Events can happen quicker than you think that will turn an ordinary homeowner into a landlord. Sometimes a job may force you to move, but you don’t want to sell your home, you may have come into an inheritance, got married or bought a new home before selling your old one.
Many people without homes might dream of having an extra one, but you should know that owning a rental property can have issues attached. Before you take it on you should ask yourself a couple questions.
· How will strangers living in your home make you feel?
· Will hanging on to the property really be worth it?
· Do you really have both the time and the temperament to successfully rent the home and avoid bad tenants?
How you answer these questions may depend on the property. Is it located in a good neighborhood, in good repair and it the mortgage either cheap paid off? If you are too far away from any of these items, you may want to consider selling. You may have several good reasons for holding on to the home and renting it, but you need to treat it like a business or it will fail.
So do you think that you can do it?
The first thing that you need to ask yourself is do you have the right personality to be a landlord. Some of your responsibilities as a landlord include the business aspects and the following.
If you don’t think that you can do these tasks you may need a property management company. If you live out of the area you should absolutely have a property manager.
· Screen and select tenants, plus evict them if necessary within the law.
· Maintain the property in a safe and functional condition including plumbing, appliances and outdoor areas. There will inevitably be things that break and need fixing.
· Figure out what you total costs will be for the property which includes the mortgage, maintenance, repairs, services, taxes, legal fees and utilities.
· Calculate a rent based on comparable rentals in the area by checking newspaper ads, classifieds and online advertising portals like Craigslist.
· Check your expected rent against your expected costs and take into account any reasons you have for hanging on to a property that does not turn a profit immediately such as adding value to your estate, or incurring a worse loss by selling now.
Screening your applicants
This may be one of the difficult areas for landlords as most think they should trust their gut which is not a good method for screening because your gut is not a fair measuring stick and using it is illegal.
The rental market is not a business to be in, if you are relying on your own personal character assessment for screening. Applicants may appear excellent and following a credit and background check will have surprising issues come to light.
There are many sources on the internet that will provide you data on applicants with credit and background searches, but you since it is an industry that is not regulated the results are not always good. If you are a landlord with a property or two you can get good results by using an application that has been approved by a fair housing attorney and checking every bit of information and reference.
The information you should be looking for from an application is the applicant’s complete identity, credit information, rental history and disclosure if you are going to perform a credit check with the applicant’s signature.
A couple additional tips include check with landlords at least two addresses back to make sure the current one is not giving a good recommendation to get rid of bad tenants, match the name of the landlord up with the ownership records of the assessor’s office to make sure they are not having a friend pose and read up online about how to screen tenants.
The legal side of renting
Different states have different landlord-tenant laws with some states leaning towards tenants and some towards the landlords. There are also federal laws that affect renting and in some cases there are community laws.
· To cover some of the basics, you are required as a landlord to treat everyone equally. You should have objective written measures for accepting or rejecting applicants and uniformly apply them. Have policies for credit, what things you will overlook and which ones you will not.
· Disclose to the applicant what information you relied on if you decline them and how you learned of the information. Make sure to be transparent in your reasoning.
· Keep historical records of applications in order to demonstrate that you have fairly applied your policies over time and if you do later throw away any information, make sure to shred it to avoid personal data falling into the wrong hands.
· You may also be required to pay any earned interest on security deposits based on your state law and if you ever feel that you may be into something over your head it is important to get good legal advice.
On issues of maintenance
Even if you are handy and can fix most issues on your own there will be a time when you need the help of a professional because of a issue you can’t solve or you may be on vacation. You need to establish good relationships with service technicians you can trust and find a carpenter, plumber and electrician who are willing to move quickly. Be nice to them because you will likely need them someday.
Just to touch on the topic of raising the rent. A good rule of thumb is to put about three months of the money you have raised the rent by back into the home so the renter sees a benefit to the increased rental payment.
Hiring property managers for peace of mind
If you should decide the responsibilities of being a landlord are too much and look into property management, you should expect to pay between 8% and 10% of the monthly rent. When repairs are needed you want a management company that will only bill for the amount of the actual repair costs.
A few good questions to start with for a management company are:
· Can you provide me with any references?
· Is your company bonded?
· Can you arrange for maintenance 24 hours a day in emergencies?
· Can you give me a list of the services which you provide?
· Do you segregate client’s funds in individual accounts?
What to do about the money
As with any other business your personal assets should be kept separate. Most people will like to be able to see where their business stands financially at a moment’s notice so software like Quicken can assist you.
Keep track of your expenses as you can deduct service fees, supplies, travel related, taxes, interest and any other rental related expenses.
· When you are required to pay interest on the deposit you should determine if you will pay it monthly as it accrues or at the end when you return it.
· Do not co-mingle personal funds with rental income or deposits. You should check your local laws on this as some states will want it kept in a separate account.
· Look into setting up a separate rental account to keep track of funds for your rental business.
· Look into setting up automatic mortgage payments to avoid having any mailings go to the rental property.
· Set aside a little money each month so you have a slush fund for unexpected repairs.
When the rental game gets old
Each time you screen a new tenant you have the possibility of another tenant you may have to evict. If you are careful and do each of your screenings properly you should not have a problem. In a case where a tenant gets even one month late with rent, you should consult an attorney about the possibility of an eviction so they can make sure you cover any legal obligations that you have.
A landlord needs to be able to treat a tenant with respect and consideration even though they may be past due on rent. Let them know how much you appreciate them, but your rental is a business and you just need them to pay current. Then have the eviction process underway.
Whenever it gets to be too much for you to bear and tenants are causing you too much stress you should consider if it is time to sell. If the rental industry is not something that is for you then you should spend your time doing something that does fulfill you.