Becoming a first-time landlord isn’t easy, but with some careful planning and solid tenant management, you can avoid common mistakes that eat into profits and undermine success. Here’s how.
- Start with a clear financial plan
It’s essential to manage your expectations around cash flow and expenses when you’re just starting out. Rental income needs to cover your mortgage, taxes, insurance, maintenance, repairs, and other costs with something left over as profit. To be profitable, you’ll need to budget realistically by documenting your baseline costs to make sure your rent covers your investment.
Your property will need ongoing maintenance, so set aside a reserve fund for this. A typical fund should see a contribution of around 10% of rental income.
- Hire a professional property manager
The best way to increase your profitability is by hiring a pro. They’ll help you optimize your rent prices, reduce vacancies, find good tenants, handle tenant issues, serve notices legally, and handle maintenance and repairs. Successful investors who want to grow their portfolios outsource their daily landlord duties to gain back their time. For instance, Texas investors who want to avoid the daily grind of being a landlord rely on San Marcos property management company Green Residential for comprehensive management services.
Without a property manager, you’ll be on the hook for repairing damages when a tenant moves out, answering calls at 3am, handling emergency repairs, and much more.
- Understand your legal responsibilities
As a landlord, you’re subject to state, federal, and local laws regarding how you manage your properties and interact with tenants. Laws govern everything from security deposit amounts and eviction procedures to rent increases and anti-discrimination standards. For example, the federal Fair Housing Act prohibits discrimination based on protected characteristics like race, religion, and sex. But not all landlords are subject to this law.
To learn what you can and can’t do as a landlord, consult an attorney rather than searching online. Understanding your legal duties is the only way to ensure you operate within legal boundaries.
- Prepare your property effectively
Every rental property needs to meet habitability requirements, and in some areas, there are laws governing what appliances you’re required to provide for tenants. Before listing your property, ensure all fixtures work and any deferred maintenance is addressed. If you’re not sure what’s required, contact a lawyer.
- Screen tenants thoroughly
To avoid attracting bad tenants, thoroughly screen every applicant to high standards. Set minimum requirements for a credit score, income, and rental history. For example, many landlords require a credit score of 650 or higher, income that equals three times the rent, and no evictions within the last 10 years.
It’s critical to verify an applicant’s employment, but before you call, make sure the phone number they listed matches the employer’s official number. Some people provide fake numbers and have their friends pose as employers. Beware of fake pay stubs as well.
Having high standards helps you avoid tenants who are likely to skip out on the rent or be habitually late. Although nothing is guaranteed, applicants with higher credit scores are less likely to violate the lease and engage in criminal activity.
- Create a schedule for routine maintenance and inspections
Keeping your rental property in good condition is a legal requirement, and performing routine inspections and scheduling regular maintenance makes it easy. Schedule routine checks for HVAC systems, plumbing, electrical systems, your roof, and safety systems like alarms or smoke alarms. Proactive care will minimize the amount of emergency expenses you incur and make tenants happy.
- Solidify your lease with a lawyer’s help
A strong lease will set clear expectations for paying rent, security deposits, maintenance responsibilities, and house rules. It’s a legal framework that governs the landlord-tenant relationship and will ensure legal disputes are handled according to the agreement. However, your lease needs to be enforceable according to the law. Unenforceable clauses won’t hold up in court, even if a tenant agreed in writing. And if you need to evict a tenant for a lease violation, it needs to be done in a specific manner as outlined by landlord-tenant law. That’s why it’s essential to hire a lawyer to draft your lease agreement instead of relying on generic online templates.
Approach your rental property like a business
Being successful as a first-time landlord is the result of careful planning, proactive maintenance, strong tenant screening, and legal compliance. Whether you manage your property alone or with the help of a professional team, treating your rental as a business will set you up for sustainable profitability.
Image Source: BigStockPhoto.com (Licensed)
Related Categories: Invest, Money, Reviews
