Considering becoming a Landlord? Do These Things BEFORE You Start Take Tenant Apps.
Alright, so you’re thinking of renting out your house but you’re not sure where to start. The idea of fixing toilets at 1 am doesn’t sound appealing no matter how much rent you’re bringing in. Dealing with crazy applicants doesn’t seem alluring either. I get it. The good news is that it doesn’t need to be that difficult. In fact, you can be as hands on or hands off as you want.
First things first, when making the decision to rent your house you need to do some preliminary things first. First, you need to understand that being a landlord is a big deal. You are responsible for providing a safe, livable home for someone to live in. Tenants have rights, and they vary from state to state. It’s YOUR responsibility to know the laws. This is one reason why a respectable, properly licensed, property management company can be your best friend. They deal with this stuff daily and keep up with current laws and regulations. Either way, you need to educate yourself and be proactive.
The next important consideration is the rent amount. How much can you get a month for that pile of sticks? Do your homework. Look up what other homes are renting for in your area. Websites like Hotpads and Rent-O-Meter can be helpful. Compare things like square footage, bedroom number, bathroom number, age, condition, special amenities, etc. Also, don’t be afraid to call property management companies and ask them. After all, who will better than the people who rent houses full time in your area?
Consider your expenses! How much will you be spending every month on the house?
- Mortgage Payment (Principal, Interest, Taxes, Insurance)
- Utilities: Gas/electricity – Will you pay or will your tenants?
- Garbage/Sewer – Will you pay or will your tenants?
- Vacancy Rate (The mount of time each year, on average, your house will sit empty while you find tenants. 5% of your annual rental income (monthly rent x 12) is a good estimate, but your local market will determine this amount. Consider whether home are renting quickly, or sitting empty for long periods of time)
- Maintenance – How old is your home? Are there a lot of repairs needed? Is that hot water heater ready to go? Put aside 3% of your monthly rent for maintenance costs.
The next thing to consider is whether the rent going to cover all those expenses? Will there be anything left at the end of the month after the expenses are paid? (This could perhaps be the one thing that makes or breaks your decision to rent your house.)
Next, call your insurance company. Let them know you will be rending your home out. Most homeowners’ policies are for owner-occupied homes. If you are going to have tenants, you may have to change your policy to a landlord’s type of policy. Many insurance companies offer these kinds of policies. Also consider adding (or upping) liability and medical payment coverage amounts. Insurance is a huge layer of protection that you absolutely cannot do without. Call around and get quotes. Be diligent.
If you are considering using a property management company, then do your homework with them as well. Not all property managers are created equal. I’ll repeat that… they’re not all equal! Call around. Ask about their fees; all of them. What do they charge to rent your home? What do they charge to advertise? What is their monthly percentage of the rental income? Most will range between 8% and 11% of the gross monthly income. Feel the management companies out. If they are hard to get a hold of, difficult to get information out of and charge a fee for everything under the sun, move on.
You want to gather this information BEFORE you rent your home. Knowledge is your friend and setting up a solid foundation is paramount to being a successful landlord. Please comment below or post any questions you may have. I’m happy to help in any way I can.