There are approximately 10 million small and medium-sized landlords in the United States. Most landlords and real estate investors know that owning rental property offers one of the best opportunities to build a steady stream of cash flow and capture long-term appreciation. The big question is how to go from deciding to purchase a rental property to actually renting your unit and managing the day-to-day activities of being a landlord. Here are some important steps that will help make the process run more smoothly and protect your long-term interests:
1. Find tenants--or meet the current ones. If your property already has tenants, take the time to meet them personally. Talk to them about how they like living in the unit and find out if there are any outstanding issues they'd like resolved. Review their existing lease, but remember that you're bound by the terms of the current agreement. You can't make any changes in rental rates or terms until the lease expires.
If you need to find tenants for your property, stick to the basics when advertising--print ads, online sources, signs, flyers and bulletin boards. Determine your target market and advertise accordingly. For instance, if you post your ad around colleges or universities, you'll likely attract mostly college students.
Highlight features that'll appeal to likely applicants based on where your unit is located. For example, if you're renting a two-family house in a suburban location with a lot of families, you might want to highlight the proximity or reputations of nearby schools or parks.
Be sure to avoid violating Fair Housing laws and making discriminatory statements in your ads. Don't show any partiality to any particular type of tenant, such as college students, roommates or older people. This means you're not allowed to say "no children" or "no disabled person" or even hint that your unit would be unsuitable for families or disabled people. If you have doubts about the wording of your ad, ask an attorney to review it.
2. Screen potential tenants. Once you've found a potential tenant, don't make the mistake of skipping the screening stage. Performing a thorough check of each qualified applicant's history is critical to securing reliable tenants who'll take care of your property and pay the rent on time. Overlooking this step puts your investment at risk and potentially could result in countless headaches and costs down the road.
Screen potential tenants for criminal and credit issues, as well as employment and rental history. Paying a screening company to do a thorough search in accordance with the law is well worth the cost, even if you avoid only one risky tenant.
Be sure not to violate the law concerning applicants you turn down based on something in their credit history. Under the Fair Credit Reporting Act, you're required to give tenants an "adverse action notice" if you use information in their credit report to deny their rental application.
3. Use the right forms. Protect your investment and your sanity by signing a written lease with all tenants. This point is especially important. Whether you're renting your unit to a family member (which, by the way, isn't usually a good idea), a friend of a friend, or a person who passed your screening with flying colors, have your tenant sign a lease that spells out all of the important information: names of all tenants occupying the unit, address of the unit, name of landlord, length of lease term, rental rate, due date of rent, acceptable forms of payment and late fees. Avoid oral agreements at all costs.
You should also spell out your policies on guests, noise and satellite dishes, for instance. You can include addendums to detail your pet, parking and smoking policies. Make sure these are agreed to and signed by your tenant. There are many important rules you want your tenant to follow, so be sure to share those with any new tenants.
4. Manage the day-to-day issues. Get adequate insurance on your property. Consider requiring tenants to carry renter's insurance as well, but check your local laws before doing so. Insurance will not only protect you from natural phenomenon that damage your property, but also from irresponsible tenants.
Managing your property daily by yourself can easily turn into a full-time job. How involved you are in the day-to-day operations will depend on how much time you have, how handy you are and how close in proximity you are to your rental property.
An alternative is hiring a property manager to take care of some or all of the day-to-day issues. Property managers can be full service or help with issues ranging from finding and screening tenants to handling a pipe burst in the middle of the night. They also can take care of the landscaping, collecting rent and sending appropriate notices. The cost will eat into your profits, but could save you time, hassle and aggravation.
5. Handle renewals and evictions. Renewals are the easiest way to maintain a steady income flow from your rental property. The cost of searching for and signing new tenants significantly outweighs most costs you might incur to keep good tenants. With this in mind, consider replacing worn carpet or appliances and applying a fresh coat of paint to keep a good tenant happy at renewal time. A small increase in rent might be easier for tenants to accept if they feel they're getting something in return, like a new fridge or a ceiling fan.
Evictions are tricky, and the rules for evicting a tenant vary from state to state. If you're unsure of how to get rid of a tenant who won't leave, seek legal advice immediately. Along the way, you should keep good records so you have evidence of your claim and send the required notices on time. Eviction proceedings can be time-consuming and expensive, which is why you should screen your tenants carefully and work to hold on to good ones.
Being a landlord requires work. It can be rewarding and profitable, as well as exhausting and frustrating at the same time. By following the steps outlined above, you'll have an even greater chance of being successful.
Scott Brueggeman is publisher of CompleteLandlord.com, an online destination for residential landlords. To learn more about becoming a successful landlord, download CompleteLandlord.com's "Rental Property Management Secrets for Landlords" special report at RentalSecrets.com.