Be it as a profession or a side hustle, becoming a landlord involves hard work, education, and time. Many new landlords are drawn to the trade by the promise of passive revenue derived from rent collection.
However, experienced landlords understand that this job requires a proactive approach. The more time and effort you put into maintaining properties, finding suitable tenants, and keeping track of all the paperwork, the more prosperous you can be.
1. Understand the most common legal difficulties that may arise
Being a landlord comes with a slew of legal concerns and risks. And so, having an excellent real property attorney can, at times, be essential.
However, you can familiarize yourself with applicable legislation such as the Uniform Residential Landlord and Tenant Act, often used as a foundation for municipal laws in twenty-six states. Nevertheless, do not fret; you will become more familiar with applicable laws with time. Yet, it is vital to know some of the most frequent legal issues you may encounter:
As a landlord, you’ll be fortunate if you don’t occasionally deal with late rent. If you operate in a market where renters are financially vulnerable, you may discover that such lateness is a constant source of frustration.
Many landlords advise being rigorous about timely payments. That does not imply that you cannot assist folks with sporadic, genuine, and serious issues. However, if you develop a reputation as a softie, you may encounter serious rental arrears issues.
Ensure your leases mention the day rent is due. When the due date falls on a legal holiday or weekend, it is usually due the following business day. You will also want to be explicit about approved payment methods, such as checks, cash, money order, mobile payment applications, credit card, etc.
Consider putting late payment penalties in your leases; late fees might offer leverage if a tenant begins to cause you problems.
Also, tenant confidentiality and privacy may or may not be covered by local legislation. In most states, landlords are not permitted to enter tenants’ residences without prior notice.
As a result, do not expect to gain access without first obtaining permission. If you violate a law, your renter may report you to the state office that imposes fair housing rules.
That is a lose-lose situation for you: You may need an attorney to defend yourself, whereas the tenant does not because the state is performing the enforcement.
You will incur a slew of new legal obligations when you become a landlord. You will also need landlord insurance. However, just as with homeowner’s insurance, it is simple to overpay for landlord insurance. So be careful not to overpay for items you do not need.
Get many quotations. Also, conduct a cost-benefit breakdown to determine which risks you are willing to bear on your own and which you want your insurance to cover. You might also ask tenants to have renter’s insurance to protect their things.
2. Recognize the effort and monetary commitment
Before looking at houses or taking other actions, make sure you have the time and resources to succeed. Additionally, you must be prepared to deal with issues that arise from tenants’ requests.
If you lack the time or desire to alleviate some of the stress associated with the task, you can consider getting a property management business to handle part of the work.
Although this is an additional expenditure (about 10% of monthly rent plus a finder’s fee for prospective renters), the company will assume most of the landlord’s responsibilities, from seeking new tenants and rent collection to lawn mowing maintaining the property. Before becoming a landlord, conduct your research and assess your financial resources.
3. Decide where and what to buy
Seek out a high-quality rental property to attract high-quality tenants. Although fixer-upper properties in less attractive neighborhoods may be less expensive, they may not provide you with the same return on investment.
The location of a rental property is critical. Certain tenants are prepared to sacrifice up to 25% extra in rent for homes close to public transportation.
While it may be tempting to acquire a fixer-upper and undertake a few minor modifications, many fixer-uppers end up being abandoned. This can result in conflicts with municipal code enforcement and the imposition of fines. And so, if you are not keen on fixing things, do not buy a fixer-upper; you might lose your resources.
4. Set up money for unexpected expenses
CAPEX is among the most common costs people fail to plan for, including capital expenditures, such as roof, appliances, and windows replacement.
And so, before investing in a rental property, make sure you are financially prepared to deal with these concerns if they arise. Failing to maintain your property per local and state authorities’ standards may result in fines.