Tips for The First-Time Landlords
Many aspiring investors want to know how to become a landlord. Renting seems like a lucrative business and easy money. Don’t be mislead by the appealing marketing slogans, renting is a fragmented and tight market. There is plenty of small and medium-sized property management and significant housing development you need to compete with. To stay afloat in this market, you need to explicitly set your priorities, articulate your strategy and narrow down your target audience. Don’t treat renting like a side-kick; becoming a landlord requires time and effort equivalent to a full-time job.
First and foremost you need to acknowledge that your primary goal is revenue. Your rental need to bring you a return on investment. For that, you need to record all the expenses and revenues meticulously. Acquire the basic knowledge in bookkeeping or partner with a reliable third-party provider. Knowing your numbers is crucial to determine the sound financial plan for your property. You had to take into an account a multitude of factors. You should always pay attention to the rate of depreciation and always factor in the wear and tear of the property. If you bought an old apartment- evaluate the state of the property. There is a chance that projected rent will not cover all the necessary renovations and constant maintenance. Before entering the rental market perform a quality assessment of the available assets. Carefully weigh out all the risks. Are there any problems with the sewer or drainage? What is the crime rate in the neighborhood? Those are essential components of the successful renting business. When you precisely know the advantages and disadvantages of your rental you understand how to advertise and manage it better.
Write a Lease Agreement
All your rental agreements have to be formalized. You cannot rely on the verbal agreements or some sort of quid pro quo. It is unwise and often illegal. Acknowledge the importance of the rental agreement. You shouldn’t copy the version of the lease agreement you find online. Do the prior research and if you have sufficient funds – consult with a lawyer. The lease agreement should fit your particular circumstances. The lease has to be exhaustive, with provisions that would cover any issues that may arise. Set the amount of the security deposit and outline in which cases funds can be deducted from there. Clearly articulate your position regarding pets, visitations, cleaning etc. That will allow you to avoid plenty of potential conflicts. If the rules are in writing, it is easier to arbitrate and resolve any potential misunderstandings. Furthermore, the formalized rental agreement will help you in case of financial disputes or if you need to evict the tenant.
Having personal relationships with your tenants is great. However, you shouldn’t let those relationships interfere with the payment schedule. Landlords need to pursue rent payments and late fees assertively. It is prudent to negotiate with your renter, provide grace periods and pardons. Those techniques are useful as long as the tenant is responsive and responsible. When it is not the case, and your resident is ignoring you for weeks, you should cut him loose. Start the eviction process right away. Another good idea is to report a delinquent tenant. This way the eviction will be reflected in the tenant’s credit history. It is a great deterrence measure and your contribution to the accountability of the market.
You should be extremely careful about people who let on your property. When you are interviewing potential tenants, you are dealing with the complete strangers. It is crucial to assess the candidates accurately. Talking prospective tenants is a lot like interviewing candidates for the job. You need to collect references and double-check them. Conducting a rigorous tenant screening is absolutely necessary.
The first thing you should look into is the criminal history. A candidate with a history of felonies can harm your property and your neighborhood. Furthermore, such a tenant can damage your reputation as a landlord. Don’t wait up, get a renter’s consent and perform a thorough background check. In most jurisdictions, you have a right to deny housing if the candidate has a record of violent crimes, drug offenses or sex offenses. Study the specific anti-discrimination laws of your city or state. Some states adopted legislation to prevent discrimination of the ex-convicts. In those states, you cannot disqualify a renter for minor offenses and charges.
The second essential component of a good renter is a good credit score. As a landlord, your utmost concern should be whether a tenant can pay in full and on time. You want to pick a tenant with a consistent financial behavior, great money habits, and a stable income. Ordering a credit report is the most effective way to check those indicators. If your candidates are to run a background check or a credit report you should immediately disqualify them. Checking the credit score have to be mandatory for all of the applicants. If the candidates are reluctant to submit financial information, there is a good they have something to hide.
A credit score is a critical indicator in the credit report. Instead of analyzing the lengthy financial history you can take a glance at the score and get the basic idea about the prospect. The score in the primary credit bureaus is generally between 300 and 850. The perfect candidate should a credit score between 700 and 800. Credit score in the 650-700 is average and indicate an average financial standing. Candidates with a credit score below 600 should be avoided at all costs. Those candidates are not trustworthy and habitually neglect their financial responsibilities. They don’t repay loans, default on their credit cards and recklessly treat their credit portfolio.
Market Your Property
Renting out the apartment is harder than it sounds. Nowadays it is not enough to list your property in the classifieds or on the random listing websites and wait for the applicants. The United States is becoming the nation of renters with millions of rental listings and thousands of renting websites. Your ad can get lost in the informational noise. Promoting a rental requires a comprehensive digital strategy. First of all, you need to attract quality applicants. You want people who are ready to sign the lease right after the open houses, and not the people who are there to just to take a tour. In order to save your time and effort, you need to define your target audience.
Choose the niche
Decide whether you want to rent out to singles, families or elderlies. After the choice was made, market your property accordingly. List your property on the websites popular with a targeted demographic group. Rewrite the ad and emphasize the aspect of the rental that is relevant for your particular audience. In case of the working professionals that would be the presence of nightlife and entertainment venues, in case of families – qualities of schools and the low crime rate, in case of elderlies- accessibility and presence of noise or loud neighbors. The right emphasis is also crucial during the open house.
Renting isn’t a cakewalk. You need to veto candidates relentlessly, persistently renovate the premise and aggressively market your property. This industry is not easy for the newcomers. In no time you need to acquire the necessary expertise and learn the market. If you approach the process seriously and follow the tips above, there is a good chance that you succeed and rip your benefits from renting.