri, where the average monthly rent is $834, will bring you a much lower annual profit than a property in a residential area of NY, such as the Great Neck Plaza, where rent can reach up to $5,188 per month.
But, these are not the only factors that can determine a property’s rental profit. For example, climate, proximity to public transport, schools, and other interest areas can add more to the value of the rental price even in a lesser-known location.
The number of owned rental properties. By increasing the number of properties they rent, landlords can generate a larger profit. On the other hand, renting several properties at once is much more responsibility.
Landlords should ensure that all the properties they own are rented out because if the vacancy rates are high, it could leave them with no profit, and they could potentially lose money.
Taxes. No landlord is exempt from paying taxes in the US. The net income your rental property produces is taxable as ordinary income on your tax return. For instance, if your net rental income is $10,000 for the year and you fall into the 22% tax bracket, you would owe $2,200 in taxes.
Services provided. A professional landlord whose goal is to achieve success should provide the best services for tenants, including everything from managing repairs and maintenance to dealing with tenant security issues and disputes. These services can also help ensure that the properties remain in good shape and stay updated with the latest safety regulations and habitability standards.
Tenant demographics. The demographics of a given area can significantly affect the rent and have a high potential to change the demand for housing in that area.
Therefore, landlords need to clearly understand which demographics they are targeting if they want their business to succeed. For example, a high percentage of young renters who have a college degree will afford higher rents.
Finance management. To be successful in this field, a landlord needs to have a solid knowledge of all key aspects of finance. They need to understand how to cover taxes and ensure that their business stays profitable. A financially responsible landlord anticipates the costs for possible damages, keeps track of all the expenses, and avoids any type of investment unless they can guarantee a steady cash flow over time. In many cases, hiring an accountant or financial advisor could make it easier to track the finances associated with being a landlord.
Profit Within the First 5 Years
To get a holistic understanding of what sort of profits landlords make it's important to look what the estimated profit you could expect within the first year and 5 years that you start. We asked some professionals in the field and fellow landlords. Here was their response:" "The first five years of being a landlord are definitely the toughest. Unexpected expenses and stressful situations will cause frustration and a low profit. Do not expect to make more than $10,000-25,000 in your first few years in the business." Leonard Ang, the CEO of iPropertyManagement. "3% cap rate is standard, however, it depends on the investment. If you put in renovations, you typically can increase that 3% to 4..5% +." Jade with Serhant.
"Depending on the location, the landlord should get 3% to 10% rental yield for the properties. Don't go below 3% since it is very difficult to cover your mortgage.
Ideally, the rental yield should be high enough that you receive a positive cash flow from your investment. Instead of having to fork out extra money to pay for the mortgage which would eat into your saving.
With the rapidly rise in property and rent due to low-interest rates, in 5 years' time hopefully, the rent has increased (mortgage is fixed unless interest rate moves up) and you would have a comfortable positive cash flow from your property.
For example, the rent from the property I purchased 10 years ago has doubled and I am able to repay my mortgage early. So I am now debt-free." Kim Founder and Lawyer at Doc Pro.
Landlord Insurance: Financial savvy investors have landlord insurance because it takes the risk out of their investments. If there happens to be an unforeseeable event, then they have an extra layer of protection.
Property portfolio size
A landlord can start with a single rental property, but a successful landlord will always look to have more properties in their portfolio.
The size of the property portfolio is determined by the number of rental properties that a landlord owns. A landlord's portfolio may consist of a wide variety of properties (whether it's a house or apartment), different areas where they are located (city or suburb), diverse types (commercial or residential), and so on.Here are some simple rules that you can follow to grow your property portfolio:
Set your investment goals. Investing in rental properties should not be seen as something that happens overnight but rather as a process; take time to think about all factors that may impact your investment decisions. With this in mind, you should figure out your future goals and how you will use your money and invest it for your growth as a real estate professional.
Create a strategy. Not having a goal of high performance and a measurable strategy can be a real barrier to success because if you don't have direction, you will spend time in areas that you shouldn't. Landlords must make strategic decisions that will allow them to maximize profits and increase their market share.
Start with one property. You should start with only one property and buy more properties in time. Focus on buying one high-quality unit with potential for growth over time. This way, you will be able to learn on your own what it means to manage a single property before throwing yourself into other investments.
Buy a property that has already been rented. This can assure you that the property will be easily rented in the future, because this has always been its purpose, and it will give you a clear picture of the price to set for the rent.
Focus on quality, not quantity. Often, the quality of the rentals, not the number of properties, makes a great portfolio. Hence, you should avoid investing in many units that do not have the potential to make a profit or at least return on your investment.
Work with a professional. If you are a first-time investor and you’re planning to grow a wide portfolio, you should consider getting some help from an expert in the beginning. They will show you how to use different resources to determine what kind of property fits your requirements. For example, if you're brand new to this field, they can show you the best places where people are investing in rental properties and what you should avoid.
Facing Changes in the Industry
Being a successful landlord is based on understanding and adapting to market trends and crises, always being one step ahead of changes, and making the best of any bad situation. To some extent, landlording is a type of user-generated business, meaning that every decision related to property management is largely driven by a single factor - the tenants.
In today's society, tenants are often changing their needs and requirements regarding the rental market. Things like online rental platforms and the popularity of smart home systems have driven tenants' preferences in recent years.
Very few people still search for rental announcements in newspapers or through other traditional methods. Instead, they prefer to look for places to live on websites.
Those looking for a unit to rent are also looking for the best living conditions— a reason why smart homes have become increasingly popular with tenants.
Tenants are getting more comfortable with their lives, and smart homes will make it easier to handle different tasks in the house daily. Many are starting to having various aspects of their lives served through the use of advanced technologies.
Related fact: In a recent survey, 63% of people preferred smart home security, 63% smart home climate controls, 58% smart lighting, and 56% safety devices like carbon monoxide detectors and nightlights. Equally important, the number of smart homes is forecast to grow and exceed the 350 million mark by 2023.
To keep up with such changes, landlords need to respond quickly and flexibly, making sure that they meet the demands of their customers.
The rise of the sharing economy has created a trend in more landlords using Airbnb and other platforms to rent out their properties. This could be a great way to diversify your portfolio.
To minimize any damage of a possible economic or demand crisis, landlords need to adopt some measures in their business. Those who are not ready to accept these changes will have a poor chance of surviving the market fluctuations.
Keep it Professional
Professionalism in this field is related to how one acts, both in the relationship with the tenants and in managing their own daily tasks.
It is common for landlords to treat their tenants well to get them to stay longer. Tenants' happiness will increase profit margins by a considerable amount. Besides, nobody appreciates a landlord that is over-controlling or rude. Treat everybody as an equal and how you want them to treat you. This applies to all areas of life.
Unfortunately, a few of them have fallen into the trap of treating their tenants as friends and not as business partners. This usually leads landlords to have a lot of different expectations from their tenants. At the same time, it gives some tenants the impression of a connection that could bring them privileged benefits.
In most cases, a close relationship between a landlord and his tenants leads to nothing but inconveniences, which is why it should be avoided. A successful landlord will know how to treat their tenants well without getting too close to them and maintain a strictly professional relationship.
Being a landlord is not for everyone, especially those who cannot take the job seriously. Those who succeed in renting properties know that property management isn't part-time work or a hobby. It needs to be done well. Therefore, this job requires both planning and execution skills. If you don't have these, then you must learn.
Needed qualities and tips for being a successful landlord
If you were to line up 10 of the most successful landlords then you would be able to find qualities that determined their success that they share. If you are wondering how to become a successful landlord then take note because we have gathered some insights from professionals in the field."
You need to start with a good vibe with the tenant. You can give the tenant a welcome gift (something useful for the house).
More importantly, you should act fast in all reasonable requests by the tenant. For example, if the tenant compliant that there is plumbing problem, you send in the plumber on the same day. Obviously, this does not apply to unreasonable requests. You will need to be firm and politely refuse by saying that this is not covered in the rental contract." Kim Founder of Doc Pro.
"The qualities of a good landlord revolve around being professional and empathetic individuals. Also, it is always a good idea to be fluent in your lease agreement before signing on any tenants." Leonard Ang, CEO, iPropertyManagement.
Renting out a property as a landlord can be a lucrative investment strategy, but it does require work. Poor landlords often experience a high turnover of tenants, which can increase the overall property costs.
If you need to advertise for new tenants, interview potential tenants, run credit checks, and all the other admin associated with a new tenancy every six to twelve months, it can significantly impact your profits. Fortunately, there are some simple tips to be a good landlord and establish a successful relationship with your tenants.
Provide a welcome letter: Even if your tenant is not new to the area, a welcome letter can be a great way to break the ice and help them adjust to their new home. You’re not only welcoming them but also providing essential information about the property. For example, you can include the trash pickup day, contact information for utilities, and your contact information if they have a problem.
Make nice gestures: This follows on from the welcome letter, but nice gestures such as stocking the bathrooms with soap and toilet paper will not only make moving day a little easier for your tenant but also show that you are a good landlord who appreciates them.
Attend to Issues Quickly: While it may be inconvenient for you if there is a problem with your rental property, it is far more inconvenient for your tenant. Even a seemingly minor issue, such as a leaky faucet or running toilet can cause frustrations for your tenant. After all, how would you feel if a dripping faucet was keeping you awake at night? So, when your tenant reports a problem, aim to deal with it promptly.
While these tips can be effective, one of the most important aspects of being a landlord is to remain professional. Even if renting property is a side hustle, you are the main point of contact for your tenant, so you need to remember to remain calm and professional whenever you speak to them.
Whether it is reporting an issue out of business hours or late rental payment, there is no point in losing your temper. If you deal with any issues calmly, your tenant will appreciate that you are a reasonable person. This means that they are more likely to let you know of a potential issue, such as rent being a day or two late, but also they may be more inclined to continue their lease." Baruch Silvermann the CEO & Founder of The Smart Investor.
"Having carried out thousands of property surveys for landlords, I can say that one thing that makes a big difference to how your tenant feels about living in your property is energy efficiency.
Energy-efficient properties are cheaper to run, easier to keep at a constant temperature (and therefore more comfortable to live in), and also are generally more valuable than a less energy-efficient equivalent, attracting higher rents and a higher eventual sale price.
Energy efficiency is now an important consideration for many tenants, and this interest is only going to grow over time, as issues around climate change become ever more mainstream. By investing in making your properties more energy efficient now, you are signaling to your tenants that you are a socially responsible landlord and the tenants themselves are more likely to take pride in the property.
Simple changes such as switching all your light bulbs to LED can make a big difference, plus they last a lot longer than incandescent bulbs, reducing maintenance time and cost. For more extensive improvements, grant funding and subsidies are available in many areas, so you may be able to improve and add value to your property with minimal upfront cost to yourself.
All in all, improving the energy efficiency of your properties will make them cheaper to run and nicer to live in for your tenants. This will improve landlord-tenant relationships and help ensure your tenants stay longer, and are easier to find in the first place." Guy Smith Director at Every Property Certificate Ltd."
Flexibility: Flexibility is the sign of a good landlord. A landlord also needs to understand the circumstances of his tenants. If the tenants have a good payment record and are currently having a crisis, compassion can be appropriate.
Willingness to Learn: Landlords need to learn from everything to develop their professionalism. They keep learning from new tenants and their psychology that help them learn the requirements of a resident. This learning tendency helps landlords enrich their knowledge." Jason Simrad Realtor & Owner Sims Real Estate Group.
Respect the Law
A landlord who wants to succeed should be familiar with the state/federal landlord and tenant law. They should pay attention to the regulations and also understand how those regulations apply to their business.
Therefore, a basic understanding of the fundamental laws is needed for those who want to build a rewarding career as landlords. These fundamental laws include:
The Fair Housing Act
The Fair Credit Reporting Act
The Lead Disclosure Rule
The Landlord-Tenant Laws
Local Disclosure laws
Eviction Rules And Procedures
The most common reason landlords fail to remain successful in their business is that they fail to inform themselves about property laws adequately and are unaware of what they can and cannot do.
Why should you know this? Because if you do not comply with all the rules, there is a chance of getting penalized. Any landlord who chooses to ignore these laws will face the consequences of breaking the law and potentially getting arrested or prosecuted for breaking strict rules around rental agreements.
Not abiding by landlord laws could result in fines, lengthy prison sentences, and other punishments under existing legislation.
All things considered
The rental property market is growing by the minute, and it has never been more competitive. To be successful in such a competitive field, you must plan ahead of your competition, generate a high profit, build a great portfolio of rental properties, keep up with the changes of the market and the laws, and always remain professional.
In the long run, becoming a successful landlord is 90% dedication and 10% skill. As long as you work hard, success will follow your hard work.