Becoming a landlord can provide you with a steady stream of passive income, but it’s going to take time and hard work to be successful. Investing money in a property won’t have the results you’re looking for if you aren’t a good landlord. This means repairing and maintaining your property, finding trustworthy tenants, and handling any complaints or issues that arise along the way—or hiring someone to handle all of this for you.
These important commitments and responsibilities can be well worth: Investing in real estate definitely has the potential to pay off. Around 36% of American households are headed by renters, the highest this number has been since 1965. Rental rates across the nation continue to rise as high as 10-15% in some areas. It’s a good time to join the real estate investment club, but there are still key steps you should take to protect your investment. Before you dive in to the world of landlording, set yourself up for success with these tips.
5 Basic Tips to Succeed as a New Landlord
1. Take the time to find trustworthy tenants.
Properly screening your tenants cannot be stressed enough. Since these are the people who will be living in and taking care of your property, ensuring you’re renting to responsible tenants is crucial to the success and long-term protection of your investment. You’ll need to look for more than a friendly face and a complete application. Take the time and spend the money to complete a full screening process on potential renters, including a criminal background check, credit report, and employment and rental history. A tenant’s unwillingness to complete a background check, a history of eviction, or a history of late payments can all be possible red flags.
Make sure to follow the Fair Credit Reporting Act concerning any applicants you turn down based on something in their credit history. Always adhere to a written tenant screening criteria policy to ensure that your process is fair and straightforward for all applicants, and also to ensure that you don’t forget any crucial steps in the process.
The eviction process is extremely time-consuming and costly, so take the steps to do proper research before renting out your investment property and save yourself the stress.
Related: 5 Habits You Didn’t Know Were Essential for Landlording
2. Understand the rental laws in your area.
It is absolutely imperative for landlords to know and understand federal and local housing and rental laws, and to stay informed of any changes to the laws as they occur. At the bare minimum, new landlords should be familiar with the Federal Fair Housing Act and habitability laws before beginning to accept rental applications. The Fair Housing Act is a set of laws associated with anti-discrimination for renters that has different implications at the federal, state, and local levels. City and state housing laws are more likely to set the standard for tenant rights, landlord responsibilities, and specifics of the rental lease.
If legal language seems intimidating to you, local landlord associations can help you to understand the important laws and how to follow them in your rental business. You may also consider hiring a property manager to help you navigate and follow housing laws. Either way, the legal process is not a forgiving one, so it is vital to adhere to the proper landlord laws to avoid liability and significant fines. Putting yourself at risk is not worth it, and understanding rental laws should be every new landlord’s top priority.
3. Schedule regular property inspections.
Successful landlords take a proactive approach to maintenance so that issues are discovered before they become a bigger problem—or even before your tenant reports a problem. Unfortunately, even the best tenants will never be as invested in the longevity of your property as you are, and most tenants have never been homeowners themselves. Be sure to schedule move-in and move-out inspections when you are experiencing tenant turnover, and make immediate note of any new damages or issues that need to be addressed.
One of the top reasons people are hesitant to get into the business of landlording is due to the (often unexpected) expenses that result from either regular wear and tear or serious tenant damage. Always address maintenance issues in a timely manner to avoid a bigger problem down the road. Create a safety checklist for yourself to ensure that all areas of the property are well-maintained – especially areas that tenants may not regularly pay attention to. Plan to complete seasonal inspections if you live in an area that requires different maintenance for different seasons. Clearly spell out in the lease agreement which maintenance tasks are the landlord’s responsibility and which are the responsibility of the tenant, such as sprinklers, changing air filters, or maintaining any laundry equipment.
4. Don’t be afraid to follow through on penalty fees.
Clearly spell out any late fees or other charges from the beginning of the lease term. If your tenant slips up, be sure to follow through on the penalties that you explained. Ensuring that your tenants understand that these policies are strict means they will be less likely to make the same mistake in the future. Plus, the extra income will help you compensate for not receiving rent on time or contribute towards an emergency maintenance fund.
While it may be okay to accept a rare late payment for verifiable exceptional hardships or extenuating circumstances – if you are financially able – new landlords who allow tenants to regularly pay rent or other fees late will not see a return on their investment in the near future. A tenant who regularly pays rent late is probably not a tenant you want to rent your property, anyway.
On the opposite end of the spectrum, it may be a good idea to reward regularly on-time or advanced rent payments with small tokens of appreciation such as gift cards, movie tickets, or anything else your tenants will find useful.
5. Protect yourself.
Renting out a property you own is different than living in your own home, and therefore your homeowners insurance may not cover your tenants. Verify that your insurance will extend to cover landlord specific situations before you move in any tenants. Make sure you have the appropriate amount of rental insurance, property liability insurance, and any other type of insurance required based on your local rental laws. Ending up without coverage for an accident because you didn’t do your due diligence is never a good spot in which to end up.
It’s always a good idea to strongly encourage (or even require) that your tenants secure their own renters insurance. The cost is minimal, and the benefits protect not only their possessions but also any damage caused by negligence, which will also be a benefit to you in certain cases.
Let’s face it: As a new landlord, you’re probably going to make a few mistakes along the way. Ensuring that you have a full arsenal of knowledge and have done your research ahead of time will set you up for success and protect both your tenants and your investment. With a well-constructed plan in place, an understanding of rental laws, and a readiness to address issues as they arise, you’re putting yourself in a good position to be successful as a new landlord.
Landlords: What would you add to this list?