Real estate investing has long been thought of as one of the best ways to make money. But what about owning and managing rental properties by becoming a landlord? Being a landlord isn’t easy, and the responsibilities that come with the job could be more of a challenge than it’s worth, in some cases.
[Read: Should You Include Real Estate in Your Retirement Plan?]
Is Becoming a Landlord Worth It?
Being a landlord can be challenging, but the biggest benefit that comes with the job is the ability to earn passive income through your rental property. The more properties you have, the more money you can potentially make. However, being a landlord comes with a lot of responsibilities that require time, money and effort.
If you’re actively managing your property, being a landlord is a 24-hour job, and you’ll be responsible for handling all tenant complaints, property repairs and maintenance, ensuring compliance with state and local housing codes and providing a safe and habitable living environment.
“The biggest thing is mitigating risk and combining that with keeping your tenants happy, which is an ongoing challenge,” says Rogers Healy, owner and CEO of Healy Property Management, part of the larger Rogers Healy Companies real estate brand, based in Dallas.
How to Become a Landlord
Becoming a landlord can be profitable, but it can also lead to losses and stress if you’re not prepared. “I would just check what your state requires but find a way to purchase an investment property, lease it out, whether it’s residential or commercial, and kind of throw yourself into the fire,” Healy says.
Here are the steps it takes to become a successful landlord:
— Purchase rental property.
— Insure the property.
— Learn and follow state guidelines.
— Learn how to market properties.
— Be prepared to manage tenants.
— Final considerations on becoming a landlord.
Purchase Rental Property
If you want to become a landlord, you’re going to need a property to rent out. This doesn’t mean any rental property will do. If you buy property that’s too expensive, it could take a while before you break even or make a profit. If you purchase a fixer-upper, you may not have the skills or extra capital to make the necessary renovations.
You’ll also need to understand the local rental market, which can help you choose the best investment in the right neighborhood. Narrow down what you want in a property, such as type, location, size and amenities. If you plan to actively manage your rental property, this may also limit your location options.
Build a list of suitable properties and make sure to do your due diligence to help you narrow down your list. You can also use the help of an experienced real estate agent to find the best properties that match your goals and budget.
[READ: Can You Negotiate Rent?]
Insure the Property
Once you find and purchase your rental property, you’ll need to make sure it’s properly insured. However, there isn’t one single type of investment property insurance. The coverage you need depends on the size of the property and its tenants.
Comprehensive landlord insurance should cover:
— Property damage. Dwelling coverage can protect your rental property against covered hazards, such as fire and smoke, earthquakes, lightning, vandalism and theft, windstorms, hail, snow and ice, falling objects and more.
— Lost rental income. This provides temporary rental reimbursement if your property becomes uninhabitable.
— Liability protection. This is coverage for medical and legal costs if a tenant or visitor sustains an injury due to a maintenance issue.
Learn and Follow State Guidelines
Landlords are required to follow federal, state and local regulations. As a landlord, understanding your rights and legal obligations will help protect you and your investment property.
Most major federal laws for landlords are under the Fair Housing Act and the Fair Credit Reporting Act, which prohibit housing discrimination and dictate how a landlord may use a tenant’s credit history for screening purposes.
State and local regulations usually deal with the rights and responsibilities of both landlords and tenants, including the terms and conditions that can be part of a lease, security deposit restrictions, lease termination guidelines and how evictions are handled.
Learn How to Market Properties
Every vacant unit is lost income. You’ll need to learn how to market your properties if you want to keep your units occupied. You can market your properties online, through social media, by word of mouth and by putting up “For Rent” signs. You want your listing in front of as many potential tenants as possible.
You’ll also want to make sure your listings will be able to attract potential tenants. Your listings should include:
— Rental price.
— Lease terms.
— Security deposit amount.
— Bedroom and bathroom count.
— Square footage.
— Included appliances.
— Special amenities.
— If pets are allowed.
If you’re still unsure, look at other rental listings in the same neighborhood. This will help give you a better idea of what people are looking for in your area.
Prepare to Manage Tenants
Once you start filling units, you’ll need to manage your tenants. As a landlord, you’ll be responsible for:
— Tenant screening. Troublesome tenants can cause issues and can even put your rental income, your property and the neighborhood at risk. When potential tenants fill out a rental application, you’ll need a thorough tenant screening process in place that includes a credit report, criminal background check and eviction history.
— Lease agreements. Your lease agreements must include everything required by your state and be kept up to date. You must also manage the lease agreement for each of your tenants from beginning to end.
— Collecting rent. This includes setting due dates, establishing late fees and dealing with unpaid rent.
— Maintenance and repairs. If something breaks, it’s the landlord’s responsibility to make sure it’s back up and running in a timely manner.
— Move-in. When a tenant moves in, you’ll need to go over rules and requirements, walk through and note the condition of the unit and collect the security deposit and first month’s rent.
— Move-out. After a tenant moves out, you’ll need to check the unit for damage and find another tenant to occupy the empty unit.
— Evictions. If a tenant isn’t paying rent, you need to follow local regulations for how to handle evictions.
[Read: What You Should Know About Tenant Rights.]
Final Considerations on Becoming a Landlord
To set yourself up for success, Healy recommends aligning yourself with people who can help you, like a rental property manager. Landlords can hire property managers to handle day-to-day activities without the landlord having to be physically present. Property managers can set and collect rent, handle maintenance requests or complaints and fill vacant units.
“(Landlord responsibilities are) nonstop. You’re dealing with other people’s problems and that’s a lot to take on,” says Healy. “It’s an emotional business and again, it just never stops. Make sure you do your homework and realize that the margins are thin. The end goal is to build wealth by having a bunch of clients that turn into something that makes sense for the long run.”
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How to Become a Landlord originally appeared on usnews.com
