Does it seem like everybody around you is getting rich off real estate? Its a tempting scenario to buy a place, rent it out and have a tenant pay your mortgage. Be forewarned, its not as easy as it looks. Before you jump onto the landlord bandwagon, make sure youre prepared for the realities of life as Mr. or Ms. Roper.
Stock Up for the Lean Times
First and foremost, being a landlord does not equal instant money. Save enough cash to cover the periods your unit sits unoccupied, because you are guaranteed interludes with no incoming rent to cover your mortgage payment. Despite tax write-offs, your first year of owning a rental property will most likely operate at a loss.
Additionally, you must set aside a pool of funds to cover both planned and unexpected repairs. Each year or so, youll want to paint, have the carpets professionally cleaned, make small repairs (that windowpane crack is only going to get bigger) and have the central air or furnace inspected. You could get hit with the cost of a new refrigerator, hot water heater or other major appliance. If youre burdened with exceptionally sloppy tenants, the cost to make your rental unit livable again could be substantial.
The People in Your Neighborhood
As you search for properties, dont assume you can turn any structure into a rental unit. Some communities forbid or frown upon having renters in the neighborhood. Do your homework. Check with your realtor, the municipality and prospective neighbors before plunking down a nonrefundable deposit.
Before you bid on a property, explore the vicinity. An abundance of other properties for sale or rent could indicate an undesirable location. Regardless, a glut of units could make your search for tenants difficult.
Law and Order
Each state has different landlord-tenant laws covering leases and evictions. Research your areas regulations before you make a costly miscalculation, such as not knowing how to legally divest yourself of deadbeat renters.
Check out www.landlord411.com which has links to all fifty states landlord-related laws. Also, invest in a conversation with a real estate attorney who can walk you through your rights as a landlord. Finally, if there are any landlord associations in your region, seek them out and consider joining; after all, theres power, strength, and knowledge in numbers.
What will happen if you go on vacation and your renters need help? Are you going to hire a property manager or do the fix-ups yourself? How will you accept the rent? In person? Via checks? Through credit cards? You need to answer these and other questions before your first tenants step foot inside your unit; otherwise, you could find yourself in an unenviable position.
You also need to consider how often you plan on raising the rent. This decision cannot be made arbitrarily; weigh the pros and cons of a rent increase based on the location of your property, the status of your tenants (have they been with you for a long time?) and the general market.
Check Em Out
When considering prospective tenants, check on their credentials. While some landlords eschew tenant screening, most professional associations recommend that you at least do a credit history check and call all references, including former landlords. Keep in mind the prospective tenants current landlord could provide you with a glowing report to rid himself of a bad egg, while past landlords are more likely to be honest.
Even if your gut tells you someone will be a good renter, proceed with caution. A credit check might cost a few dollars, but you can recover the outlay by requiring all serious prospective renters to pay an application fee. Its far better to know upfront that folks are bad news. Once they invade your building, it can be far more problematic and expensive than a credit check fee to get them out.
Stick to Your Guns
If you cant be firm, the landlord lifestyle might not be for you. If youre a big softie but determined nonetheless, hire a property manager to do the tough stuff. If youre willing to be consistent in the face of angry tenants and potential disputes, you could make a little dough.
If you have a no pets allowed policy, abide by it. Dont allow Spot to turn your spotless carpet into a latrine. If you have explicitly stated there is to be no smoking indoors, make no exceptions even if Gramps complains about smoking outside in the dead of winter. If you expect the rent by the 5th, dont allow the Millers off the hook because you feel sorry for them. Its a slippery slope; they may never regain their financial footing once you let them slide once.
Its better to maintain a professional relationship with your renters, as it will be easier for you to enforce rules, raise the rent, and evict if necessary. Some landlords have a practice of living offsite or hiring a property manager so they arent tempted to form close bonds with their renters. Be cordial, be polite, but try to keep your distance.
Did Someone Hear a Phone Ring?
As a landlord, prepare for the phone to ring at all hours. Unless you specifically tell renters that you will only receive non-emergency calls during certain daytime hours, you may wind up hearing from your tenants at midnight or later.
There are many issues to consider when youre deciding whether to become a landlord. Its a 24/7 job that can sometimes produce more headaches than cash. However, by considering all the facts, you can go into your new role with a sense of security and strength.