We live in an entrepreneurial age. As each generation enters adulthood, there continues to be an increasing trend toward business ownership.
One of the most tempting of these self-employed options is becoming a landlord. The idea of renting out your own property is a tempting one. It allows you to generate some cash in the present along with equity for the future.
But the path from renter to landlord isn't all yellow brick road. In fact, every step requires patience, attention, and resources.
Here is a quick rundown of what it takes to shift from giving to receiving that rent check.
Consider Your Housing Options
The first step in becoming a landlord is obtaining a piece of property to rent. The good news is that this can happen in many different ways. For instance, you can:
- Rent part of your home;
- Rent a single home separate from your living space;
- Rent a multi-family home;
- Rent a commercial property.
Of course, there are other ways, as well. You could build a series of townhouses or buy an apartment complex. But if you're trying to make the leap from renter to landlord, chances are these are scenarios that you'll have to work your way up to.
Consider the options that are easy 'first steps' in the process, like those listed above. Then look for a property that matches them. This could be buying your own home and then renting a portion of it. It could also be finding a wholesale property that you can nab at a bargain and then rent out.
There are many ways to go about locking down a property to purchase. The important thing is that you do so thoughtfully. Always crunch the numbers and consider how you'll ultimately be able to make money off of the deal in the long run.
Study the Laws and Protect Yourself
Owning a house requires a lot of paperwork. So does running a business. When you bring the two together, there is a lot of red tape that you're going to have to tend to at times.
For instance, make sure to get up to date on all of the important laws regarding renting in your area. Some of these are fairly universal, such as avoiding discrimination as you rent your property. Others will be unique to your particular state or county.
You also want to get landlord insurance. This can safeguard you with things like liability and property protection.
Tending to this end of the landlord lifestyle is a dealbreaker for many. The specter of jumping through hoops and the fear of reprisals if you make a mistake can be severe.
However, don't be afraid of the bureaucratic side of things. Instead, do your homework beforehand. If you're still nervous, consider consulting a lawyer when you're ready to roll just to make sure you've crossed all your t's and dotted all of your i's.
Prep Your Finances and Your Property
As you get going, it's important to consider the condition of two things: your finances and your rental property.
As far as the former is concerned, make sure to take the time to budget for things like staging, repairs, and unexpected events. Also, study the local market and figure out what you can reasonably charge in rent without eating too far into your profit margin.
As far as the house is concerned, get things move-in ready before you look for tenants. Then fill out a condition of rental property checklist with your new tenants when they arrive.
Once you have your property and finances in order, it's time to find a paying tenant to occupy your space. You can market your property in multiple ways, including:
- Encourage word of mouth marketing;
- Utilize social media;
- Use local online rental property sites;
- Have an open house;
- Distribute flyers.
Make sure to take high-quality photos of your property to increase the 'buy appeal' and attract quality renters. Once you start getting bites, it's time to find a tenant that is a good fit.
You can begin this by creating an application to weed out candidates that aren't serious contenders. From there, establish a screening process that can help you find out the information you want to know as a landlord.
For instance, how forward is the candidate with their information? Do they seem like they're hiding something? Do they have previous evictions or bankruptcies that point to an inability to pay the rent? Where have they lived before? Do they have pets? Are they employed?
Once you find a candidate that you trust, you can sign a lease agreement, accept a deposit, and greenlight the move-in process.
Create a Long-Term Plan
Once you have your property in place and tenants living on the premises, it's time to settle into a routine. Try to gather all of your landlord responsibilities and then codify them into a long-term plan that you can keep up over time. This should include things like:
- Maintaining the property;
- Being ready to look for new tenants at a moment's notice;
- Keeping up on landlord/tenant paperwork;
- Collecting rent;
- Recording expenses;
- Paying taxes on your income.
If you find that this process is too cumbersome, you may want to consider hiring a property manager. However, keep in mind that this will add yet another expense and could make your business unprofitable.
And there you have it. It may feel overwhelming at first. But when you break things down step by step, the process to become a landlord isn't too complicated. Nevertheless, each of the above steps is critical and should be approached with due attention. Remember, you're creating a business, not indulging in a hobby. Anything from staging a house to mismanaging your taxes can become a liability that threatens the profitability of your enterprise.
So do your homework and crunch the numbers. If your personal life is in the right place and you have the time and resources to spare, take the dive into becoming a landlord in the name of a brighter financial future.