Practical Tips For First-Time Landlords
Rental properties can be an outstanding source of income. However, in order to be successful as a first-time landlord, you must constantly learn and adapt. For landlords who are just starting out, I’ve compiled some of my best tips to help avoid common pitfalls.
1. Never Cut Corners On Documentation
Documentation is a critical part of being a successful landlord. If you are new to rental management, you will need to spend some time collecting important documents and forms. Some of the most important forms you will need include:
• Condition reports
• State-specific leases
• Locally required disclosures (e.g., lead, radon, mold, occupancy limits)
• Rental applications
Most of your paperwork you can migrate online, such as rental applications and agreements. However, the important part is to ensure you have a copy of every important document.
Never give away your only copy of a document, or ask a tenant to complete something and just hope you get it back. Make copies of every document or save them electronically so you never wind up in court empty-handed.
2. Become Efficient
One of the biggest mistakes new landlords make is wasting time on tasks that could be made more efficient. In order to not wear yourself out, it is imperative that you streamline your processes.
For example, rather than showing a high-demand property a dozen times in one week, set up an open house for showings. This will allow you to filter through more interested parties with less of your own time invested.
Wasting time equals wasting money and will cut into your ability to make a profit off your rentals. Keep in mind that you should create a system that will scale with you as you invest in more properties.
3. Know Fair Housing Laws
Perhaps the costliest mistake you can make as a new landlord is to not research Fair Housing Laws both federally and locally. These laws prohibit discrimination against protected classes in regards to housing. Protected classes vary by state and city, however, there are some federally protected classes.
A prime example of this is when landlords decide they are “above the law” regarding policies regulating service and assistance animals. In 2014, two landlords and their management agent in Washington decided they would not abide by Fair Housing Laws and refused to waive a $1,000 pet fee to a tenant with an emotional assistance animal. Subsequently, they had to pay $25,000 to resolve the case.
Take the time to learn the laws surrounding the business of rentals and consult with an attorney who specializes in landlord-tenant laws. Keep in mind that just because you’ve written something into your lease, it doesn’t mean it’s a legal agreement or that it will hold up in court. Courts have the power to invalidate leases that violate federal, state or local laws and regulations.
4. Make Sure to Screen Your Renters
As a landlord, one of your top goals will be to find a responsible tenant. Evictions are time-consuming and costly, and late rent can quickly derail your profits. The best way to find a qualified tenant is to screen potential renters.
Your screening process should begin with a rental application and a quick conversation with interested renters. Get a feel for who they are by asking some simple questions about their income, their employment and why they are moving. Be sure your rental application also asks for past/current landlord references, employment references, and personal references.
Not only should you screen tenants through your own questioning and via references, you should also run a criminal background check, a credit report, and an eviction history.
By looking into each of these reports, you can gain a better idea of how responsible a potential renter has been in the past. Keep in mind that you should always have your criteria set before you begin screening tenants to avoid accusations of discrimination. For example, to reduce possible fair housing complaints, decide what your minimum credit score will be prior to running credit checks, and use the same criteria for every applicant.
5. You’re Never Too Young Or Old (Start Now)
Becoming a landlord doesn’t need to coincide with any specific timeline of your life. I purchased my first rental property at 19 and, by renting out rooms while living there, I was able to pay for the property and my own living costs during college. After this, I purchased another property, which I revamped with my own sweat equity. By continuing to put my own hard work into each property, I created a cycle of investments that fueled each other.
This common method for initial rental investments is to “house-hack” — or live in part of the residence. This can be done by purchasing a duplex, a home with a basement apartment, a property with a garage apartment or even by renting out extra rooms.
Alternatively, you could also start out by purchasing properties that need work and using your own muscle power to add value that previously didn’t exist. Even small improvements, such as repainting or adding new fixtures, can make a huge difference in the rentability and profitability of your property.
The takeaway is to invest as soon as you can. Don’t wait to reach a magical time in your life. If you feel overwhelmed by everything it takes to become a landlord, find a mentor who can help. Most cities have local landlord associations that you can join or Meetup groups focused on investing in rental properties.
For first-time landlords, there will always be a few hiccups in the road. Don’t be discouraged, and remember: treat your rentals as a business, not a hobby.
Source: forbes.com
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