How to Become a Landlord When You Don't Want To Be a Lord?

Perhaps you have read that becoming a landlord offers a smart method of alternative investing. You can purchase a home and lease it to earn a semi-passive income.

You cannot really call it a passive income since you must put in the work to fix up the home and conduct maintenance on it to keep it up. You will not immediately earn back your investment in a rental property. At best, your tenant’s rent allows you to pay the mortgage. Once it gets paid off though, you earn income on the home.

What It Takes to Become a Landlord

Becoming a landlord requires a commitment, business savvy, time, and investment monies. You might not be sure that the career of a landlord suits you. You can determine whether you should be asking yourself four questions and answering them in all honesty.

• How much time can you devote to purchasing, remodeling/renovating, renting, and maintaining a home or homes?

• What are your long-term business and financial goals?

• What is the state of your finances and what could you afford?

• What return on investment would you earn?

TIME

Trying to manage a rental property on top of a full-time job can make things complicated. To keep it simple, hire a property management company to help with the property. House hunting and purchasing only begins the process. Once you own the property, you must clean and restore it to the point of rent-ability. It could require simple repairs or a full renovation. You then must show the property and interview tenants as well as to conduct reference checks. Once leased, you take care of all the maintenance on the property which includes lawn care, landscaping, etc.

FINANCES

Do you genuinely have the money to invest in a real estate project? You will take out a mortgage, but do you have the savings to repay it if something happens to your full-time career and you cannot work for a time or you lose the job? You need to have the appropriate credit score to qualify for a home loan. You need to calculate what rent you must charge to cover maintenance, utilities, and mortgage payments.

ROI

Buying rental property has a learning curve though. The number one goal in any undertaking should be to make money. Purchasing real estate should have a payoff. You need to calculate your ROI before you sign any paperwork. That means you need to know the loan interest rate you will have beforehand. You also need to consider the area in which you purchase a home. You need a home in a spot that has a low rental vacancy, but high demand. That ensures yours is among the places for rent that get rented.

GOALS

Consider your long-term business and financial goals. Becoming a landlord is a long-term choice in juxtaposition to houses flipping. Do you plan to remain in the local area permanently? Do you have the savings to salvage yourself financially if the rental property fails? Does the rental property meet your financial goals and qualify as a strategy to help build your wealth? Your financial planner can help with these questions.

Mistakes to Avoid in Rental Properties

If you answered those questions honestly and you could viably move forward with purchasing and managing a property, you can become a landlord. Become a savvy one though by avoiding the common mistakes new landlords make.

Considering life as a landlord a hobby is the top mistake. A career as a landlord means opening your own business. You must treat it as such. You need a bookkeeping system, a separate bank account, and a CPA if you do not already have one. The latter can ensure that you pay your taxes appropriately.

Budgeting too little for property repairs and maintenance leads to a quick downfall. You need to charge rent that encapsulates all costs. Plan a savings account dedicated to emergency repairs because something will happen that requires them and this means you will not dent your personal savings making the repairs. To keep your tenants you must upkeep your property.

Skipping background checks. You should always run a full background check on a potential tenant. That includes a credit check. Provide a rental application and verify all references, especially their current, and prior employer as well as their former landlords.

Never assume that your property will consistently rent. You need to know that you can afford to pay the mortgage even when the property remains unrented. Conduct a cash flow analysis ahead of time to know that you can afford the home when it is vacant.

Skipping the paperwork or contract. Never rely on a handshake for a deal. You need a rental agreement or lease or to use a site like Airbnb that takes care of the legal end for you. Check your state’s rental laws for its specific requirements.

Asking illegal questions during the tenant interview can get you sued. Learn what you are legally allowed to say and stick with that only.

Neglecting house repairs and tenant needs. Although your tenant pays to live there, the house remains your duty to upkeep. Check your state’s laws to make sure you do not violate your tenant’s right to privacy by stopping by unannounced. This also extends to property monitoring. Some states limit the types of security systems you can use. Cameras and microphones or other methods of monitoring your tenants are illegal in most states. Once they rent the property and agree to your lease, they can sue you if you violate the state privacy laws.

Incurring code violations. You give yourself a bad reputation as a landlord and business person if you do adhere to the state and local housing codes. You must make sure that your property meets all safety and health standards. Failing to do so opens you to a lawsuit as well as providing a viable reason for the tenant to break the lease.

Delaying the process for eviction is a common mistake because a new landlord thinks things might get better when actually, they will probably get worse. If your tenant is using drugs in your rental home or conducting illegal activity or tearing up your property, they are not apt to change. You need to start the eviction proceedings as soon as the law allows you to do so. A good tenant pays on-time, upkeeps the home as if it was their own, and keeps their activities legal. Evict the bad so you can keep or attract the good.

Failing to enforce your lease terms. This goes both ways. What you state in the lease, you need to deliver. What you require of them, you need to enforce.

Keeping bad records. Keep written documentation of tenant meetings and conversations about the home, rent, and repairs. You need this if you have to go to court.

How to Do It Right the First Time

Now that you know what not to do, let’s move on to how to do it right the first time, always do it right the first time, and never waste your own time or any other person’s time. Here are the must-do things to get life as a landlord right the first time.

Learn how to house hunt for rental properties. Only look at properties that fit your budget. This keeps you from falling for a house that costs too much. You need a property that you can quickly rent. Know the local real estate market and think about taking an online class in real estate and in property management before you get started.

Know your budget and your finances. Include the mortgage, profit, property and city taxes, homeowners’ insurance, homeowners’ association dues, maintenance costs, a cushion for repairs, the vacancy rate, and the cost of a property manager in the cost of the rent. Think realistically so you always have appropriate cash flow.

Take advantage of tax credits and deductions. These deductions typically include mortgage interest and property purchase expenses. Your CPA can help with this.

Strike a balance between being amicable and business-like. You should not have a goal of making friends with your tenants, but you should want to be respectful and easy to deal with in household matters. You should be reachable, but not overextend yourself.

Get organized and stay organized. Regardless of the number of properties you own, you should keep detailed records in an organized fashion. You need to file signed rental agreements, rent payment details, property tax payments, property insurance payments, insurance policies, inspection certificates, and tenant communication. Invest in property management software to help you keep track of things and digitize record keeping.

Hire a property manager. They should also know and understand the rental laws and privacy laws so they do not cause you problems. If they drop by unannounced it can also cause a problem. Since you hire them, their activities become your responsibility.

Screen your tenants and check their backgrounds. One landlord I know runs both a bed and breakfast and rental properties. He uses AirBnB to rent out his bed and breakfast rooms. This lets him personally meet many people moving to the city in which he and a sibling have multiple homes for rent. The BnB lets him test out the tenant as well, learning what they treat the home like and whether they keep their room neat, etc. He can then nab the great tenants for long-term rentals. Going through AirBnB saves him money as well since the website requires a driver’s license or military identification, cell phone number, and other documentation which it manually checks before allowing a person to make a reservation.

Since Airbnb runs all the background checks as well as requiring a credit card and pre-payment, my landlord buddy knows ahead of time that he rents to good people. Using a careful methodology lets you avoid trouble such as evictions.

Report to credit bureaus. This helps your good tenants and helps weed out any bad ones. Tenants fall behind less often knowing that their activity gets reported.

Woah, That Sounds Complex

Okay, let’s be honest. It is the best way. Life as a landlord just is not for everyone. You have a lot you have to deal with and it takes up a lot of time and effort.

You do not have to develop a fiefdom. You need not become haughty. You can become a landlord and remain a down-to-earth person even though you own many properties.

You do need to have a business-like personality. You need to take it seriously. You probably need to contract with a property management firm or hire an independent property manager.

Besides the right mindset, you have to have the money. It would be a mistake to take out a mortgage and expect that the rent would take care of the payments. You must have savings and a backup plan. The house will be vacant at times and you still have to make the payments.

You will make things easier on yourself by planning well in advance. You need a financial plan and a property management plan. Delving into developing these with a financial planner helps you get it right the first time.

Learning the Ropes

Before you invest the time and effort into purchasing a home or even taking a class on real estate, talk to a landlord. Contact someone who already does the job of renting their properties and ask to set up an appointment. They can educate you on the local rental market and help you decide on a neighborhood that makes a viable investment. This simple conversation can save you a world of problems. You simply follow instructions and take the advice of an experienced person who knows what works. If you still want to rent properties after the discussion, move on to taking the college course through EdX.org or another online education site.

You need to understand that purchasing rental properties is a long-term investment. If you do not want to have your money in something long-term, you need to focus on other types of real estate investment. You could invest in multi-investor real estate property. Many organizations purchase homes or business office buildings, then sell shares in the building. This is not the same as a timeshare. These organizations sell shares in the home, essentially turning it into a company divided as if with shares of stock. These properties let you invest in real estate without taking on all of the responsibility yourself. The organization that purchases the property handles the maintenance.

Make Smart Financial Moves. The Accurry Store is Here to Help You.

get member key

Final Thoughts

You can become a landlord without it taking over your life. You can also become a landlord without becoming a veritable overlord. You just need to become educated on what is appropriate and legal and learn to function within those parameters always. You can develop a lucrative semi-passive income that will provide you a never-ending ROI as long as you do it right.