Buying your first rental property is an exciting time. You’re taking an important step that could change your financial future. But before investing in property, it’s best to make sure you’re prepared to help you avoid costly mistakes and maximize your chances of success.
Before you start renting
There are a few things you must be aware of before advertising your property. Preparing your property for tenants will help minimize your liability and ensure you are prepared for unexpected expenses.
1. Understand your legal obligations
Knowing what you can and cannot do legally as a landlord can help you avoid legal problems and disputes. Be sure to understand local permitting requirements, zoning regulations, and building codes. This will ensure that your property is legally rentable and that any necessary renovation work can be completed.
It’s also important to understand the fair housing and landlord-tenant laws that govern the area where your property is located. Fair Housing laws prohibit landlords from discriminating based on race, religion, disability and other criteria. The Landlord and Tenant Act regulates various issues related to rental properties, such as rent increases, evictions, and security deposits.
2. Buy the right insurance
Landlords need a special insurance policy called landlord insurance, which covers what may happen to the property and separate buildings, such as warehouses or garages. It may also cover appliances and other items inside.
Landlord insurance policies also provide liability coverage in case someone is injured on your property. They can also cover lost rental income if the property is damaged and needs repairs before it can be rented out again.
Landlord insurance may not cover everything that could happen to your property. For example, if it’s located in a flood zone, you may need a separate flood insurance policy. Be sure to ask your insurance representative for policy recommendations.
3. Get your finances ready
You will need financial reserves to cover various maintenance issues and vacancies. Many landlords prefer to keep three to six months of rental income as expense reserves. If you start with a small amount of money, you can build a reserve by not taking profits until you have enough money saved.
Find the right tenant
The tenants you choose are crucial to your success as a landlord. Taking the time to carefully evaluate applicants can help you find great tenants. This may help minimize future problems.
4. Determine your ideal tenant criteria
Before advertising a vacancy, take a moment to consider the criteria used to evaluate applicants. You can set certain minimums to help you choose the best tenants. However, you must take care to ensure that you comply with fair housing laws and do not engage in unlawful discrimination.
Common criteria to consider include:
- Verifiable work experience
- through background checks
- The previous landlord gave a good reference
- No eviction history
- good credit score
5. Advertise your property effectively
You can’t rent a property if people don’t know it’s available for rent. In addition to placing a “for rent” sign in your yard, you can also use online listings to promote your property. Some listings are free, while others charge a fee.
You can promote your property online in several ways:
- Facebook Market
- Craigslist
- community forum
- Rent.com, Apartments.com and other rental sites
Be sure to describe your property in as much detail as possible and include high-quality photos. You should also include monthly rent, your pet policy, proximity to schools and amenities, and other important information.
6. Thoroughly screen tenants
Screening applicants can help you find tenants who pay on time and respect your property and your neighbors. It can help you verify the information they provide, and it can also reveal some additional information.
Some ways to screen tenants include:
- background check
- credit check
- Contact reference
- Verify income
You can verify your income by requesting pay stubs or bank statements. You can also call the employer to verify how long the applicant has worked for them.
When you call your references, having a list of questions ready can help ensure you cover everything and ensure your screening remains consistent. Also, before ending the call, be sure to ask the person you are calling if there is anything else you need to know about the applicant. Open-ended questions like this may reveal important information you wouldn’t otherwise discover.
7. Have a solid rental agreement
Your tenancy agreement should be comprehensive to prevent confusion or disputes. It should also be easy to read and understand. If you need to add additional terms or make other changes, be sure to consult an attorney.
Some common lease terms include:
- Rent Amount, Due Date and Late Fees
- margin
- Property rules (pets, noise, parking, etc.)
- Maintenance, modifications and improvements
- Renters Insurance Requirements
Before signing a lease, be sure to go over it carefully with your tenant and give them a chance to ask questions. After signing, make sure the tenant receives a copy.
Manage your property as a landlord
Property management doesn’t have to be time-consuming. By being proactive with inspections, you can resolve small issues before they become big ones.
8. Establish clear communication
If your tenants have questions or concerns about anything, they should be happy to contact you. If it’s difficult to reach you, doesn’t return phone calls, or ignores maintenance requests, your tenants may put off letting you know about a problem. Delaying fixing the problem can cause the problem to get worse, causing significant damage to your property or causing other problems.
Make sure your tenants know your phone number and email address. If a tenant does contact you, respond as soon as possible so they know you take their concerns seriously.
9. Keep track of maintenance status
Performing regular inspections using a property management checklist can prevent many maintenance issues. You can schedule quarterly, semi-annual or annual inspections.
Before inspecting a property, be sure to follow landlord-tenant laws regarding notices of entry to ensure you are compliant.
10. Collect rent effectively
The rent you collect each month is critical to the success of your investment. Missing a rent payment can make it difficult for you to pay your monthly bill. However, there are some things you can do to improve your rent collection.
First, you can offer your tenants multiple options for paying rent. In addition to paying by check, you can also allow them to pay online. You can do this using some property management software, PayPal or Venmo, or bank transfer.
Another option is to encourage tenants to set up automatic payments. This virtually guarantees that you will receive rent every month. You can offer tenants a modest rent discount to incentivize them to sign on.
11. Handle tenant conflicts calmly
Dealing with tenant complaints is a normal part of being a landlord. The question is not if they will happen, but when. How you handle the situation when it arises can affect the outcome.
If a tenant has a complaint, take it seriously. Be sure to stay calm and listen to what they have to say without interrupting or arguing. Make sure you fully understand the problem and then provide a solution.
You may not always be able to satisfy your tenants, especially if they make unreasonable demands. Make sure to document all complaints and the actions taken to resolve them to prevent situations from escalating.
12. Plan for turnover, but try to retain tenants
Tenants usually don’t stay forever. Some people may leave after saving enough for a down payment. Others may move because of a job transfer. But that doesn’t mean you can’t have some long-term tenants.
Here are some things you can do to retain tenants:
- Respond promptly to concerns
- Maintain your property
- Make sure your rental price is competitive
- Offer renewal incentives such as rent discounts
- Rents gradually increase
Continuing education and growth
Becoming a landlord can bring personal fulfillment and financial rewards, but great landlords don’t happen overnight. It takes time to learn the ropes. By investing in yourself through educational resources, you can develop the skills you need to handle problems and seek out new opportunities.
13. Stay informed about changing laws and best practices
Real estate investing continues to evolve. You need to understand today’s proven practices as well as current real estate laws to ensure you’re set up for success.
The best way to keep up with the latest trends is with BiggerPockets. With over 2 million members, we are the most trusted website in all areas related to real estate investment.
BiggerPockets has many educational resources to help you keep up with the latest developments, including:
Real estate investing is not something you want to learn through trial and error. Take advantage of educational resources to help you avoid costly mistakes and identify opportunities.
14. Network with other landlords and real estate investors
One of the most effective ways to grow as a landlord is to leverage the expertise of other real estate investors in and around your community. They may have some valuable advice to help you on your real estate journey. You may even decide to partner with them on certain opportunities. You can find like-minded investors by joining local and national real estate groups or attending real estate conferences.
Perhaps one of the best ways to grow your web is to use BiggerPockets. You can participate in forums and have your questions answered by experienced investors. BiggerPockets’ annual conference, BPCON, is also a great way to get to know other landlords while learning from experienced professionals.
15. As you expand, consider hiring a property manager
Most new landlords manage their properties themselves. However, as you acquire more properties, managing them will become increasingly time-consuming. If you’re still working, it can be hard to keep track of everything.
You can find a property management company to handle day-to-day tasks, such as maintenance issues and showing the property. Although hiring a property manager comes at a cost, it may be worth it if it frees you up to do other things, like finding new investments or spending time with family.
final thoughts
Although becoming a landlord may seem challenging and time-consuming when you’re new, that doesn’t have to be the case when you have the systems in place. As you gain experience and learn more through educational resources and connections, you will become more effective.
Buying your first rental property is like laying the foundation. Just as the construction of every new skyscraper begins with the pouring of concrete footings, the experience you gain from owning your first rental property can grow into something greater. Your first rental property can be the cornerstone of a diversified investment portfolio and future financial independence.
Save time and money with this refreshing guide to managing your own property.
exist self-managed landlordAmelia McGee and Grace Gudenkauf share tips for efficient property management, tenant screening and onboarding, and scaling your business, all to help you escape the 9-to-5 drudgery and create lasting wealth through real estate.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
