Every landlord should know this one particular secret regarding managing a property. Undoubtedly, you’ve heard about project management. If you’re about to purchase your very first rental house, you’re in for a treat. This article can help you save a ton of money, possibly even a few hundred thousand dollars over the lifetime of your being a landlord.
There are so many challenges that come along with being a landlord. Many property owners either don’t know about these easy principles that help you easy avoid the common pitfalls. Or, they just don’t listen to them. Regardless, they typically lose a lot of money over the years. If you’re going to be a landlord, you’ve got to do it the right way. If you do it incorrectly, you can really run off an investor. This article is going to teach you how to:
save an incredible amount of money
take away a lot of the potential stress
make you more far more successful with your other rental properties
Who you choose as a tenant is paramount
Perhaps the most important part of being a landlord is choosing a tenant. You actually in this day and age are able to discriminate a tenant based on a tenants current financial state. You’re able to create your own financial requirements that you want said tenant to have. However, the categories that you still cannot discriminate on are: race, gender, and religion. You actually discriminate a tenant based on their current financial state, and their:
The moral of the story is: You can reject their application if you want to. Sadly, many landlords choose a bad tenant. Now, why is that? Generally, it’s because they don’t do a very great job at finding a good tenant. Therefore, they have slim pickings when it comes to the rental application stack.
Advertise the rental properly
Finding a great potential tenant all starts with great marketing. You’ve got to really advertise your property well so that the whole area knows your house is for rent. Too many landlords only advertise on one place, which doesn’t gather a whole lot of options.
Price it correctly (no-brainer, but often overlooked)
In order to get the type of tenant you want, you’ve got to price it correctly. Now, that does not mean that you price it sky-high. If it’s too high, barely anyone is going to come see it. If you’ve got a good melting pot of people coming to see it, you’re going to find the right tenant. Finding the right tenant is actually somewhat of a skill that you learn over time.
How to choose the right tenant
The tenant’s job is more important than anything else about them. It doesn’t matter what kind of car they have, how they dress, where they went to high school or college. What matters is their job. Many investors think that if you invest in nicer areas, you’ll get better quality tenants. It doesn’t even matter what their income level actually is, it’s how they get that income. Be very wary of the self-employed prospective tenant. These are typically the ones that ask if they can pay the rent next month. Word of caution, don’t rent to self-employed individuals. It’s not a steady income that you can rely on.
Some of the best tenants are nurses. Why? Because no matter where in the country they live, they’ll just about always be able to get job. And, if they’re struggling financially, they can pick up a shift whenever they want to. Now, while the type of job they have is important, you’ve also got to check out their credit score and see what’s going on there. Call their references. Many landlords don’t even bother to call the references. It’s also key to call their previous landlords. Don’t just call the last one. Call the one before that too. And never trust the reference that their current landlord gives you. There’s a huge chance that they simply want to be rid of the tenant, so they aren’t going to give them a bad review.
The property must bring in a steady cash flow
This should be obvious, but to some people it isn’t. Properties need to have good cash flow. The property needs to bring in a good chunk of change, because many different things can (and often do) with rental properties. You’re going to need some cash when those things ultimately go wrong, whatever they are. Always make sure that you have a margin of safety.
Make sure that you always have a safety net. You want the rental unit to always be bringing in money, even if the air conditioning unit breaks.
Have money coming in. You don’t want to break even on the rent. If all you’re doing is breaking even, don’t bother. It’s not going to be worth your while.
Have money set aside in case of eviction. Sometimes, a tenant just doesn’t pay. In this case you’ve got to evict them. When this happens, you’ll be sitting on 2 or 3 months without rent coming in, you’ll have to pay for the lawyer, and you’ve got to fix up whatever they damaged before they moved out.
Rent to own can be a beautiful situation. Why? Because you get money upfront with a down payment. Usually, it is a reserve; somewhere around three to seven thousand dollars. They give you a few thousand dollars down in order to move in and rent the house. So, even though you want the nice cash flow, you’ve at least got a few grand down in case something goes wrong (and you should expect them to).
Know the Landlord Tenant Act laws
Knowing the local laws is extremely important. Too many landlords aren’t aware of the laws. Many landlords only know about the universal ones; what they don’t realize, is that these laws vary so much depending on where you live. Actually, the laws even differ by county. It’s very important that you read up on the local Landlord and Tenant Act for your specific county. There are so many tiny things that landlords miss, because they seem like they wouldn’t matter at all, when there can be a section of the law about them in the Act. If you don’t bother to read the Landlord and Tenant Act, you aren’t doing your job correctly. Also, if there ever ends up being a court matter, you could get into some trouble. Some tenants seem nice, but if push comes to shove, they’ll use everything in the lease they can against you.
It’s not until you have to evict someone do you realize how far a single person will go to make your life insanely difficult. This is why you have to make sure that you’ve covered all your bases legally, and that you’ve adhered to every rule in the Landlord and Tenant Act. It’s important that you go ahead and plan for eviction before a tenant ever even moves in. It happens far too often than you think it does.
Hire an eviction attorney
If you don’t have an eviction attorney, you’ll need to find one. Find a lawyer that does evictions frequently, and throughout the country. The more skilled an eviction attorney is in every area, the better they are. Bring your rental agreement to the eviction lawyer and ask them exactly what needs to be changed or added to the lease in order to make the eviction process easy for you. Then ask him:
What else he’s going to need from you when you bring him the eviction file. It’s highly likely that the eviction attorney will tell you that they’ll want to see the tenant’s bank account and credit card information, along with their driver’s license. Whatever the eviction attorney says that they’ll need in the event of an eviction, you need to get from the tenant before they move in.
You’ve got to be prepared to actually evict the tenant
The goal of an eviction lawyer is to find the tenant. Usually, the tenant will skip out of the area, or town altogether. You’ve got to have enough information on the tenant to be able to track them down no matter what. Many landlords don’t do this, because they “feel bad.” If you’re going to be a landlord, you’re going to have to drop the people-pleasing act. If you aren’t able to evict someone from your rental property, then you shouldn’t be renting it. Prepare to evict before they move in.
There are so many investors that own hundreds of properties; some rentals, that tell will tell everyone “Don’t become a landlord.” If you aren’t prepared to evict, tenants are going to take advantage of you, and that’s a fact. For some tenants, it’s their M.O., and they have experience hopping around the country skipping out on rent.
Be firm and consistent with your tenant
Keep a very firm system in place. If someone doesn’t pay by the first, perhaps you give them a late fee on the sixth. After that, you start eviction. If you don’t do that every single time, you can expect rent the next month on the seventh, the other month on the eighth, and eventually they’re just not paying and you have to evict. If you don’t get paid by the date you said you’d start eviction in the lease, they won’t take you seriously. One method is to require automatic payment from their debit account. Instead of having to check the mail, require that they pay you automatically. This will actually weed out the bad prospective tenants anyway, because if someone knows that they aren’t steady financially, they’ll hear the word “debit” regarding monthly rent, and probably back out.
You could also consider setting up a “merchant account.” What is that? A merchant account will cost you a little money, but not enough to negate the benefits. You can get a merchant account through sites such as Square, or PayPal for example. There are other ones too that will work. The merchant account ideally should come from the bank that you do business at. You can hire third parties, but it’s better to stick with your bank.
Autopay is your friend
In order to receive rent through autopay, you get their credit card and bank account information. This way, if the money doesn’t come out of their bank, it’s going to go on their credit card. This is a serious incentive for renters. They know that some way or the other, they’re going to have to pay. At least this way, they’ll avoid fees. Requesting autopay for rent might sound insane. You might be thinking, “Isn’t that going a little too far?” The answer really is, “How badly do you not want to deal with the eviction process?” Evictions are a complete pain. Most tenants will pay the water and electric bill because they’re on autopay. When someone has something set to autopay, it’s almost never late.
Do your landlord-ing locally
It’s far better to own rental properties locally. It’s far, far better to own rental properties that you can drive to in under a half hour. You want to be able to consistently check up on the rental. You should go to check it out every now and then, not only when things go wrong. Some landlords even include an addendum in the lease stating that the tenant understands that they have the right to enter the property once or twice a month (at a said time) to see the property. Many times, tenants lie about pets. They’ll say they have a goldfish, and you find out when you go to fix the A/C unit that they’ve got a Great Dane, and discover that the floors are ripped to shreds. It’s so important to invest close to home. Don’t make the mistake of investing in a different city or state. You’ve got to keep an eye on your investments. No matter how good a team you have, nothing is going to replace your personal physical presence.
Should you hire a property manager?
Should you hire a property manager? The answer depends on so many variables, that it’s difficult to answer this question on short. How much are they going to cost? Many rental properties take home ten percent of the total rent coming in.