Investing in rental properties looks like a great idea on paper. You just buy a place in a nice area, find tenants and let the cash roll in. Yes, this sounds like a great, simple, moneymaking plan, but as your competitors know, landlording is no easy gig! There is a lot of chance involved. You can have a great property, but getting and keeping the right tenants is the main key to success. If you are new to landlording it is sure to say that your competition (other area landlords) probably have years of experience behind them. If you could sit and discuss strategies to successful landlording, your competitors might provide you with the following advice:
#1: Keep Your Expectations Reasonable
Have the goal of positive cash flow, but don’t expect to be purchasing a million dollar mansion and taking that ski vacation to the Alps in a limited amount of time. If you keep your expectations in check, you won’t be tempted to jack up the rent and push out good tenants.
#2: Find a Balance between Earnings and Effort
Being a “hands on” landlord is great, but if your current income may not seem as immense when you are putting in another full-time shift working on your rental property. There are property management firms that will run your rental property generally for a small percentage of the rental income, so you aren’t putting an absurd amount of time into your investment or losing an exceptional amount of your ROI.
#3: Know the Rules
Federal and state laws outline your responsibilities and liabilities as a landlord, so you can’t claim ignorance when something happens. You will have to do some reading; nevertheless, it is better to spend 20 hours in the library than in the courtroom!
#4: Have the Property Inspected
One of the best ways to avoid costly unexpected expenses is to have the property inspected by a professional before you sign on the dotted line. Property inspections are very reasonably priced in many areas and compared to the amount of money than can be dropped on unexpected repairs, is a wise investment choice.
#5: Make Sure Your Leases Are Legal
If you make a mistake on the lease, you will find it more difficult to litigate if a tenant violates the terms. Have a lawyer draw up any and all documents related to your property. As with inspections, it may cost you a bit now, but will save you money (and headaches) in the long run.
#6: Take the Time To Call References and Run Credit Checks
Too many landlords rush to fill a vacancy rather than taking the time to make sure the prospective tenant is a better option than an empty property. If you have time, you may want to drive by a prospective tenant’s current living space and take a peek around. If they are keeping their current home in shambles, that is most likely what your property will look like when that tenant lives there. Also, be sure to ask for professional references. A prospective tenant’s mother or Aunt Mary will mostly likely give a glowing reference, while an employer or current neighbor may provide a more detailed account of what you can expect if you are to enter into a lease with the prospect.
#7: Join the Landlords’ Association in Your Area
Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property. Additionally, an association will allow you the opportunity to network with other landlords in the area and learn more about your competition.
#8: Make Friends with a Lawyer, a Tax Professional and a Banker
A network including these three professionals will be essential if you want to increase your real estate holdings now or in the future. Look for professionals that specialize in real estate laws, taxes and financials.
#9: Make Sure You Have the Right Kind of Insurance
After learning the rules, you will need to buy insurance to cover your liability. You will need the help of an insurance professional to select the proper package for your type of rental property. The insurance industry is highly competitive, so shop around for the best agent and prices.
#10: Create an Emergency Fund
This is essentially money earmarked for unexpected expenses that are not covered by homeowners insurance. There is no set amount for an emergency fund, some say 20% of the value of the property, but anything is better than nothing. If you are getting current income from a property, you can pool that money into an emergency fund.