Investing in real estate can generate income, potential appreciation in property value over the long term, and tax benefits that help to keep income taxes low.
But just like anything else, investing in real estate can be difficult when you are first starting out. That’s why we’ve put together this list of 18 landlord tips to help first-time landlords.
1. Have an Investment Strategy
Before investing a single dollar in real estate, it’s important to understand why you are investing and what your goals are. Do you plan on buying and holding to generate rental income, or are you willing to take more risk by fixing and flipping in the hope of generating a big gain in a short period of time?
2. Treat Your Rental Property as a Business
Buying a single-family rental property can be one of the easiest investments to make, in part because there are a wide variety of options for financing a house.
Although rental homes are often easy to find and buy, you’ll still need to treat your rental property investment as a business. Doing your homework before you invest, setting up an LLC, and paying taxes are all part of the real estate investing business.
3. Accurately Track Income and Expenses
Income tax law in the U.S. is friendly to real estate investors. Rental property owners can deduct normal operating and business expenses from income the property generates, and use non-cash deductions like depreciation expense to help reduce the amount of taxable net income.
To claim every deduction you’re legally entitled to, consider signing up for a free Stessa account, which may help you to maximize profits through smart money management by automatically tracking income and expenses. You can run informative monthly reports, such as income and cash flow statements, and export tax-ready financials to make tax time a breeze.
4. Understand Fair Market Rent
Fair market rent is the rent that a property in a specific market should rent for at a specific time. Factors that affect how much rent a landlord can charge include the demand for rental property and competition from similar property in the immediate area.
Setting the rent too high can lead to extended periods of vacancy while charging a rent that is too low can reduce cash flow. Two good tools to use to understand the fair market rent for a property are the Rentometer and the Roofstock Cloudhouse Rental Calculator.
5. Make Your Rental Property Pet Friendly
Welcoming pets is good business, according to The Humane Society. That’s because over 70% of renters have pets. Yet, despite the demand for pet-friendly rentals, many good tenants have trouble finding a pet-friendly home. In addition to reaching a wider qualified pool of potential tenants, rental property owners can generate additional income by charging a pet fee and monthly pet rent.
6. List Vacant Property For Rent Online
Online tools are the No. 1 way renters shop for a new home. In fact, research from Zillow reveals that about 90% of the two largest renter demographics – Millennials and Generation Z – use online resources to shop for a rental.
Today, reaching millions of qualified applicants is quicker and easier than ever before. Online rental listing websites such as Avail, Homes.com, Rent.com, and Trulia are free for landlords to use to market vacant single-family homes, multifamily units, condos, and townhomes.
7. Screen Tenants Online
Some of the top online tenant screening services are also free for landlords to use. The websites make their money by charging applicants a small one-time fee to fill out a rental application.
Applications are usually processed in just a few minutes, then a complete screening package including a credit report, background check, and rental history report is sent to the landlord.
Screening tenants online is a good way to ensure that every applicant is thoroughly vetted and to help avoid violating fair housing laws. Three of the top services for screening tenants online are RentPrep, SmartMove, and TurboTenant.
8. Charge a Security Deposit
Collecting a refundable security deposit from a tenant can help ensure the tenant takes good care of your property so that the deposit is returned when the tenant leaves. A security deposit can also protect a landlord if a tenant causes damage to the property beyond normal wear and tear.
State landlord-tenant laws limit how much of a security deposit a landlord can collect. Consult with your local property manager or real estate attorney, or visit the legal resource website Nolo.com to review a chart of security deposit limits for each state.
9. Use a Written Lease Agreement
Although verbal lease agreements are legal in some states, they can be incredibly difficult to enforce if there is a disagreement or a dispute. Using a written lease agreement can make it much easier for a landlord and tenant to understand their responsibilities and rights.
A good lease agreement should include the landlord and tenant name, property address, monthly rent and security deposit, due date of rent, and general terms and conditions for renting the property.
10. Organize and Store Documents in the Cloud
Owning and managing a rental property can generate a tremendous amount of important paperwork to keep track of.
Property inspection reports and appraisals, real estate closing statements, loan documents, lease agreements, paid invoices for repairs, and notices sent to a tenant are just a few of the many documents a real estate investor needs to maintain.
Using Stessa to securely store all of your real estate documents in the cloud makes it easy to stay organized and find paperwork and reports whenever you need them.
11. Ask the Tenant to Obtain Renters Insurance
Renters insurance is coverage that the tenant takes out. A renters insurance policy protects the tenant’s belongings, pays for living expenses if the property is temporarily uninhabitable (for example, due to major storm damage), and provides liability protection in case a tenant’s guest sues the tenant for injury or damages. Many landlords require a tenant to obtain renters insurance when the state landlord-tenant laws allow.
12. Collect Rent Online
The faster you collect rent from the tenant each month, the sooner you can pay the property operating expenses and the monthly mortgage. Benefits of accepting tenant rent payments online include receiving the rent sooner, allowing the tenant to schedule an automatic rent payment each month, and making rent payments safer compared to paper checks sent in the mail.
13. Follow the State Landlord-Tenant Laws
All states and many cities have landlord-tenant laws that both property owners and renters must follow.
Landlord-tenant laws serve as a type of code of conduct between landlords and tenants, and cover items such as maximum security deposit and what the deposit can be used for, late fees for past due rent, how much notice to give the tenant before entering the property, and the process for evicting a tenant.
The legal resource website Nolo.com publishes a list of state landlord-tenant laws to help understand what your rights as a landlord are, along with the tenant’s rights.
14. Conduct Routine Maintenance
Landlords are required to keep the rental property in habitable condition. One of the best ways to catch small issues (such as a leak under the sink) before they grow into major problems is by conducting routine maintenance.
Doing preventive maintenance on the heating and cooling systems twice a year, and cleaning the gutters each fall and spring, are two of the items to include on every rental property maintenance checklist.
15. Schedule Regular Property Inspections
Many landlords and property managers conduct routine inspections of the property inside and out several times a year. Be sure to provide the legal amount of notice required before entering the property. Then, inspect the property for any items that may need to be repaired or replaced, and also look for excessive damage being caused by the tenant.
16. Keep the Property Safe for Tenants
Crime can happen in any neighborhood. To help prevent criminals from targeting your rental property, have your property manager periodically check that the outside lighting is working and that the landscaping is well maintained.
Each time a new tenant moves in, rekey the door locks, recode the garage door opener, and make sure that all windows have security locks. Some landlords install smart locks and security systems for the tenant to use, in exchange for a slight increase in the monthly rent.
17. Maintain Open Channels of Communication
When tenants feel neglected they’re more likely to look for a different place to rent once the lease comes to an end. Make it easy for the tenant to stay in touch by phone, text message, or email. By maintaining open channels of communication, you can help increase the odds that your tenant will renew their lease each year, even with an annual rent increase.
18. Hire a Local Property Manager
Property managers handle the day-to-day details that come with owning a rental property. A good management company collects the rent and charges a late fee when necessary, deals with tenant issues, ensures that repairs are made promptly and that the property is well maintained, and enforces the terms and conditions of the lease agreement.
Although property managers generally charge a fee of between 8% and 12% of the monthly rent collected, experienced real estate investors view the property management fee as an investment and not an expense.