There are many benefits to being a landlord, and you can profit exceptionally well from renting out a property with a good strategy.
However, starting as a landlord can be difficult because many hurdles can affect your plan. Newcomers in the landlord business should learn how to prepare for various situations that will arise along the way.
This post will list the tips for new landlords to help you plan a sound strategy as a first-time landlord.
1. Understand the Implications
Landlords run a business that requires them to be diligent and proactive. Landlords are not just collecting rent payments and enjoying a passive income. They are also:
- Maintaining the property.
- Paying taxes.
- Dealing with tenant issues.
- Ensuring everything runs smoothly for everyone involved.
Related fact: Approximately 10- 11 million individual investor landlords manage an average of two units each(many with just one unit) in the United States.
When a landlord buys the property, they must treat the property like an asset. Some landlords start without understanding the implications and responsibilities involved in owning a rental property. You could find yourself stuck with a property that isn’t reaching its full value as an asset, and the costs can exceed profit.
Therefore, a landlord should take care of their rental property like any other business asset. For instance, the landlord’s responsibility is to keep the property safe by maintaining adequate security measures, providing all utilities with reasonable regularity, and ensuring the unit does not endanger people’s lives or health.
If you are not prepared for all the work, financial risks, and responsibilities of a landlord, you will learn some hard financial lessons.
2. Do Your Research Before Investing
Real estate is like the stock market — it’s volatile and challenging to predict, but with some practice, you can see trends and invest at the most opportune moments.
Every year, thousands of people are eager to profit from purchasing and renting out a home, but they can mistakenly overlook problems. It would help if you were diligent and did research in the real estate market to avoid losing money.
Your research should include knowing:
- What the competition is doing and why.
- The best areas to start.
- The type of investment you are looking for.
- The quality of the property.
- Rental incomes in specific areas.
- The best time to buy a house, and more.
There are many traps when it comes to property investing. Many landlords believe they can learn from other experiences. However, every experience is unique, and so are the obstacles every landlord will face.
Neglecting due diligence will lead you towards many mistakes, including:
- Spending more money than expected.
- End up in an area with low rents.
- Negative cash flow.
- High vacancy rate.
- Problematic tenants.
- Hidden structural problems, and more.
Doing your due diligence will help to avoid many problems.
3. Set a Fair Rental Price
You will likely have high expectations as a landlord in the beginning. It is easy to set unrealistic expectations. It is important to ground yourself.
As a landlord, you have the freedom to set your rent amounts. Incorrectly setting rent could cost you, though.
Two situations can happen when you do not set a realistic rent price for your property. If the price is too low, your investment will lack profits, be stuck in a continuous loss of money, and not be able to cover your mortgage and other carrying costs. If the set price is too high, you will end up among those landlords who are waiting an eternity to rent out their property.
Related fact: The expected rent value charged by landlords in the US falls between 0.8%- 1.1% of the home’s value. For instance, for a home priced at $250,000, a landlord could charge a rent of $2,000 – $2,750 per month
Therefore, you should focus on some factors when setting the rental price, such as:
- The market prices for similar units.
- Property amenities.
- The costs you need to cover (mortgage, insurance, property taxes), and one of the most critical and often overlooked – the timing.
Remember, you need to set rent suitable for potential tenants and your costs. Setting the right cost will determine your success as a landlord.
4. Make Sure Your Property is Safe and Habitable
The security and well-being of tenants is a responsibility that every landlord should uphold before and after signing the rental agreement.
Thus, landlords must know what they need to keep their tenants safe and take care of the regular maintenance of their property, so it is always welcoming and habitable.
After you have bought a property for renting out, the next step is to make sure that the place is fit in terms of looks and functionality for future tenants.
Some of the most common complaints of tenants in the US include health and safety hazards, apartment repairs unrelated to safety, and other maintenance issues.
Related fact: A survey on the Quality of Housing in the US shows that 816,000 tenants live in severely inadequate homes, including plumbing, heating, electricity, and upkeep issues.
Overlooking these responsibilities as a first-time landlord can easily and quickly lead you to failure. Keep in mind that you are responsible for the upkeep of the property, and if anything happens on your watch, you could be liable, and you could even bear the legal consequences depending on your state.
You should consider inspecting your property to ensure no safety issues and that all of the plumbing, electrical, heating pipes are in good working order.
5. Screen Tenants Carefully
If you are renting out a property for the first time, you may be concerned that potential tenants may not be responsible or have behavioral problems.
Therefore, landlords should screen tenants carefully to weed out people who are troublemakers. The screening process is a pre-approval process that helps ensure applicants are responsible and proper in their rental responsibilities, preventing evictions or delays in rent payments. It should include questions about:
- Tenant’s credit.
- Employment history
- Property record.
Good screening assures that tenants meet their responsibilities under the lease agreement and prevents disagreements that might arise during the lease agreement term.
A poorly screened tenant could become a problem tenant who does not pay the rent and could leave the property in worse condition.
6. Get Landlord Insurance
To make sure that your investment is protected from potential risks, you should consider getting insurance coverage (want to know what landlord insurance covers? Check out our coverage page.)
There are many advantages of landlord insurance, and, unlike other types of homeowners insurance, it can be tailored specifically to protect landlords against a variety of risks, including:
- Vandalism, and more.
However, most landlords do not understand the importance of this type of insurance. They could be trapped by typical paperwork and red tape associated with homeowners insurance applications.
With adequate landlord insurance, you’ll have much more control over the safety and security of your home. Its benefits are long-lasting and undeniable when it comes to keeping safe from the many risks that may occur in your investment.
Although a landlord insurance policy will cost you out of pocket, it is a long-term strategy. Having to pay for tenant-related damages, even minor repairs will add up. Perhaps the most prominent area you will save with landlord insurance is if a tenant hurts themselves on your property and decides to bring you to court.
Keep in mind that your investment and plans can be destroyed in an unfortunate event with catastrophic damages. This insurance can pay for itself many times over by preventing major losses to your property during an emergency.
Get a Free Landlord Insurance Quote: We can deliver a free landlord insurance quote in just a few minutes. See what we have to offer.
7. Keep Track of Your Finances
Most people who rent their property don’t think about the financial side of the business. They assume that the tenants will pay the rent on time and nothing will go wrong.
In a perfect world, a landlord’s income would be high enough to never care about the numbers and automatically fill in the bank accounts every month. Unfortunately, the reality is far from this picture.
Many people throw themselves into this job without being financially prepared or even informed about their landlords’ expenses.
Today, the biggest financial issue landlords face is the lack of an effective system to monitor tenants’ payments or a strategy to manage costs in the long run.
Becoming a landlord will require you to pick up financial skills.
You must always keep an eye on your finances as a landlord. In addition to profit, you also have taxes to pay and other expenses that come with renting out a property. If you do not track and manage your finances carefully, you can quickly lose the balance between profit and costs, and you can reach an unwanted extreme with more money loss than earnings.
8. Maintain a Good Landlord-Tenant Relationship
The tenant came to view the property, successfully went through the screening process, and agreed on the lease. Ideally, they are low maintenance and would keep to themselves (not make many requests). This isn’t the case with some tenants.
Tenants are a vital part of your business success, which is why you should do everything to keep them happy and safe (within reason).
Once you have started renting a property, it is essential to continue building good relations with your tenants even after formally renting out your unit. You will need to constantly communicate with them to find out their needs and possible complaints.
Therefore, some of the reasons why you should build a good relationship with your tenants include the following:
- They will notify maintenance issues promptly.
- More likely for them to stay longer / renew the lease.
- Fewer vacancies.
- Good recommendations for future tenants.
- They will be more likely to take care of the property.
Moreover, keep in mind that tenants have rights under the law just like everyone else, and landlords must follow these rules to avoid being stuck in an endless legal battle with their tenants. Conflicts between the two sides can lead to lawsuits, lost profits, damaged credit records, and even insurance claims.
9. Consider Hiring a Professional
Let’s say you are about to embark on your journey as a landlord. You have carefully reviewed every detail of each property, researched the top rentals in the area, and cross-referenced them with your needs.
And finally, it’s time to make an investment decision. You could buy the perfect property, and you would be placing all your eggs in one basket. Putting your funds into the wrong basket can lead to disaster.
Your purchase could be less valuable after a few months because the market has tanked. Or you didn’t carefully analyze all the variables, and skewing the plan made those variables a problem. You could end up regretting your investment and need to sell at a lower price later on.
All of this could happen because you can’t know the market as well as an expert. And mistakes are possible, not only in the case of an initial investment but also when setting the rental price, drafting the lease, screening the tenants, and so on.
No one was born a skilled landlord. If you are a new landlord and all the responsibilities seem confusing at first sight, you should consider hiring a professional.
A property manager, a real estate agent, or a property accountant will be able to advise you on how best to handle your situation, whether it is related to your credit or property rights.
They will also tell you which areas are reputable and where you can get the best property – helping you from the first beginning. This will ensure you successfully handle:
- Advertising your property.
- Understanding legal requirements.
- Preparing the property.
- Everything else is related to the duties of a landlord.
As a landlord, you will need to wear many hats. However, you can hire other professionals to wear some of those hats.
10. Respect the Rental Laws in Your State
Knowing local legal requirements can be vital when renting out a property for the first time. These differ depending on where you live, although they generally reflect long-standing tenant health and safety concerns, disclosure requirements, and eviction procedures.
It’s a good idea to check with your local municipality and learn about any current or pending laws that may impact the terms of your tenancy agreement.
In most states, tenants have the right to hold their landlords accountable for failing to meet their obligations toward them in real estate property law.
Therefore, when someone is renting a property, they may have the right to file a complaint with the local housing enforcement agency if their rights under the law have been violated.
A basic understanding of laws could save you from many complications. These laws include:
- The Fair Housing Act.
- The Fair Credit Reporting Act.
- Your state’s security deposit rules.
- State-required disclosures.
Having an expert would also minimize your chances of these legal complications.
The Bottom Line
Being a first-time landlord can feel like a step into the unknown. Even if you know many people attempting to be a landlord, your situation will be unique.
As a landlord, it is your responsibility to ensure that tenants feel safe and comfortable. You have to be proactive about dealing with issues, make intelligent decisions about your finances, screen tenants carefully, and respect your state’s rental laws. Don’t put yourself into this job if you feel it’s too overwhelming.
We hope that our tips for new landlords have helped you gain an overall perspective on this role and get more accessible over the early stages of being a good landlord.
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