Ready to become a landlord? This is a guide introducing how to become a landlord.
Calculate how much money you can afford to spend on an investment property. There are alternative ways to fund your real estate investment.
Start analyzing deals as practice if you cannot afford to buy today. Become comfortable with calculating financial returns and expenses.
Once you have the capital ready to buy, follow these steps.
GET A PROPERTY
There are a variety of methods for investing in real estate. Recognize it will take several deals to gain experience and knowledge.
The best approach is starting on a small deal. Single-family residential or a small multi-family are ideal. This is 2 to 4 units.
Starting with a primary home allows for the best financing. When you acquire a primary property, Fannie Mae requires less money down. As low as 5%. Compared to 20-25% down when you purchase an investment property.
Rent A Room
Do not let purchasing a primary property slow down your landlord efforts! Gain experience by renting out the extra bedrooms. Or, consider vacation rentals and being a host.
This method requires you to live on the property. Although, this is a way to purchase a long-term investment for cheap.
If you rent out rooms, make sure to have a lease. Leases should define what the landlord covers and what tenants cover. Anyways you are the landlord, not all expenses are paid by you.
Ready to buy your first pure investment property? Consider purchasing a rental property in your own market.
Excelling at real estate investment relies heavily on knowing the market trends and rates. Starting off in a market you know well will reduce market risk.
Investing in properties far away is a challenge and more risk. Done right, it can be successful.
Since real estate is not liquid, it is important to consider all factors in out-of-state rental properties. Understand if out-of-state real estate investing is right for you.
There are markets you can purchase a property for real cheap. $10,000 to $25,000 for an entire house! These rentals can be challenging and high risk for beginning investors. They are typically purchased for cashflow intentions. These types of properties do not appreciate much.
Investing out-of-state requires a local presence. Whether a property manager, real estate agents or contractors. This requires more delegation and trust.
PICK GOOD TENANTS
Screen Applicants Properly
There is nothing more important than screening tenants. Select the wrong tenants and more problems arise. However, with the right tenants, majority of risk can be reduced.
Become familiar with the process.
- Applicants fill out an application.
- Run a background report and credit check. Burbz offers free screening reports. See a sample of our screening report.
- Call landlord references. Don’t bother with personal references because they are a joke. Would you ever provide a reference that is not all glowing of a friend or relative!
- Confirm employment, income and funding. Request the last 2 months of pay stubs and bank statements.
Keep Your Tenants Happy
The best treasure for any landlord is great tenants! Tenants that stay many years. Tenants that require no maintenance. If you find those, keep them!
Learn how to become a good landlord. This can put more money in your pockets.
Vacancy kills profit. When the property sits empty, rent is not paid and landlords are forced to pay the mortgage out-of-pocket. Every time a tenant turnover occurs, there is vacancy risk.
Minimizing vacancy is important for your profits.
MAINTAIN THE PROPERTY
Learn Common Repairs
Houses wear down and break. That is a guarantee.
If tenants created damage, it is their financial responsibility. You will still coordinate the repairs and spend time.
Every damage or break is not the tenant’s fault. Wear and tear occur. Ultimately, items will break, regardless who is living there.
Become comfortable with common issues and repairs. If you are the DIY’er type, this can save a lot of money. As well, great knowledge to negotiate with contractors or property managers.
Routinely inspect the property. Although the tenants own the space, it is good to keep them aware you are tracking damages.
Also, this is a chance to protect your most expensive appliance. Check the air filters to make sure the HVAC is not getting dirty.
Having knowledge of required repairs can reduce turnover time between tenants. Rather than waiting, be proactive and have a contractor ready to repair items directly after move-out.
There are many reasons to improve your property. Sure, it helps your net worth by increasing its value. Also, it helps retain those great tenants!
DECIDE IF YOU NEED PROPERTY MANAGEMENT
Determine Cost of Management
Managing your first rental property is achievable. Especially with free software for landlords to help automate a lot of tasks.
Some beginner landlords prefer a property manager. Perhaps to learn as an observer first. Or, they live too far away and want a local manager.
Ask yourself if it is worth the cost.
The cost of property management can vary. The standard agreement terms include:
- Monthly Management: Flat rate or a percentage of rent. $75-100 per month. 8-10% of rent.
- Leasing Fee: $400-600. Or, one full rent check. Always taken from the first rent check.
- Lease Renewal: $100-500.
There is a lot more to property management costs. Landlords typically get frustrated with the maintenance expenses. Property managers have the right to spend up to $250-500 without permission. Magically, a lot of maintenance expenses cost just below their threshold.
Understand Management Agreements and Terms
When you hire a property manager, you accept their contract. Due to property management having a ton of clients, they use their standard agreement.
It is important to read through the agreement. The manager should explain every way they earn a fee and how they may spend your money. There are many unfair terms landlords blindly agree to.
You can negotiate property management fees. Read our previous blog to learn how.
What is Co-Management?
Burbz offers a platform for landlords to hire local independent contractors. On the platform, landlords have more control and transparency than traditional property management.
Landlords request proposals from Co-Managers. You always have a chance to interview. Once hired, Burbz protect landlords by directing rent from tenant to landlord. With a traditional property manager, landlords wait 15-20 days for their earnings.
How much does it cost?
Co-Management was created to provide landlords more flexibility and affordability. Since it is a la carte, landlords decide which tasks to hire out or self-perform.
Landlords can still self-manage tasks and receive occasional local help.
SELF-MANAGE YOUR RENTAL PROPERTY
Self-managing is easier today. With online rent collection, landlords can manage remotely and keep track of all records.