With numerous shows on networks like HGTV showing the ease at which entrepreneurial spirits can make their mark on the real estate market, it’s easy to see why so many people are interested in becoming landlords. However, this venture isn’t as easy as television makes it out to be. This is a business endeavor rife with risks, costs, and stresses, and it’s important to understand all facets of the process before purchasing a property and listing it on a rental website. In this post, I’ll walk you through 4 tips to consider before jumping into the water and becoming a landlord.
4 Things To Know Before Becoming A Landlord
#1. Do Your Research
Use as many resources as possible to find the right landlord advice. Read as much literature on the subject as you can find, talk to individuals who have been through the process, and take classes and seminars in your local area to get a better handle on the market and what things set a successful property management venture apart from failure. You’ll first need to find a property if you don’t have it already, and understanding budgetary issues is paramount.
This will help you determine which neighborhoods are likely to provide the profits you’re looking for and attract the high-quality tenants most landlords seek. Many landlords are enticed by the idea of purchasing a rundown fixer-upper, making said repairs, and renting it out for a profit, keep in mind that fixer-upper homes are generally found in less desirable neighborhoods, and will likely yield a less profitable return on investment.
#2. Do You Have The Necessary Skills?
As a homeowner, you understand the numerous amounts of wear and tear a property can incur over even a month’s time, and the cost of maintenance and repairs can quickly add up. Now consider a rental property, in which a tenant may live in a manner that’s more destructive or wearing on the property, and understand that these damages may occur at a faster rate than you might have originally expected.
You’ll be responsible for dealing with any issues that arise, whether they’re at the fault of the tenant or not, and you’ll be expected (and often, legally required) to fix said issues in a timely manner. If you’re not skilled at home repair, you’ll find yourself shelling out small fortunes to hire professionals that can handle these issues. These costs can wear on your profits, and the need to be on-call at any time may be more stress-inducing than you might have expected out of the endeavor.
Another issue to consider is management. Do you plan on managing the apartment yourself? This will require a great deal of time – becoming a landlord is not a hobby, it’s a profession. If you don’t have the time to commit to your tenants, it may be wise to enlist the help of a property management service. They can deal with tenant placement and eviction, handle repair issues, and deal with the daily processes that you may not be interested in handling. These services don’t come cheap, but more often than not, the responsibility and stress off your back is more than worth it.
#3. Seek Legal Advice
Legal issues are rampant in the real estate industry, so it’s important to make sure your lease follows all local and state requirements to ensure its validity. Meet with real estate legal counsel that’s experienced in these issues. It’s worth it to pay for the counsel service and give yourself the peace of mind at the onset of your property venture. This will also come through should any legal suits arise, and keep you and your family protected from an opportunistic tenant.
#4. Find A Certified Screening Service
Ask any landlord their most important bit of advice, and they’ll likely return with a singular answer: always screen your tenants. Forgoing this important step will in all likelihood see you saddled with numerous issues, some of which will cause mere headaches, others that will see you sitting in court fighting against an unruly tenant (hint: historically the court almost always sides with the tenant, unfortunately).
Make sure you get more than their credit score; do background checks that let you know whether or not they have a criminal history and find out about previous evictions that may signal a bad pattern of tenant behavior.
Keep these tips in mind as you consider becoming a landlord and make a fully-informed decision that will keep you happy and financially sound.
[Photo Credit: tpsdave]
Hi, my name is Jon and I run Compounding Pennies. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.