Thinking of becoming a landlord for the first time? There are a few steps you should take which can help to make this new venture a positive one. For whatever reason you find yourself heading in this direction, starting with the right perspective and being armed with practical information can save you a lot of trouble now and in the future.
If the home you are preparing to rent is one that you or a family member previously lived in, you’ll need to set emotion aside. Decide on your rental rates based on research and solid information. One option is to invest in rent comparison tools. These tools will help you to determine average rental rates for your area. Another option would be to work with a property manager who would have a great deal of experience in determining rental rates. Whichever option you choose, you can avoid the pitfall of basing your rent price on memories and emotions. You don’t want to price yourself out of the market due to rent prices that are too high because they’re based on emotion. As you already know, mortgage payments, taxes and insurance don’t stop just because a property is vacant.
In most cases, it’s a good idea to establish a post office box and a separate phone line for business. You most likely don’t want your tenants to have your home address and personal phone number. Fortunately, we have services such as Google Voice and Skype. You can easily and inexpensively get a separate phone number to use for business. This business number can be set up to forward to your existing phone. Many people also recommend setting up a separate checking account. It can be helpful, from both a legal and tax perspective, to keep your personal and investment finances separate as much as possible.
Should you decide to set up a separate legal entity to hold your investments, you’ll want to speak with an attorney and a tax professional before you make the investment purchase. Many people assume that they can make the purchase now and then later easily move things around if they see fit. This is not necessarily so. It can be a complicated process to attempt to accomplish this after the purchase. You could save yourself a lot of trouble, time and money by simply listening to good counsel beforehand.
You’ll also want to have a strong, loophole-free lease agreement before you acquire your first tenants. You can use a standard form. Many are available at reputable sources online, as well as through office supply stores. Once you have selected one, it’s wise to have it reviewed by an attorney who is knowledgeable regarding landlord/tenant laws in your area. This is definitely a place where an ounce of prevention is worth a pound of cure!
Last, but certainly not least – you want good tenants. Decide what your ideal tenants look like on paper. For example, you may decide that you want tenants with no prior bankruptcies, evictions or criminal convictions; a FICO score over a certain number; good references from previous landlords, etc. Do you want your tenants to be non-smokers? What about pets? These are all things you want to decide up front. You’ll then want to use a thorough application. That way you have all the information you need to run credit and background checks.
You can follow these basic tips to give you a good start in becoming a successful landlord. If you make the decision to use a property manager, many of these recommendations will be handled by professionals with a great deal of experience and expertise in this arena.