Do you have some money saved up and find yourself contemplating becoming the landlord of an investment property? Perhaps the house on the corner is up for sale and you figure why not buy it and rent it out for a nice profit each month? After all, being a landlord can’t be that hard, right?
Whether you need to move and can’t sell your house or want to own rental property as part of your investment strategy, you need to understand what you’re getting yourself into and think things through before taking the leap. To help you out, here are seven things you should know prior to drawing up a lease agreement:
Landlords Wear Many Hats
Being a landlord involves doing a number of things, which means you must be able to adapt to various roles at any given time in order to succeed. In fact, on any given day you may be called upon to be a salesperson, realtor, watchdog, counselor, detective, repairman, debt collector, and so on. Although you don't necessarily have to be a 'Jack of All Trades' to be a landlord, it certainly helps.
It’s Not a 9-5 Job
A landlord’s daily life is anything but structured. It’s not a lifestyle in which you can show up to work at 9 AM, take a noon lunch, and go home at 5 PM Monday through Friday. As a landlord, you may have 12 hours of work one day and only an hour another.
Your obligations can also change at a moment’s notice. You may only plan on stopping by a property to collect rent, and before you know it you could be asked to investigate a faulty appliance or a leak underneath the kitchen sink. In such an instance, your simple rent collection trip can turn into an all-day affair.
Expect a Learning Curve
You may be a smart person, but unless you have experience as a landlord, chances are you’ll encounter several obstacles and bumps in the road. You can only learn so much from reading books, attending seminars, and talking to others. With this profession, the best teacher is often real life, hands-on experience.
Only experience can prepare you for the endless list of things that can occur each and every day. While you can’t prepare for a mold infestation or the eviction process, your experience can help prepare you for these situations as you learn and grow as a landlord.
You Must Learn the Legalities
Far too many would-be landlords think they can just buy a house, rent it out, and enjoy some extra income. However, if it were that simple, more people would be doing it. As a landlord, there’s a lot of homework to do and a number of legal rules you must know and abide by. Whatever it is lease agreements or legal work involved in buying and selling a house.
For example, did you know there are certain things you’re not allowed to ask prospective tenants? How about the fact that there are Fair Housing Laws, health and safety codes, eviction protocols, and even ways you’re supposed to handle security deposits?
These laws often vary by state and each one has page after page of regulations you must follow. You can begin learning the laws and regulations of your state by performing an online search and pulling up a state government website with information regarding your state's specific laws and rules.
FYI, nearly all landlord-tenant laws favor tenants. Even forgetting to cross a ‘t’ or dot an ‘i’ can result in serious ramifications, so you may want to consult with residential or commercial leasing lawyers when drawing up a lease contract, dealing with an eviction, and so on. If you're still wondering what is a letting fee, you'll definitely want to study up before becoming a landlord.
You Must Be Prepared for Maintenance, Management, and More
Landlords can find themselves responsible for an array of property maintenance tasks. Although the maintenance responsibilities of both the tenant and the landlord should be noted in your lease agreement, you may be called upon to refresh an old coat of paint or climb out of the bed at two in the morning to fix an emergency plumbing issue.
For these reasons, some landlords choose to hire property management companies. While these companies typically charge around 10 percent of the monthly rent, they handle nearly all of the landlord responsibilities and take care of tasks many homeowners dread, such as making repairs, conducting background checks, and collecting rent.
If you’re not a handy person but want to save some money by managing the property yourself, a home warranty is an option worth considering. Most have an annual cost of under $500 and cover the cost of broken appliances and major repairs.
Background Checks Are a Must for All Prospective Tenants
It may cost you $20 or $30, but a background check can be a tremendous help in weeding out bad tenants. Considering the tenant-friendly laws in most states, selecting the right tenants can make or break most landlords just starting out.
In most cases, it can take months to evict a tenant in breach of real estate contract and not willing to pay their real estate rental fees. In addition to thousands of dollars in lost revenue, damage to the property frequently occurs in these situations as well. In a worst-case scenario, your property could potentially be seized by the government as the site of some major criminal activity. Needless to say, you need to carefully select potential tenants and perform background checks to find the right one.
Be Prepared for the Unexpected
Due diligence can go a long way towards ensuring a happy tenant-landlord relationship, but you must always be prepared for unexpected surprises. Even if you choose to reduce your day to day stress by hiring a management company, you’ll still be called upon to make decisions from time to time.
For example, if your HVAC system stops working in the dead of a Detroit winter, you can expect a call from the property manager to approve and pony up for the repair or brand new unit. Who knows? A severe storm could cause a tree to fall on the house. As a landlord, you must expect the unexpected.
Despite its many challenges, taking the gigantic leap to becoming a landlord can provide you with a lifetime of rewards. By taking these tips to heart and preparing yourself for the adventure ahead, renting out your first property may be one of the best decisions you’ll ever make.
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