According to RealtyTrac, a housing data and analytics company, U.S. homeownership rates are still at their lowest level in 20 years. Combine this fact with relatively low home prices in many parts of the nation, and investors will find numerous opportunities to profit while buying and renting single-family properties. You might even be thinking about joining them and becoming a landlord yourself. However, consider these must-dos before you make the leap.
1. Research your rental rate carefully.
Unless you bought the property with cash, you probably have a mortgage payment. However, you shouldn’t just set the rent at that amount. You’ll need to factor in homeowners association fees, property taxes and the cost of upkeep as well. Then take a look at what similar properties are renting for in your area. If you want to find a tenant, your asking rent must be comparable.
2. Write a comprehensive lease.
Constructing a good lease takes time, so put one together before you start advertising for tenants. While you can find hundreds of templates online, you’ll need to make sure that your final document complies with the laws in your city, county and state. Details required within the lease include the term, security and pet deposit, due date for rent, penalties for late payment, pet and visitor policies, routine upkeep and maintenance responsibilities, rules of behavior, rental renewal and property damage terms, inspection and showing policies, and actions that can lead to eviction.
3. Thoroughly evaluate rental applicants.
There are many ways to find potential tenants, from on-site “For Rent” signs to free Craigslist ads and paid listings on real estate rental websites. While you may want to get someone into the property quickly—you can’t start making money until someone is paying rent, after all—don’t cut corners when evaluating your applicants. You should require everyone to fill out a rental application that includes his or her current employer, monthly/annual income, and previous landlords and references.
You’ll need written permission to run a background check including criminal history and credit report. Many pros suggest using a vendor for this portion of the screening process, and you’ll find many—at various prices—online. You can verify employment and speak with previous landlords on your own or outsource that as well.
4. Take care of insurance.
Talk to your insurance agent about rental property insurance. In addition to covering the structure itself, rental property insurance policies cover personal liability and medical expenses as well as loss of rental income in the event of a property-damaging event. If you plan to leave personal belongs in the property (say, you’re renting it out furnished or storing things in the basement), you’ll need additional coverage.
You should encourage your tenants to purchase renters insurance of their own as well. Your insurance policies do not cover their belongings, and renters are less likely to file lawsuits against landlords in the event of break-ins, fires and other disasters if they have their own insurance to fall back on.
5. Determine how you will handle property management.
Prepping a property for rental, screening tenants, collecting rent and dealing with lease violations can be frustrating and time consuming. If you’re not comfortable tackling these tasks yourself, you might want to consider hiring a management company. You’ll have to pay fees for their service (such as one month’s rent for filling the vacancy and a percentage of the monthly rent for ongoing management), but your time just might be worth it.
Whether you think becoming a landlord is the right choice for you or have decided you’d prefer to sell your home outright, we’re here to help. Give us a call or send us an email any time to discuss your situation.
