Thinking of renting out a room in your house or your first-home? Congratulations! You will soon be a first-time landlord. Becoming a landlord has its own set of pros and cons. Most of the time you would have tenants paying their rent on time and when combined with tax benefits, you can have a significant source of alternative stable income. But you need to prepare yourself in advance, to deal with situations like taking care of minor maintenance requests to evictions in the case of tenants not abiding by the rental agreement.
Check out this list of fourteen tips for becoming successful first-time landlord:
1. Be familiar with housing laws:
As compared to buying, there’s a lot more that goes into renting a property and finding the perfect tenant to live in it. You have multiple laws concerning tenant evictions, rental prices and the like, which you need to know well. You also need to be familiar with the federal, state, and local housing laws before renting out your home.
For any licenses and inspections required on your property, check with the staff at your city’s housing department. It’s equally important to learn the landlord-tenant laws as they vary from state to state. Last but not least, get hold of a lawyer specializing in housing laws to help you better understand them.
2. Select a property that attracts potential tenants
“A property ceases to have value if it doesn’t bring in cash monthly. Choose a property that guarantees it”, opines senior real estate analyst and investor, Matt Frankel. At the same time, consider revenue losses due to maintenance costs and vacancies that may use up 15 to 20 percent of the income you expect to earn from rent.
Technically, a rental property with highest value is mostly located in a popular neighborhood, and it has plenty of amenities, and preferably a parking space or two. Also, if data reveals a high and consistent price appreciation rate and rent-to-price ratio, you have everything you need to form a beeline of prospective tenants.
3. Look for tenants online
Looking for a rental room, just as much as anything else, is now an online business. Likewise, landlords should look for potential tenants with an online post. Knowing your audience and their preferences help, so remember to include helpful information such as the address of the property, parking space availability, number of bedrooms and bathrooms, whether pets are allowed, and so on.
Several websites and apps, such as Cirtru are available to list your rental property online. If you read all these Cirtru reviews, you would know that it is the most trusted tenant finder in the USA.
Also, property features won’t help unless tenants can see what they might be living in. So, it’s equally important to put up good-quality pictures of the rental, rooms and shared spaces, to make it easier for tenants to find what they’re looking for.
4. Decide the right rental price
Before deciding on the rental price, it might be a good idea to check the rates in the neighborhoods, especially of popular cities like San Francisco, NYC, Los Angeles, San Diego, to make sure that what you charge is consistent with the market rates. What you charge will determine the number of potential tenants who show interest in your rental and stay longer. Staying longer means fewer or no vacancies and a steady income source for an extended period.
Something else that helps set a rental price, is comparing your rental income with your rental costs, both fixed and variable. Needless to say, your income must exceed your expenses. Fixed costs comprise property taxes, mortgage payments, HOA fees, and insurance fees, while variable costs include repairs, property payments, and utilities.
Do you want to charge a late fee if a tenant delays paying rent? If you do, don’t charge an excessive amount. Also, check your state laws to ensure that what you’re charging is legal. How about utilities? Think about whether you want to add them to the rent or have tenants pay it separately.
5. Charge a security deposit
With conditions applied, a refundable security deposit is a landlord’s way of ensuring that the clauses in the lease agreement are followed by the tenant, especially if they concern rent payment, keeping the rental clean, and ensuring that it’s damage-free.
In cases where any or all three conditions aren’t met, you have the right to deduct the expenses from the tenant’s security deposit. As with all laws, security deposit laws differ state-wise, so you need to know them well.
6. Screen your tenants thoroughly
Make sure your tenant screening process includes filling the rental application form that provides information such as a tenant’s rental and credit history, income and employment history, and references from previous landlords. Do a thorough check on all the relevant information and decide on the potentiality of a tenant only when they have a steady income, funds to pay the monthly rent, an excellent credit score, paid rent on time, and maintain law and order.
While you’re more than welcome to reject an applicant because of a low credit score or because they have a questionable rental history, the Fair Housing Act laws prevent you from dismissing anyone based on sex, race, age, or religion.
7. Ensure you have a rental agreement
A rental agreement contains all the expectations, responsibilities, and rights concerning a landlord and a tenant and what happens if they’re violated. Both parties must follow them. In case of a dispute, a written contract will hold up in a court of law instead of a verbal one. While you’re putting together the lease agreement, decide what you feel comfortable allowing on your property and what you wish to prohibit. Some instances you can consider are:
- Whether you’re okay with tenants putting up wall hangings or painting walls
- Whether pets are allowed and any restrictions on breeds
- Whether you can have guests at any point and for how long
- How long after the tenant has left will you return the security deposit?
- How much is the late fee if the tenant is behind on their rent payment?
In the end, make sure that everything you add to the clause complies with state laws.
8. Have a rent-receiving process
While rent payments may be made by cash or check, the easiest, quickest, and most secure option is to pay online. Online payments also offer you the benefit of setting up automatic payments on a specific date monthly and not getting worked up about whether they’ll reach you on time.
Apps have the option of scheduling automatic payments to help you keep track of the withdrawal of funds from the tenant’s account and its subsequent debit into yours.
9. Get the right insurance coverage
For a successful landlord, it’s important to decide whether you’d like to opt for homeowner’s insurance or landlord’s insurance for the safety of your property since both don’t cover the same things. Whether you are renting out a room in your house that you don't live in or the entire house itself is for rent, you should definitely opt for landlord insurance. It safeguards your rental against damage caused by natural calamities, vandalism, theft, or tenants.
It also covers legal and medical expenses in case tenants or their guests are injured on the property. Finally, it covers income loss due to rent if tenants move out because the property’s damaged.
10. Prompt tenants to get renters’ insurance
Renters’ insurance is beneficial for both the landlord and the tenant. As far as the tenant’s concerned, it helps safeguard their items if they’re destroyed in specific situations. And what do landlords gain, you might ask?
Renters’ insurance provides liability coverage, so if a tenant or their guest has an accident or gets hurt, the insurance will take care of it. In its absence, the tenant has the right to sue the landlord, which they can avoid altogether by encouraging tenants to acquire insurance.
11. Capture photos before and after renting
It’s a good idea to take photos of the property before the tenant moves in and after they move out to determine its changes, if any. Strictly speaking, there may not be a problem when the extent of wear and tear is minimal. But if there are carpet stains that won’t come off, or there are multiple holes in the rental walls, the expenses need to be borne by the tenant.
So, gather enough pictorial evidence in your support in case the tenant refuses to own up for the property damage.
12. Conduct regular inspections
As a landlord, you should conduct periodic inspections on your property to check its condition. It’s also necessary to reach out to your tenants to inquire if anything needs to be fixed. Let them know that you’re there for them if any problems arise. Though you get to decide how often you want to inspect your property, ensure that the visits aren’t few and far between.
You wouldn’t want the tenant to assume you’ve abandoned them. The more you visit, the more comfortable a tenant feels in sharing issues with the rental that they may have otherwise brushed under the carpet because they believed that you weren’t interested enough to show up.
13. Be careful about pets
Think carefully about whether you wish to allow pets on your property or whether you’d prefer a no-pets policy. While pets are endearing, if they’re not well-trained, they end up destroying carpets, floors, and walls, which you need to fix after the tenant leaves. If you think you might attract more potential tenants with a pet policy, have one by all means. But remember to add a clause in your lease agreement that restricts the number and type of pets allowed.
If you want to be extra cautious, include a pet deposit and/or a monthly pet rental, although sometimes the extent of the damage might not be mitigated by the deposits you charge from your tenant.
14. Plan for early lease breaks
Regardless of the lease duration mentioned in the rental agreement, there might be times when tenants would want to break the lease and vacate early to deal with a life situation. Many landlords foresee such issues and prepare for them by including an early termination clause in the lease agreement.
Eric Hughes, a consultant, believes that landlords can do one of two things to handle the problem. Either they can allow the tenant to pay rent for two months and move out, or they can continue paying rent till landlords find a replacement tenant, whichever works for the tenant.
Conclusion
Take one step at a time. As a first-time landlord, you need to give yourself time to learn and apply the knowledge gained by taking small but important steps. Along the way, you must be prepared to handle issues that come with the job. These experiences, both good and bad, will prepare you to safeguard your interests while also being the ideal landlord that tenants would love to have.
