The Ultimate Beginner’s Guide To Becoming A Landlord

Do you want a stable stream of income? If you do, then becoming a landlord might be suitable for you.

Becoming a landlord is one of the most effective ways to generate and secure a monthly income. Rental properties appreciate over time, enabling you to maximize your real estate investment and giving you plenty of opportunities to earn more.

Not only that, the rental market continues to grow because people think renting a house nowadays is more practical than owning one. After all, home rentals are more economical and offer more flexibility and less maintenance.

So, are you deciding to become a landlord? We’re here to help. This post will help you become a landlord and provide helpful tips to get the most out of your investment. So, read on to learn more.

What Are The Pros And Cons Of Becoming A Landlord?

Becoming a landlord involves a range of responsibilities. These include posting vacancies, screening prospective tenants, evaluating potential properties, purchasing rental properties, and conducting routine maintenance checks and repairs.

Also, a landlord must be keen and adept when collecting leasing fees, enforcing regulations, observing state laws, and evicting defiant tenants. Before becoming a landlord, it’s essential to analyze and weigh its pros and cons to determine if it’s right for you.

Here are the pros of becoming a landlord:

• A Stable Income: Owning rental properties enables you to generate a stable monthly income that could grow over time. Although that depends on the law of supply and demand, choosing the right location can help you make a decent profit.
• A Wealth Potential: Investing in real estate is one of the best ways to improve wealth. That’s because real estate properties tend to appreciate over time, making it a lucrative opportunity to make money by selling properties in the future.
• Tax Advantages: Other perks of becoming a landlord are certain tax benefits. For example, you won’t be subjected to self-employment tax because a rental property is considered passive income unless you turn it into a corporation. Also, income earned through cash rental agreements isn’t subject to self-employment tax.
• A Door To Many Opportunities: Rental properties aren’t exclusive to residential houses. You can also put your commercial buildings on a lease, especially if they’re in a good location. This will help you earn more.

On the other hand, here are the cons and challenges of becoming a landlord:

• Legal Consequences: The law can be a landlord’s greatest challenge. You’re susceptible to liabilities and may be dragged to court, putting all your assets at risk. To prevent this, make sure you understand how tenant-landlord laws work in your local area.
• Vacancies: Although the rental market continues to boom, vacancies are still inevitable as there are too many rental property owners nowadays. To address the growing vacancy rate, improve your marketing strategy to attract clients.
• Slow Liquidity: A rental property can be difficult to sell, depending on the market. Most property hunters nowadays prefer newly-built apartments, complexes, and establishments.
• High Costs Of Eviction: Evicting a non-compliant can be costly, especially when both parties drag it to court. Sometimes, evictions cost up to USD$10,000. That’s why it’s important to screen potential tenants properly and strictly to avoid such a mess.
• Potential Expenses: Owning a rental property may cost more than its purchase price. That’s because of other expenses, including property taxes, rental insurance, maintenance and repair fees, Homeowner’s Association (HOA) dues, and more.
• Lack Of Diversity: Real estate investments are concentrated assets, meaning your money is tied to a single investment. If it falls, so does your money, contrary to several small investments.
• Time-Consuming: Managing rental properties can be time-consuming because it’s hands-on. You must oversee your tenants, understand local tenant-landlord laws, communicate with contractors, and handle maintenance and repairs.

So, do you still want to become a landlord? Despite all these disadvantages, becoming a landlord is still a great choice. You just need to focus on avoiding all the cons presented above. Here are some tips to help you avoid such circumstances:

• Read and understand the law. You may hire a real estate lawyer for expert advice. Also, ask them how to deal with non-compliant tenants effectively without spending too much.
• Improve your marketing and advertising strategies to lower your vacancy rate.
• Ask real estate brokers to help you find potential tenants and buyers. Although it comes at a price, it’s worth it, considering how difficult it is to find a tenant.
• Diversify your investment portfolio by investing in stocks, bonds, etc. It’s always a good idea to put your eggs in different baskets.
• Screen your tenants properly. Verify their information, conduct credit analysis, or run a criminal background check. But before you do so, make sure to get their consent.
• If you have extra funds, hire an assistant or ask a family member to help you manage your rental properties. This will help you save time.

How To Become A Landlord?

Becoming a landlord can be overwhelming and daunting, but it doesn’t have to be. Here’s a step-by-step guide to help you through the process:

1. Establish Your Budget

Most landlords, especially newbies, often overestimate their income or underestimate their expenses. This may cause problems in the future, especially when dealing with unexpected repairs and maintenance.

You may consult insurance agencies, real estate agents, maintenance specialists, and other professionals for quotes before you buy a property. Here’s how you should create a solid budget for your investment:

• Forecast Your Return On Investment (ROI)

This will help you determine your property’s cash-on-cash return, gross rent multiplier, and cap rate. To do this, you need to:

• Identify Outgoing Expenses: Outgoing expenses include financing fees, property taxes, maintenance and repair costs, insurance fees, acquisition costs, HOA dues, utilities, and vacancy costs.
• Determine Rental Fees: This depends on the value of your property in the market. If your property is valued at USD$300,000, its monthly rent should be around 0.8% to 1.1% of its value, which is between USD$2,400 and USD$3,300.
• Forecast Potential Vacancies: If a rental property you purchased doesn’t have a tenant, you might need to spend weeks or months preparing your property, advertising in the market, and screening potential tenants.

You can also visit sites that can help you estimate rent charges based on different factors, such as location, building type, and size.

• Save Enough Funds For Maintenance And Repair Costs

Save at least 1-3% of your property’s value annually for unexpected maintenance and repairs. If the property you purchased is a bit old and has considerable damage, you might need to save more. Make sure to choose a tenant who can take care of your property to lower your maintenance and repair expenses every year.

• Include Additional Costs

Aside from maintenance and repairs, you also need to consider additional expenses, such as screening procedures, marketing fees, insurance, and legal fees.

• Screening Procedures: These are important when screening potential tenants. Doing so will help determine if accepting a particular tenant is good for your investment. Background checks may cost you around USD$35.
• Marketing Fees: You may visit sites that allow you to advertise your properties for free. However, some popular platforms may ask for a fee. This may cost USD$0 to USD$1,000, including ‘For Rent’ signages, fliers, and brochures.
• Landlord Insurance: This can replace your income as long as you have valid reasons you can’t have your property to be rented. Insurance may cost around USD$1,075 per year for a premium worth USD$100,000.
• Potential Legal Issues: Common legal issues include eviction, unwritten agreements, inability to pay rent, and security deposits. To settle such issues, you’ll need to hire a lawyer, which may range from USD$150 to over USD$300 per hour.

Once you have a solid budget estimate, it’s time to buy a property if you don’t have one yet.

2. Purchase A Property

Before purchasing a property, you want to ensure that it has a solid potential to produce and maintain positive cash flow, regardless of the real estate market’s condition. Here are the things you might want to consider in a rental property:

• It must be within the estimated budget. Never purchase a property that can cost your entire budget. Remember, there are other things you’ll need to pay for.
• It must be in good condition. Never purchase a property that requires major repairs. This will only cost you a lot of time and money, even if they’re half the price.
• It has a high ROI potential.

If you’ve found several properties worth considering, here are some tips to help you choose the right one:

• Make sure it’s close to your home. Because of this, you don’t need a property manager to oversee your rental property, helping you save on expenses.
• Make sure its neighborhood offers plenty of walkable spaces. This is one of the most important things renters look for in a rental property.
• Make sure its neighborhood feels safe. Check the crime rate of a particular location to find out whether it’s safe. Most renters consider this when choosing a house to rent.
• Make sure it’s close to city centers, parks, and other local amenities. These are other things renters consider when choosing a rental property.

A rental property can be a commercial building, multi-unit apartment complex, townhouse, condominium, or single-family home. The property you purchase will determine your profit and other expenses to finance, such as maintenance and repairs.

Note that the larger the property, the more expensive and labor-intensive it is to maintain and repair. In short, only purchase a property you can manage effectively.

3. Prepare Your Property

Before you post your property on the market, you want to ensure it’s safe for tenants. You might need to hire an expert electrician and plumber to ensure everything works properly.

Test your smoke detectors, make sure your appliances are working, fix holes and cracks, repair leaks, change door locks, and strengthen your stairs and railings.

Don’t forget your property’s overall appeal. Make sure it doesn’t smell, clean your windows, doors, walls, cabinets, and floors, and landscape your back and front yard. And if cleaning alone isn’t enough, you may consider replacing your paint and other fixtures.

4. Find A Tenant

Once your property is good to go, it’s time to look for good tenants. Make sure to choose the right one because turning over a property can be expensive, costing between USD$1,000 and USD$3,000.

Here are some tips that may help you find a tenant who can care for your property, pay their rent duly, and stick around for many years:

• Ask People: Ask people if they know someone who wants to rent. Asking people you know is an effective way to find good tenants. You can also offer a finder’s fee to encourage your family and friends to look for good tenants.
• Post Online: You can use your social media accounts or other real estate platforms to advertise your property. Ensure your post contains essential information, such as pet rules and other policies regarding smoking, accepting guests, and parking.

You can ask other seasoned landlords about their strategies for getting good tenants. You may be able to get tips specific to your area and demographic.

5. Create A Lease Agreement

Although tempting, avoid using a lease agreement template you found online. That might cost you in the long run. Instead, you can start with a general lease, which includes basic recording and formatting according to local laws. Use simple terms anyone can understand instead of jargon and technical terms.

A good lease agreement should also contain important provisions, such as leased property, terms, deposits, rent, rights and responsibilities of tenants and landlords, disclosures, occupancy, termination, and utilities.

Remember to be clear when writing the rights and responsibilities of your future tenants, especially when it comes to what they can or can’t do. You can include a pet policy as well. The clearer your guidelines are, the more protection you get for your property.

6. Know Your Rights

Rental properties are facilitated and regulated at local, state, and federal levels. You want to exercise your rights according to the law. These rights include:

• Screening potential tenants
• Collecting deposits and payments, including parking fees
• Enter tenant’s property in case of emergency
• Evict non-compliant tenants
• Use security deposits for unpaid repairs and billings

To ensure all your bases are covered, engage your lawyer’s services before finalizing any agreement.

Final Words

Becoming a landlord is a great way to earn a stable income. However, it’s also challenging, especially when dealing with poor and non-complying tenants. To avoid complicated issues, make sure to understand the rights and responsibilities of being a landlord as well as the laws governing tenant-landlord relationships.

If problems become more complicated, don’t hesitate to ask a lawyer for help. They can help you plan your next step to exercise your rights and ensure your win against unruly tenants.