What to know about being a landlord
Introduction
While some people may want to obtain passive income by investing in bonds, dividends, or in a business, there is another option. Renting out a property is not just a good way to earn some passive income but if you finance portfolio it can diversify it. Before you start getting giddy about this you should know that renting out anything to someone is more than just getting month money every month or every quarter depending on ho you bill them. Renting out property also comes with some financial struggles, legal issues, and some time consuming tasks, that most first time landlords never consider.
Whatever kind of property your renting out, it could be one story, two story, maybe even more than 5 stories, this blog will help guide you on what tasks you will need to undertake as the landlord.
Legal Duties of being a landlord
What your doing as a landlord is running a business and just like any other business it has legal obligations tacked on. The legal obligations can vary based location, in regards to both state and country.
Lease Agreements: For renting out any property you will need a structured and legally binding contract that states the terms of renting in detail, these terms are maintenance, rent, and more.
Eviction Laws: If a tenant doesn’t pay rent or even fails to cohere to the lease agreement in any way eviction is the way to go. However you can’t just take there stuff and kick them to the curb, you will have to go with legal process of eviction in some cases can be slow and expensive.
Fair Housing: Every person applying to rent your home is within their right to get a fair shot to go through the screening process regardless of ethnic, racial, or cultural background.
Habitability Standards: You have to provide a safe and hospitable property for people to live and work in, things needed are good plumbing, heating, and electricity.
Before renting out any property, it’s best that you get to know legal obligations of renting out in your state and country. Plus it wouldn’t hurt to meet with an attorney who specializes in real estate law so that you can avoid any legal problems.
Budgeting for being a landlord
What first time landlords can forget is not thinking the costs of renting can be expensive, the mortgage isn’t the only thing only the expense there is:
- Maintenance and Repairs
- Property Taxes
- Some HOA fees
- Property Management feeds
- Insurance
- Vacancy Periods
Even if you manage the property by yourself, some unexpected costs like busted roofs or busted pipes can cut into your profits. A good thing to do is set aside 1 or 2 percent of the property value annually for repairs and maintenance.
To pick the best budgeting app head to GetApp.
Prepare for Maintenance and emergencies as a landlord
A not so fun part of renting out any property is the maintenance and repairs. These can be either leaky faucets to HVAC systems that need replacing. There are two ways to handle maintenance:
DIY repairs: You can handle everything yourself, to mowing lawns and hiring contractors to fix plumbing and electrical issues.
Get a property manager: property managers will handle the rent collection, maintenance problems, tenant communication, etc. however their services might cost 8% – 12% of the rent.
If you plan on renting out a home and handling the repairs yourself or outsourcing to a professional, make sure you have some professionals on speed dial for some emergencies. Tenants prefer quick and professional responses when it comes to any kind of repair or maintenance problems.
Set a reasonable rent price
Having an unreasonably high rent price can leave your home vacant for a long time and having it low will loose you money. There are some strategies to determining rent price.
- Check online platforms: check out Zillow, realtor.com, apartments.com.
- There are a few things that can justify a rent hike like outdoor space, parking, and laundry.
- Research locally: see what other landlords or property owners are billing their tenants.
Consider how inflation of might effect costs of utilities and similar things on the property. It’s best to have a spreadsheet to keep track of expenses and income.
To learn more about how to set the rent price for your property head to Zillow.
Selective with tenants
As we said earlier, everyone has a shot at renting out the property you have, but you maintain the right to do a background check on all possible tenants. A tenant with a bad background or bad credit could be problematic. To check if someone is good enough to rent the property do the following:
- Obtain any past employment or history
- Get a credit check
- Verify their income (the rent shouldn’t be more than 1/3 of the applicant’s income)
- Meet them in person (see if the applicant is a good fit for yourself)
- Call previous landlords (Ask them if they been good on payments)
Always be consistent in the screening process with every applicant and avoid any discrimination.
To do a screening head to Realtor.com
Make sure your property has insurance
An average home-owner insurance doesn’t cover any rental activates, so with that being said you will need to get “landlord insurance”. This kind of insurance comes with.
- Any kind of property damage
- A loss or rent income
- Liability coverage (in case the tenant is injured)
Some landlords might create a limited liability company or also known as LLC for the rental property. Having an LLC can protect your personal assets and such in the event you are sued by a tenant or even another party.
Have a consistent System
As a landlord you should treat your rental property like a business, and those businesses run on a tight and consistent system.
- Rent Collection: Use an automated system for rent collection with ease.
- Late fees or any Grace periods: Make sure you list the these in detail on the lease agreement and ensure they are enforced.
- Maintenance Requests: Have a way for your tenants to submit any problems they might.
- Inspections: While this might seem unorthodox, its important to do a scheduled routine inspection of the property to check its condition.
If you have a system it makes everything much simpler.
Have a detailed book of expenses
Being a landlord you should keep track of some expenses because you can be eligible for some tax deductions, these can include the following:
- Mortgage payments on the home.
- Property Taxes
- Repairs and Maintenance
- Depreciation
- Property Management Fees
To ensure you get some tax advantages, keep track of your income and any expenses. To do this try using some accounting software to keep track of receipts and rent payments.
It’s also good practice to keep track of all inspection records, any communication between you and the tenant, and records of maintenance and repairs. These kind of documents are crucial in the event of an audit or perhaps even some sort of dispute between you and the tenant.
Plan on any Vacancies
A rental property isn’t a long term investment and thus isn’t occupied 365 days of the year.
Because of this big financial gap you need something to fill it with. To minimize your vaccines you can do the following:
- Price your rental property in a way to get more applicants.
- Market your property perfectly (professional photos, strong listings).
- Keep your tenants happy so that they stay longer.
- Respond to all maintenance requests to maintain good appeal.
The Conclusion
Being a landlord can be both rewarding and at the same time pose some risks, but it isn’t meant for everyone. Being a landlord requires a lot time, patience, financial intelligence, and the ability to handle the most unexpected things.
If you are new to being a landlord you could reach out to other landlords and see how they run their properties and you will gain some valuable insight. You can also reach out to accountants, property managers, and real estate attorneys and pick their brains for ideas.
With good preparation as well as a good mindsight, renting out property to tenants can not only give you passive income but it could also make you wealthy. Be mindful of what you are getting yourself into and be ready for anything.