Becoming a landlord is a scary process. You may be overwhelmed with the thought on where to start making money from real estate. Here are some important tips and tricks on how to become a landlord.
How to Become a Landlord: Tips to Buying and Renting Out a House
To be a landlord today is a huge opportunity to make a comfortable, engaging living. Getting started, though, can be tough. If you are using real estate crowdfunding services like Fundrise, you are in good shape. It’s completely taken care of you.
However, if you want to take a DIY approach to real estate investing. You’ll need to get smart on your landlord duties and process.
Below, though, you’ll find the eight essential steps to renting out a house and making it a profitable experience.
So, where do you start?
Landlord Checklist Before Renting
Here are some important steps to follow before becoming a landlord.
1. Find the Best Place to Buy a Rental
So, the first thing that you need to do is to find the best place to buy a rental. For many people, they’ll want to choose a location that is in the process of being developed.
For example, have you noticed a lot of development work going on in a local area that has untapped potential?
Then you could look to get in here now. When the development work is done, you could be left with a higher value property that you could then rent out at a nice little profit.
The challenge is finding the location that you want to buy into in the first place. We recommend that you look to find somewhere that you can travel to nice and easily.
You don’t want to have to travel too far to visit your property should anything go wrong. The location is so important, so choose a neighborhood that has a good reputation.
Take a look around at how many local businesses there are, how the streets look, amenities such as schools and shopping, and the general standard of the streets themselves.
Naturally, avoid locations with abandoned houses, neglect and signs of social unrest! Real estate investing comes with risks. Here are some of the top real estate risks to consider.
2. Find a Rental Property for Sale
Next, you need to actually find a rental property in that area that you can buy. This is just as hard – if not harder – than finding the place to buy within. As you might expect, you won’t be the only one to notice high potential areas that could be bought into.
Other landlords will be looking into it to find out what they can invest in. So, make sure that you look at the kind of property values on the market, and then see how far your budget can stretch.
Naturally, you will be limited to how much you can afford to spend on the rental property. Look at what you can afford to pay for the purchase, and then work around buying the property from there. If you do that, you are far more likely to be able to find a rental property for sale that feels worth it.
If you have the time and skill, it pays to look for a property that is cheaper but might need some work done to get it to a rentable standard.
If you can do much of the work yourself, or hire people for less than the savings, then you could consider that an opportunity as well.
3. Determine How Much Rent to Charge
The next challenge to look at is to work out how much rent you should charge. As a landlord, you want to make a profit on the property. This means making sure that you pick a rental rate that covers the cost of the home and leaves you with a bit extra on top.
Mortgage calculator such as the one from rightswitch.ie will allow you to calculate how much your monthly payments are, and these are generally the largest portion of what a landlord will spend money on.
We recommend that you look around at other nearby properties and see what people are advertising them for when it comes to rental costs. You need to be realistic about the levels of rent that you ask for, though: if you are not getting anyone interested, your rental asks might be too long.
The rent must be able to cover the cost of the property, but above and beyond that you might find it hard to get too much more money out of the tenant. If you are generating a profit, you’ll likely have a cap rate. This can determine your potential exit value for a property.
Always be aware that tenants will only take on rent that is in line with the rest of the area, unless you manage to snag a property in a must-live location where people will pay an excess for the privilege.
Most of the time, though, you need to be fair about rental fees or you might struggle to find a tenant. You are lowest on the capital stack, so if the rental income fails to come in you could lose the property.
See Related: Best Books on Real Estate Investing
4. Understand Landlord Tenant Laws
One of the biggest challenges in being a landlord is understanding tenancy laws. This can become a real headache, but a failure to pay attention can see you pay a lot of money in legal compensation.
If that is the case, we recommend that you take the time to consider getting legal help. the major things you need to be aware of include the maximum security deposit amount you can ask for, whether or not you must abide by a lease length, tenancy rights, and the eviction process.
Depending on where you are based, this can change dramatically from one location to the next. Local councils and government often have a big say on this side of tenancy law.
So, we recommend that you spend as much time as you can looking into tenancy laws so that you can better understand how you need to act.
As a landlord, you want to get a reputation for being fair and honest with all of your tenants. If you want to do that, then you need to understand who has the law on their side in that scenario.
Don’t become a landlord until you’re fully up-to-date on your legal obligations.
See Related: How to Invest in Commercial Real Estate
5. Advertising for New Tenants
When the time comes to advertise for a tenant, you should do so in the correct manner. Many people, for example, will turn to use an online service to help promote the property.
This often means showing photos of the major rooms and the exterior if the property, as well as clearly listing any pros/cons of the property for a potential tenant.
At the very least, advertise the bathroom, kitchen, bedroom(s) and the outdoor area in the photos. You should look to use high-quality advertising platforms such as Trulia and Zillow if you want to maximize interest in your property.
You should also add a sign outside the property that advertises that it is for rent: though expect to field a few calls that go nowhere if you do this.
Still, you need to bring in as much interest as you possibly can. To do that, you have to be ready to advertise in as many places as you can.
Typically, we avoid recommending that you put someone into your property who are related to or know personally. Money problems, such as late rental, can lead to breakdowns in previously strong relationships that could harm you.
6. Protect Your Property With Insurance
As a landlord, one thing that you need is the peace of mind and protection. This is why you must get insurance as soon as possible. Rental home insurance is a necessity, and it must be something that you deal with ASAP.
Make sure you have comprehensive insurance before you even consider moving someone into the property: you are much more likely to get positive results if you protect the property in this way.
Why you need insurance is obvious: you need protection from something going wrong. If the property is damaged or something goes wrong, your policy should cover you for everything from structural damage to medical care and loss of income. This would include things like a complete roof replacement.
It should also help to cover your legal costs should you find yourself dealing with a litigious tenant. You are not responsible for the renter’s stuff, though, so make sure that you get all tenants to sign-up for renters insurance.
If you do that, you vastly reduce the likelihood that someone will try to mess you around and try to get you to pay for stuff you are not expected to pay.
Always protect yourself with insurance, though; it can stop you being forced to pay for things you shouldn’t be paying for.
You may also want to consider a home warranty plan on your appliances. This can help save you some repair trips.
7. Market Rental Properties Effectively
Another important part of the rental process for a landlord is marketing the property to the right people. You should look to use online marketing platforms that can take out much of the work on the marketing side of things.
You should avoid expensive and small-scale advertisement such as newspaper ads. They worked once, but today we have far more cost-effective, high-traffic forms of advertisement that you have no reason to keep on using paper ads.
You can often use online directories and property portfolios to help advertise your property. A popular tool is Cozy; this has become a popular choice for marketing your property in a simplistic manner.
It’s like advertising any kind of business opportunity, though: you have to make it sound enticing. Don’t just list the basic features of your home: show the individuals who would be interested in what kind of benefits they would get from renting your property.
If you do that, you are much more likely to entice buyers to take the property on. Make your rental page more accommodating and show more information than the competition. Make it sound enticing.
Put it on popular local property directories. Advertise it on social media. There are many ways to make your property more enticing to a potential buyer, so use that to your advantage right away.
There’s no benefit to keeping the advertisement of your property low-key, so make sure you push this advertisement as extensively as you can.
See Related: Key Real Estate Agent Secrets
8. Collect Rent Online
Lastly, we recommend that you collect all of your rent online. Nothing is more annoying than a tenant who conveniently is never in when you need to collect rent. Avoid taking rent in cheques and similar: it’s easy to be taken for a fool if you accept this.
You should not be collecting rent by mail or in person – or at least if you can help it.
We instead recommend that you set up with one of the many online rental payment processors, such as Cozy. This should take away much of the stress in rent collection.
As a landlord, you want to make life easier for every tenant. You also need to make life easier for yourself, too; and chasing up late payments on a rental is not something you should need to do.
Set up an online payment plan and you can avoid having to chase up tenants for rents, additional fees and all the other headaches that come with offline payment collection.
If they don’t agree to use the online system, look for someone else. The online rental collection takes out so much stress and worry for both parties, that there’s no real reason to disagree in the first place.
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Barry White is the owner of RightSwitch, he has a passion for web design and user experience and When not working he enjoys hiking and sea swimming.