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21 Sep

Could You Be a Landlord?

General

Posted by: Angela Lavender

Sure, the extra income would be great. But jumping blindly into owning a rental property could be disastrous. Here’s what you need to know

 April 22, 2013

With real estate prices and interest rates still low, this could be a good time to buy a rental property. Being a landlord is not only for people who can afford to own large apartment complexes. Moving into a duplex or a property with several small cottages can be a smart way to house yourself and save for the future.

If (and it’s a big if) you are able to find a property where your overall mortgage payment is within reach even without the income from renters, you can plan on stashing away that rental income — potentially saving a good deal more each year than you otherwise would be able to. Of course, property managing is not without its hassles, and it’s not for everyone. If you are curious about what it takes to be a successful landlord, this ideabook is for you.

Traditional Exterior by Best Builders ltd
Best Builders ltd
Know the benefits, but be realistic. Living in your home and renting out a second unit can help you cover part of your mortgage payment each month — that is, while the rental is filled.

Factor in the cost of mortgage and maintenance even when the rental is vacant to get a realistic picture, and be sure to factor in all expenses, from landscaping to garbage and any utilities.

Midcentury Kitchen by Kropat Interior Design
Kropat Interior Design
Have at least six months of mortgage payments saved up.This is a smart way to begin life as a landlord. You can feel good knowing you can cover the whole mortgage even when you have vacancies, and pay for repairs as needed.

The larger the mortgage payment, the more important it is to have a hefty safety net, so err on the side of saving more, not less.

Contemporary Exterior Modern Exterior
Choose your location wisely. Get to know the rental market in the area where you are considering purchasing property. If you have not personally been a renter there, take the time to explore the area, read the local rental ads and learn as much as you can before diving in. Pay attention to things like access to public transportation, whether shops are within walking distance, and crime.
Transitional Living Room by ísARK Studio
ísARK Studio
Buy property that is already in good shape. Tackling a few home improvement projects yourself is one thing, but if you are looking at anything major, get realistic work estimates before you commit to buy. Remember, renovating costs and timelines can easily spiral out of control, and you will also be losing out on rental income for every month work needs to be done.
Contemporary Living Room by Beck-Reit and Sons, Ltd
Beck-Reit and Sons, Ltd
Get insurance. Protect yourself and your investment by arming yourself with the right kind of insurance. It may seem like an unwelcome extra expense now, but you will be so grateful you have it if and when anything ever goes wrong.
Farmhouse Living Room by Corynne Pless
Corynne Pless
Educate yourself and tenants about potential hazards. Older buildings can house all sorts of unpleasant things, from lead paint to mold and asbestos. Certain locations can be especially prone to natural disasters, like earthquakes in California or tornadoes in Kansas. Find out what you need to do to put safety measures in place, inform tenants or both, right from the get-go.
Modern Exterior by M+A Architecture Studio
M+A Architecture Studio

Consider hiring a property management company. Especially if you will not be living on the property (but even if you are), it can make a world of difference to let the pros handle day-to-day needs. A good property management company can get your units rented and handle advertisements, maintenance, rent collection and more.

Build a team of go-to pros.Speaking of pros, it is important to build up a team of people who will be there to help when you need them. A lawyer, tax adviser, plumber, electrician and handyperson would be a good start.

Eclectic Kitchen by Kaia Calhoun
Kaia Calhoun
Think ahead and see future possibilities. You could always convert your duplex into a single-family home, or move out and keep the property purely for investment income. Try to think a few steps beyond your current scenario.
Farmhouse Dining Room by House of Earnest
House of Earnest
Be smart about selecting tenants. Run credit checks yourself, rather than accepting credit reports the potential tenants hand you. Fraud is not common (thank goodness!), but it’s much better to be on the safe side. On that note, take the time to check references. Rely on the numbers and facts before personal feelings — just because someone is warm and friendly doesn’t mean they will hand in their rent on time.
Beach Style Exterior by Peter McDonald Architect
Peter McDonald Architect
Protect yourself with a good lease. Always have tenants sign a lease. Sounds simple, right? But you would be amazed at the number of landlords who rent with a handshake alone. Be sure that lease takes into account state-specific laws and regulations, and consider including a page for the tenant to sign upon moving in that assesses the condition of the space. A bit of care now can save major headaches later.
Midcentury Living Room by Kropat Interior Design
Kropat Interior Design

Continue your education. Seek out resources like Nolo to familiarize yourself with the legal issues you may face as a landlord. Also plan to join your local landlords association; it can be a big help for everything from conducting credit reports to staying updated on legal issues.