With ever-increasing rent prices, many people are seriously entertaining the idea of buying rental properties and becoming a landlord. After all, who wouldn’t be interested in the prospect of collecting rental income on a monthly basis? That’s easy money, or so you might think.
While it may look like there is very little work involved, running a successful rental business requires knowledge, dedication, patience, and a huge chunk of your time. However, it cannot be denied that the rewards are definitely worth the effort, so if you want to learn the ropes on how to become a private landlord, this guide may help set you up in the right direction.
How to Become a Landlord
Do extensive research. Investing in rental properties and becoming a landlord is not something anyone should take lightly, so take time to do your research before taking the leap. For starters, you should familiarize yourself with the existing local landlord-tenant laws.
So, if you want to learn how to become a landlord in California, and a successful one at that, make sure you understand the applicable landlord-tenant laws in the Golden State. It would also be a good idea to study the prevailing local rental market conditions and connect with the landlords in your area.
Pick the right kind of rental property. There are many factors to consider when buying a rental property, but generally, you’ll want one that is within your budget, meets the applicable codes, doesn’t require major repairs, and shows great income potential.
Additionally, you should choose a rental property that checks the following criteria:
- Close to home or within a reasonable driving distance from your place of residence
- Located in a safe environment
- Provides an easy commute to work or school
- In a walkable neighborhood
Having a rental property near where you live allows you to meet with your tenants and deal with repair and maintenance issues faster and easier while the other three factors increase the marketability and desirability of your rental unit.
According to Zillow.com, renters prefer to live in a neighborhood where they can feel safe (77%) and have an easy commute to work or school (57%). Additionally, 56% of renters prefer living in a walkable neighborhood while 37% would appreciate having an assigned parking space.
Source funds for financing. How much does it cost to become a landlord? There are many factors to consider, including the value of the property, mortgage payments, renovation and repair costs, taxes, insurance premiums, advertising and marketing costs, utility costs, and regulation-related expenses (licenses, registration and inspection fees, etc.).
There are several options when purchasing an investment property. You can apply for a conventional loan, take a second mortgage on an existing home, or apply for a commercial investment property loan (if you’re buying multiple homes or an apartment complex). You may also buy a multifamily building complex (up to four units) using government-insured loan programs such as FHA or VA if you live in one of the units while renting the others.
If you already own one, you’re ready to take the next steps.
Make a plan and a budget. Make a financial projection (expenses, costs, and profits) and expect unplanned expenses. Typically, you should purchase landlord insurance (for accidents, sudden loss, and liability) and pay for rental licensing, maintenance and repair costs, and property and income taxes.
You should also take care of the mortgage payments, utilities, and marketing and advertising costs, even when your unit sits vacant. Moreover, you should factor in the applicable professional fees (legal fees for lease preparation and review and for assistance in the event of an eviction, bookkeeping and accounting fees, and property management fees) into your budget.
Prepare your rental. Get your property move-in ready. Specifically, you need to do a thorough cleaning, tackle some renovations (when necessary), and ensure the property is up to code by checking things like the electrical, plumbing, HVAC, and safety security systems. You also need to ensure that the doors, windows, and gates are functioning properly and that all appliances are in good working condition.
Start marketing. When you’re confident that the property is ready for occupancy, start the process of finding ideal tenants. To attract potential renters, consider creating property listing on multiple websites (Zillow, Trulia, HotPads, etc.), host open houses, or run ads in the local paper. To cast a wider net, consider going beyond the traditional advertising routes.
Screen prospective tenants. Ideally, you’ll want the best tenant for your rental, so do whatever it takes to make sure you find one. Go through the rental applications to learn more about the prospective renter’s background and run a background and credit check on applicants who meet the basic requirements. However, make sure you have a signed consent form from the applicant before conducting a background check.
Additionally, ask for references from previous landlords and ask them about the applicant’s behavior to get a more solid idea of whether the applicant is a good fit for your rental.
Draft and sign the lease. Set up a lease agreement to make sure you and your tenants are on the same page on important matters, such as the length of the lease and how and when it terminates, rent payments, security deposits, the rights and responsibilities of both parties, repair and maintenance policies, and any additional information required by law (disclosures). If you’re a newbie in the industry, you can build a custom lease online or hire a property manager to take care of such things.
Hire a property manager. As mentioned earlier, running a rental property business is not an easy task. If you’re doing everything yourself, you need to take on a lot of roles. You’ll be responsible for finding the right rental property to invest in, making financial projections and sourcing funds, getting the rental move-in ready, finding and screening tenants, preparing and enforcing the lease, collecting rent money, and addressing maintenance and repair issues. Such a long list, don’t you think so?
Are you sure you have the time, energy, knowledge, and connection to make it work? If you’re even a little bit unsure, consider hiring a professional property manager in California. It may be an additional cost but you can be sure that your business will thrive and prosper in the hands of the pros – without you doing the hard work! Isn’t that a great deal?
Tenant Planet: Professional Property Management
Managing rental properties can be particularly challenging, especially if you’re just starting out. If you want to get things done without compromising the profitability of the business or risk losing your sanity, consider hiring a professional property management company like Tenant Planet.
At Tenant Planet, we will make your investment work for you. You don’t have to do the hard work, we’ll take care of everything for you so you can enjoy your life to the fullest.