What’s It Really Like to Be a Landlord?
It may sound like a dream come true to become a landlord and have a steady flow of rental income rolling in each month. But before you purchase an investment property, there are a few things you should know. Yes, owning a rental home can be lucrative. However, since there are many intricacies that come along with property management, you should think through this decision carefully. Below, we’re highlighting four big factors to consider.
Show me the money?
There are a number of reasons why people choose to become landlords, but they all ultimately lead back to one thing: money. Whether you are moving for a job and need to rent out your current home or you’re considering buying a fixer-upper and hoping to find good tenants to live in the home, you’ll want to make sure it’s a smart financial decision. Things like remodeling, maintenance, utilities, advertising and more can all add up, so take the time to some cost analysis before diving in.
Legal talk
It sounds easy enough – just find someone who needs a place to rent and have them pay you each month. However, there’s a lot more that must go into this process in order to legally protect you and your finances. Sure, it may be tempting to find a sample lease online and roll with it, but you really need to customize it to your situation and understand the ins and outs of how it keeps you safe as a landlord. That’s why you should find a trustworthy attorney and work with him or her to have a custom lease drafted to cover things like:
Quiet Hours – You may not think you need to list these, but if your tenant likes to jam out to music at midnight, you’ll be glad you did!
Damage to Property – This could cover anything from painting to putting nails in the walls to intentional harm done to the property like breaking windows or ruining the flooring (which can hopefully be prevented with careful vetting of tenants). Essentially, you’ll want to outline what happens and who pays if there is damage or harm done to your property.
Maintenance – As the landlord, you certainly have the option to be on call and fix any issue that your renters have. However, if that doesn’t sound like you, there are several other options. You could have your renter call your preferred repair company and you foot the bill, or your renter can shop around and cover the repairs themselves. Whichever option you prefer, it should be outlined in the lease as to prevent miscommunication down the road.
In addition to the legal agreement between you and your renters, there are some real estate codes that your state will require you to follow as a landlord, such as how much notice you must give the tenant before entering the property for any reason. These rules will vary widely by state, so it’s important to read up on these regulations before you really jump into the process. You should note that most laws related to landlord-tenant concerns tend to favor the tenants, so following every rule will be key to protecting yourself and your assets.
Finding good renters
One of the best ways to make your experience as a landlord a positive one is to find wonderful tenants to live in your rental property. But, you should be prepared – the vetting process is one of the most challenging aspects of renting out a property. Nearly anyone can put on a good act, so simply meeting face to face with your potential renter may not suffice. You should always get a background check and credit check on any potential tenants – renters will probably not be surprised by your request since it’s very common these days. Accessing this information will alert you to any red flags related to the person’s financial and criminal history and allows you to get a feel for his or her character and how they’ll treat your property.
The hands-off approach
Think the intricacies of becoming a landlord make it too complex? You don’t have to give up on your dream of owning a rental property – there’s always the option of hiring a property management company to handle the ins and outs of renting out your investment.
Costs of handing off responsibility to a management company are around 10% of the monthly rent (give or take), but it can save you from dealing with the cumbersome parts of being a landlord while still allowing you to earn passive income.
Should you choose to become a landlord, take some time to carefully plan your approach, research the requirements and connect with an attorney to ensure you’re protected from all angles before diving in. You can also learn more about purchasing a second home as an investment property by speaking with a mortgage banker.