So, you've decided to dive into real estate with the market at low tide and pick up an investment property or two.
Or, maybe that plan from last fall to buy and flip a three-bedroom Miami condo has turned sour as buyers look for a better deal than you can afford to give.
In any case, get a receipt book and some "For Rent" signs.
You're becoming a landlord.
Renting property is sometimes called mankind's second oldest profession. (Or, in the case of Pearl, the adorable “landlord” depicted in the Will Farrell video make that toddler-kind’s.) It's a nuts-and-bolts business that can be recession-proof if your property is in a desirable area (everybody needs someplace to live, right?), and if you're dealing with a small number of properties in good condition, the time spent on it is usually minimal. ...
If you know what you're doing.
To start, scour the neighborhood rental market to get a going rate for a comparable property and write it down on the left side of a ledger. On the right side, write your mortgage, property taxes, insurance, homeowner's association fees (if any) and 10% to cover maintenance.
After adding those up, the final figure on the right should be at least 5% below the figure on the left, and hopefully more. If not, you've got to decide whether it's worth losing money on a rental house until the equity comes back. Don't feel too bad if you figure out that you're not making a killing right away since on average landlords earn about $2,000 profit per unit each year. And don't sweat the extra income at tax time. Any meager earnings are usually eaten up by deductions for mortgage interest, repairs, transportation, etc.
Making the landlord experience as smooth and easy as possible requires some prep work. Here are five tips to bring in the best tenants possible and start a cash flow:
When looking for tenants, try the inexpensive, easy search methods first like Craigslist, but don't forget targeted word-of-mouth marketing.
Think of who would be a good tenant. A teacher? A police officer? Ask the local schools and precincts if they would put up a notice about your rental in their teacher's lounge and locker room. How about a nice, quiet religious person? Call local churches and temples to see if they can connect you with a member who's searching for a new place.
That nice old couple or friendly cop may turn out to be perfect tenants, or they may be your worst nightmare. Ask for references of previous landlords from everyone and check them. When writing up the lease, ask to see their I.D. and check their picture to make sure you know exactly who you're renting to.
The Write Stuff
Familiarize yourself with landlord/tenant laws, and make sure your lease forms are correct for your state. Does it spell out how disputes should be handled and your responsibility for upkeep and repairs?
Boilerplate lease agreements are available online or at office supply stores. Be careful of tenants who bring their own agreement for you to sign in lieu of a standard landlord/tenant lease. These may have clauses that extend their rights well beyond the scope of most laws.
Keeping the property well maintained and safe is the best way to ensure a good relationship with your renters. If you're dragging your feet about calling a plumber or having the trees trimmed, you may find those formerly nice people become just plain hostile.
Insure Your Risk
Make sure your insurer knows that a tenant will be occupying the home. This is likely to change your coverage, since you'll want to be protected from injuries they may receive on the property as well as legal disputes from serving as a landlord. (They should also be advised to get renter’s insurance.)
If you're too busy with other projects or you feel that being a landlord is too much to handle, you can always hire the services of a property manager to take care of the dirty work for you. But take care to make sure the manager is a good one. If he or she is involved in a crime on your property or if they steal from the tenants, your renters could take you to court.
In addition, remember to pause before renting to people you know. Countless friendships have been lost because of missed rent payments or misunderstandings over repairs or lease agreements.