Do you ever find yourself thinking €Should I become a landlord?€ After all, you've been looking at a very interesting housing market over the last few years, and in most areas real estate prices are either going down or holding steady. And as far as mortgage rates go, well, let's just say this is the best time to find the best deal you're likely to find in your lifetime. So, what's to stop you? All you have to do is buy a house at a good price, rent it out, and let your tenants make you rich, right?
Well, it's not quite that easy. Basically there are two types of landlord; the first type makes money from their property, holds it throughout their career and sells it for a tidy profit when the time is right. The second type finds themselves trapped in a nightmare of pain, stress and expense. Obviously you want to be the first type of landlord, so, before diving headfirst into the landlord realm of properties and tenants check out this list and make sure you understand what it's going to take.
€ Understand that you are running a business: Do things in a business-like way. Do your research, create a budget (include recurring and one-time expenses), and have a plan for marketing your property to renters. Understand that there are costs here as well; classified ads, for example are not free, and you may need to lose a few hours from work to show the property. In short you need to approach this decision and purchase not as you might when buying a house for your family but as a business owner making a large investment. Act and think accordingly.
€ Do your math: Calculate the mortgage payment you'll pay on the property (expense) vs. the rent you stand to earn (income). On the expense side you'll want to factor in scheduled maintenance and repairs that are generally required to keep a house in tip-top shape, and have funds available in the event of possible emergency repairs.
€ Do your homework €" part 1: Before becoming a landlord make sure you do a thorough job of researching what your state and local governments will require you to do as a landlord. For example, are there improvements or upgrades that you will be required to perform to adapt the property to fit safety regulations? Will you need to install hardwired smoke alarms or a fire escape? Is there asbestos or lead paint on the property that you will have to deal with? Factor this into your projected budget.
€ Do your homework €" part 2: Research the part of town you are thinking of purchasing property in. Find out the number of rental vacancies currently in that area, and if there are a lot it could signal that the neighborhood is not a place people wish to live. Take the time to research the crime rates in that part of town. Also, access to good jobs, public transport, city parks and good schools may all be factors you should consider, depending on your area. If you're working with a good real estate agent, they will be able to help you find this information.
€ Plan your cash flow €" part 1: Make sure you have enough cash on hand to cover vacancies. Ideally, of course, you'll want your place rented and providing cash flow. But there will be downtimes, such as during renovation or while you are searching for the right tenant when you'll be covering the expenses without the income from a renter. Be prepared.
€ Plan your cash flow €" part 2: Be prepared for emergencies. Be realistic and keep in mind bad things happen; sinks clog, furnaces and air conditioners fail, toilets overflow, mice and bugs move in, walls get punched through€¦the list of minor disasters is pretty much endless. Establish a fund which is devoted strictly to cash-on-hand earmarked to cover both unplanned vacancies and emergency repairs. It will help alleviate the stress of wondering where you'll find the money when an emergency arises. A prepared landlord is a successful landlord.
€ Learn to do basic repairs OR find a good management company: You'll get lots of practice painting, performing light carpentry, minor maintenance, and simple plumbing and so on. You will need to find a reliable plumber and furnace repairman for more complex repairs, and a good electrician will be a great help too. If this seems beyond you, consider using a management company. Carefully calculate their costs in your budget.
€ Research your prospective tenants as carefully as you can: Get references, and take the time to check these references thoroughly. A careful and systematic reference check before you rent can save you from massive problems, headaches and financial hardships after you rent.
€ Treat your tenants like your customers: Good tenants are hard to find, so give them good customer service. At the same time, remember to keep it businesslike. Make sure that you get the rent on time, every time. You may hear a lot of sad stories, but remember, you are in business, and you need to get paid. Make sure that you keep an eye on your property so you can nip small problems in the bud before they become big problems.
This list is just a start, and there's a lot of great advice out there for you. The best tip of all is never stop learning. A professional real estate agent can help with any questions you may have on exactly how the housing market and mortgage rates are in your area. No matter how difficult or confusing it may seem, do your homework, make wise choices, find a professional realtor who has the expertise to help you through this process, and GOOD LUCK!
Well, it's not quite that easy. Basically there are two types of landlord; the first type makes money from their property, holds it throughout their career and sells it for a tidy profit when the time is right. The second type finds themselves trapped in a nightmare of pain, stress and expense. Obviously you want to be the first type of landlord, so, before diving headfirst into the landlord realm of properties and tenants check out this list and make sure you understand what it's going to take.
€ Understand that you are running a business: Do things in a business-like way. Do your research, create a budget (include recurring and one-time expenses), and have a plan for marketing your property to renters. Understand that there are costs here as well; classified ads, for example are not free, and you may need to lose a few hours from work to show the property. In short you need to approach this decision and purchase not as you might when buying a house for your family but as a business owner making a large investment. Act and think accordingly.
€ Do your math: Calculate the mortgage payment you'll pay on the property (expense) vs. the rent you stand to earn (income). On the expense side you'll want to factor in scheduled maintenance and repairs that are generally required to keep a house in tip-top shape, and have funds available in the event of possible emergency repairs.
€ Do your homework €" part 1: Before becoming a landlord make sure you do a thorough job of researching what your state and local governments will require you to do as a landlord. For example, are there improvements or upgrades that you will be required to perform to adapt the property to fit safety regulations? Will you need to install hardwired smoke alarms or a fire escape? Is there asbestos or lead paint on the property that you will have to deal with? Factor this into your projected budget.
€ Do your homework €" part 2: Research the part of town you are thinking of purchasing property in. Find out the number of rental vacancies currently in that area, and if there are a lot it could signal that the neighborhood is not a place people wish to live. Take the time to research the crime rates in that part of town. Also, access to good jobs, public transport, city parks and good schools may all be factors you should consider, depending on your area. If you're working with a good real estate agent, they will be able to help you find this information.
€ Plan your cash flow €" part 1: Make sure you have enough cash on hand to cover vacancies. Ideally, of course, you'll want your place rented and providing cash flow. But there will be downtimes, such as during renovation or while you are searching for the right tenant when you'll be covering the expenses without the income from a renter. Be prepared.
€ Plan your cash flow €" part 2: Be prepared for emergencies. Be realistic and keep in mind bad things happen; sinks clog, furnaces and air conditioners fail, toilets overflow, mice and bugs move in, walls get punched through€¦the list of minor disasters is pretty much endless. Establish a fund which is devoted strictly to cash-on-hand earmarked to cover both unplanned vacancies and emergency repairs. It will help alleviate the stress of wondering where you'll find the money when an emergency arises. A prepared landlord is a successful landlord.
€ Learn to do basic repairs OR find a good management company: You'll get lots of practice painting, performing light carpentry, minor maintenance, and simple plumbing and so on. You will need to find a reliable plumber and furnace repairman for more complex repairs, and a good electrician will be a great help too. If this seems beyond you, consider using a management company. Carefully calculate their costs in your budget.
€ Research your prospective tenants as carefully as you can: Get references, and take the time to check these references thoroughly. A careful and systematic reference check before you rent can save you from massive problems, headaches and financial hardships after you rent.
€ Treat your tenants like your customers: Good tenants are hard to find, so give them good customer service. At the same time, remember to keep it businesslike. Make sure that you get the rent on time, every time. You may hear a lot of sad stories, but remember, you are in business, and you need to get paid. Make sure that you keep an eye on your property so you can nip small problems in the bud before they become big problems.
This list is just a start, and there's a lot of great advice out there for you. The best tip of all is never stop learning. A professional real estate agent can help with any questions you may have on exactly how the housing market and mortgage rates are in your area. No matter how difficult or confusing it may seem, do your homework, make wise choices, find a professional realtor who has the expertise to help you through this process, and GOOD LUCK!
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