Becoming A Landlord Checklist
Investing in rental homes is the most popular choice to get a return of your investment in this age of low-to-nil interest rates certificate of deposits and the falling of the stock market. Whether you are looking to turn a profit on the resale of your home or to exist off of rental income streaming in monthly from multiple properties, real estate can reap amazing financial rewards.
However, that doesn’t mean owning rental property will be a cakewalk!
Here are a few important points, pros and cons, you’ll need to consider when deciding to become a successful landlord.
A Capital Idea
Start-up capital is essential…and not just for purchasing a property. Although it would be nice to think that your investment ends with paying off your closing costs, for many home investors, their financial journey has really just begun when remodeling and maintenance costs come into the fore.
When a new home needs repairs or looks supremely dated, it will take a significant amount of money to make your property more rentable. Cleaning the house, installing a new boiler or plumbing system, re-tiling the roof, new wiring, adding solar panels, and any other additions to the house can rack up thousands to repair. Even if you buy a house in perfect condition, many states have strict rental property requirements that may require you spending to bring your new purchase up to code.
Taxes and Insurance are Inevitable!
Owning a rental property is considered a profession in the eyes of Uncle Sam so any rental income you earn must be reported when you file taxes each year.
There are also property taxes and insurance, which you’ll have to not only pay on your own home but on all of your properties, whether you have filled your unit’s vacancies or not. Before you purchase any rental properties, make sure you can recoup expenses, especially in a down economy. Rental properties should be a passive income, not passive expenses.
While you can’t claim a loss on taxes incurred from the sale of your primary residence, you can do so on a rental property if you claim it as a business loss against the rental income. This can decrease your tax payment by the thousands, especially if you’ve incurred a huge loss. But do you really want to experience a huge loss? Of course not. In an ideal situation, most of the losses normally incurred due to depreciation expense. Yes, as a real estate investor, depreciation expense is your BFF. Another great reason to be a landlord!
Find a Good Property Manager
The most important key to become a successful landlord and to make this investment a less to zero headache passive income is to find a good property manager to manage your rental property/properties.
Here are some reasons why it is very important:
Property Maintenance
Repairs and constant maintenance are just a landlord’s fact of life. There are laws in every state protecting tenants that require landlords to quickly address repairs. While many may be minor—fixing a door knob or installing a new fire alarm— costs can accrue quickly while a serious problem—damage, flooding —means that dispatching emergency repairmen to resolve the situation will get pricey. So be prepared! You’ve been forewarned! The value of good ongoing maintenance on your part can not be over-emphasized.
With this said, you don’t want your tenant/tenants calling you on every single repair/maintenance that needs to be done in the property. This is where you see the value of hiring a good property manager is worth every penny. Let your property manager handles the situation and as a landlord, you just simply pay the bills. One less headache to worry about.
Prescreen Your Prospective Tenants
To reference a famous Clint Eastwood Spaghetti Western, there are three basic types of tenants: the good, the bad, and the ugly. While you hope to carefully choose the best possible people to live in your houses or buildings, there are no absolute guarantees on how your landlord/tenant relationship will evolve. So you’ll have to be prepared for any type. Even under the best circumstances, you will sometimes have to act as bill collector when rent is late or absent. And then there are the problem tenants…
If you are the kind of person who detests diplomacy and confrontation or is wishy-washy and flip-flops on decisions, having a good property manager will definitely helps solving this issue. Your property manager will help you prescreen your prospective tenant/tenants and he/she will be your front man to deal with the tenant/tenants. Your tenant/tenants simply does/do not need to know you as the actual owner of the property.
Have Convictions, Know Evictions
Every state has simply stated landlord and tenant laws. The eviction process begins by filing a notice at a local court and scheduling a court date. Yet even after a judge has informed the tenant that they must pack up and leave on by a certain date, things don’t always happen on schedule. Sometimes, evictions can be lengthy, time-consuming, emotionally draining and expensive if court costs mount up while you’re trying to evict said tenant. In the meantime, if you own a building with multiple units, you may also catch your share of headaches as tenants in other units complain about the people you are attempting to evict. Again, a good property manager will help you to go through this kind of issues. It is still a headache for you as the owner but at least you have someone you can count on to help you solve this issue.
So if you want to be a successful landlord, screen prospective tenants thoroughly, choose wisely, maintain your properties smartly and, above all, don’t cut corners. What you may save in the short run could really backfire on you and produce more expensive headaches in your future.