A great number of people have a dream to start investing in a rental property and become a landlord. On the one hand, if you are the homeowner, you can receive constant cash flow and a good profit from your residential or commercial property. On the other hand, owning a property requires a lot of effort and responsibilities. We will review some basic principles of being a first-time landlord and tell you how to avoid some common mistakes in this business.
Involve the professionals
The first step towards the goal of becoming a landlord is buying the property and getting it ready for the rent. The next step is to drive around your area and look for the properties for sale from the dealers. Also, you may check some advertisements and media. If you are going to become the first-time landlord you do not need to go through the whole process of purchasing the rental property on your own. You can build up your team of professionals in real property or consult with the skilled realtor or real estate agent. The other useful strategy is to visit networking events and communicate with other investors.
Calculate the price of the rent thoroughly
The rental strategy is one of the vital factors of investing in real estate. You need to set up the price of the rent that is enough to cover all the costs and provide you with a positive income. You need to consider the following formula:
Property Cash Flow = Rental Income – Expenses
A good way to set the price of the rent is to compare your expected price with the other rental prices in your neighborhood. You may use a 1% rule that states that the price of the rent should be estimated at about 1% of the value of the property per month. For instance, if the value of the property equals $300,000 then the price of the rent will be $3,000 monthly.
Finding the first tenants
As a landlord, you need to find the tenants for your rental property. Firstly, you need to make a marketing campaign to rent your house or apartment. Your marketing strategy can include placing your advertisements or bandit signs on the houses or billboards, promoting your property through social media, using pay-per-click Google advertisements or creating your own website. These marketing approaches work best when applied together.
Since you have found the renters, you need to check their suitability and reliability. Screening the potential tenants include the following steps:
- Verification of their income. You need to verify the tenants’ income. The sum of the rent should not be higher than the third part of the renter’s salary.
- Credit report. You should check the tenant’s credit history and get the credit report. If he or she has a bad credit rating, this is a sign that this person is not a reliable tenant.
- Background check. Check the tenant’s criminal records. That is how you will know if this person can be a potential threat to others or not.
It is important to ask the tenants to provide recommendations from their previous landlords. It will help you to identify and filter out the problem renters at the first stage. Also, you need to examine your tenants according to the housing laws.
Buying insurance is vital
Every first-time landlord should buy the insurance that covers his rental property. The insurance can protect the landlord from the loss of the potential amount of finance and some unforeseen circumstances like a natural disaster. Note that the insurance covers only your rental property but it does not affect the personal property of your tenants. So, your tenants should purchase their own insurance. This approach will help you to avoid the lawsuits.
Get familiar with the local laws
Make a research about the housing laws in your local area. For instance, identify how much you can increase the price of rent per year. Read about the laws that regulate tenant eviction. Gather as much as possible information about the rent increase, insurance, eviction and all the other necessary facts about being a landlord. Consult with the other real estate agents and rental property owners to figure out the difficulties you may face as the homeowner.
Keep the records of every transaction
You need to keep the records of your insurance fees, maintenance costs, listing fees, and mortgage interest. Keeping records will help you to organize your expenses in a more effective way. It will be extremely useful if you are owning several properties.
Also, you need to take photos of your property before inviting the tenants. Thus, you will be able to see any damages caused to your property by the tenants before they leave the house.
Hire a reliable property manager
As we mentioned earlier, you are not supposed to do everything by yourself. You can hire a specialist who will help you to tackle the tasks related to your property. This option is perfect for real estate investors who own multiple properties. The property manager will play an active role in preparing the rental agreement, screening the tenants, making advertisements, handling evictions and dealing with the other routine real property issues.
Starting something new is never easy. Being the first-time landlord requires a great amount of time, effort and skills. You should not try to do everything at once. The advice in this article will help you to deal with the potential problems in a less stressful way and increase your revenue.