Tips for New Landlords

Tips for New Landlords

Investing in real estate can be a great way to build wealth over time, but it's important to understand the risks and rewards before making a purchase. In particular, if you plan to rent out your investment property, there are several things you should know before signing a contract with potential renters.

Know The Local Market:

Before purchasing an investment property, it's important to understand the local rental market. This includes the average rent for similar properties in the area, as well as vacancy rates, tenant demand, and other factors that can impact rental income. If you need to calculate potential rental income, we have a guide for that! By knowing the local market, you can ensure that you are purchasing a property that is likely to generate a positive cash flow.

Understand Landlord-Tenant Laws:

Landlord-tenant laws can vary from state to state and even from city to city, so it's important to understand the laws that apply in your area. This includes understanding your responsibilities as a landlord, such as providing a safe and habitable living space, maintaining the property, and respecting the tenant's privacy. It also includes understanding the tenant's rights, such as the right to a security deposit, the right to timely repairs, and the right to be free from discrimination. If you want a legal guide on your rights and responsibilities as a landlord, consider purchasing “Every Landlord’s Legal Guide” for $34. This provides the form documents, guidance, and tips for new landlords and is rated 5/5!

Screen Potential Renters Carefully:

One of the most important things you can do to protect your investment property is to screen potential renters carefully.  The Mortgage Reports suggests hiring a third party to do the screenings but also explains how they can be done online. This includes checking their credit history, employment and income verification, and rental history. You may also want to conduct a criminal background check and contact their references. A good background check should reveal any criminal convictions, credit score information, public record information, and a list of previous addresses. Mortgage Reports advises that although background checks can’t guarantee that this individual will be a good renter, a history of poor credit and scattered short-term residences is an indication of a bad renter! By screening renters carefully, you can ensure that you are renting to responsible tenants who are likely to pay rent on time and take good care of the property.

Use A Lease Agreement:

A lease agreement is a legally binding contract between you and your tenant that outlines the terms of the rental agreement. This includes the rent amount, the length of the lease, the security deposit, and other important details. A well-written lease agreement can help to protect both you and your tenant, and can provide a clear framework for resolving any disputes that may arise.

Consider Hiring A Property Management Company:

If you don't have experience managing rental properties or if you don't have the time to handle day-to-day property management tasks, you might be tempted to hire a property management company. Clever Girl Finance suggests that you start with a small real estate portfolio and learn to manage the property while also saving money that would be paid to a management company. When the portfolio grows and it becomes a large time commitment, it may be worth the money to outsource the work. A property management company can handle everything from tenant screening and lease agreements to rent collection, repairs, and maintenance. While there is a cost associated with hiring a property management company, it can be a worthwhile investment if it allows you to focus on other aspects of your real estate investment portfolio.

Set Clear Expectations:

Before signing a contract with potential renters, it's important to set clear expectations about what you expect from them as tenants in writing. This includes outlining your expectations for rent payments, property maintenance, and any other rules or regulations that you have in place. By setting clear expectations, you can reduce the risk of disputes or misunderstandings later on. Allow the tenant to review the expectations, ask questions, and request that they sign a document acknowledging that they reviewed the information with you. Additionally, if those expectations change, be sure to receive an updated signature from each tenant.

Have A Plan For Dealing With Problem Tenants:

While screening renters carefully can help to reduce the risk of renting to problem tenants, there is always a chance that issues may arise. It's important to have a plan in place for dealing with problem tenants, whether that means enforcing the lease agreement, seeking legal recourse, or taking other measures. HGTV suggests that any landlord seeks counsel from professionals (accountants, lawyers, insurance agents, contractors etc…) and use those individuals to support their policies and procedures. For example, if there is a fee for late rental payments, the accountant will automatically apply those fees so the landlord can tell a tenant paying late that this process is handled by a third party and not within their realm of control. By having a plan in place and consulting the professionals that you rely on, you can ensure that you are prepared to handle any challenges that may arise.