Updated September 8, 2020
Are you thinking about investing in a rental property? If not, maybe you should be. Here's why.
As of the first quarter of 2020, the US's homeownership rate was 65.3%, up from a stable 64% from 2019. The other 34.7% of the population rent their homes, and 40% of those renters are 45 or older. The demand is growing for rental properties across all ages, which makes purchasing them a great investment.
There are four steps you need to take before becoming a landlord
You need to do your research before investing in a rental property because a lot goes into being a landlord. There are many tasks you take on as a landlord to manage your property and tenants properly. Knowing your state's landlord/tenant laws will help you understand the rights and responsibilities both you and your tenants have during the tenancy.
You should be prepared to advertise for renters, complete legal agreements, maintain your property, collect money from renters, and handle utilities. You may even need to hire someone, like a property management company, and a real estate attorney to help you with potential legal issues and day-to-day operations.
You will need to evaluate many things before you are a landlord. One of the most important things to evaluate will be to research the location in which you want to invest. When considering the location, look at whether or not the population is growing and if the city has plans for new construction. Visiting the city website should help you determine if the city is growing and changing or dwindling.
You should look at the average neighborhood rent to calculate rent prices. Several tools can help you do this, most of which are online. This is the easiest way to find average rents. You'll also want to look for a location with low property taxes, decent school districts, and plenty of amenities, such as parks, malls, restaurants, and movie theaters. Also, a neighborhood with a low crime rate may mean a larger pool of potential renters.
You will also need to evaluate potential renters. You will need to do background and credit checks. You should check references and interview people before allowing them to rent from you. Keep in mind that you may need to evict someone if you haven't properly evaluated them.
If you have done your research and evaluations, you are ready to purchase a property. You will probably find your next investment opportunity by looking at rental property listings, scouring neighborhoods, or even using an app. Rental property apps can help you get property re-ports, do batch analysis, and even predict rent. Before buying, consider the area, the mortgage, taxes, and the proximity to your own home since you may be doing repairs or checking on renters. All of these factors will determine how much you make as a landlord.
Unfortunately, renters tend to move more frequently than homeowners—54% of apartments experience turnover every year. So, you will need to manage your property well to make the most money and to keep good renters. Ensure you're following the law, writing proper leases, maintaining the property, staying organized, and choosing good tenants.
This may sound simple, but it can be easy for new landlords to become over-whelmed and cut corners. You should learn the landlord-tenant laws before you ever rent to anyone so that you are not discriminating against anyone. You should customize a lease with lease addenda so that it matches the situation, such as allowing the renter to have no more than one dog. By using addenda, you can add anything that is common for your property or tenants and have an agreement as to how to handle those situations, which are often not on the standard lease.
When screening prospective tenants, talk to the renter's past landlord and employer first. Ask about their previous tenancy and any issues and if they would rent to them again. You want to know if the tenant shows up as scheduled and does what's asked of them from the employer. This information from both the previous landlord and employer can help you understand your tenant's character and trustworthiness.
Document the move-in condition of the property before a tenant moves into the unit. Once they move-in, schedule regular inspections. Inspections can be monthly, quarterly, or yearly. Fix anything that needs repairs during your regular inspections. You'll also want to do prop-er seasonal maintenance.
Managing also has a component of administrative work. Make sure you are doing proper accounting and bookkeeping or hire someone to do them for you. Download a landlord app to help you stay organized.
Follow these steps, and you should be making money as a landlord in no time. Just remember to plan carefully and hire help if you need it.
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