According to recent statistics, rent prices may increase by 7.1% in 2022. Therefore, if you want to invest in real estate, you could profit significantly from buying a rental property.
Becoming a landlord can be a frustrating experience when you are not prepared. Luckily, we have the ultimate guideline for navigating the rental market.
Read on to discover handy tips for landlords who want to succeed in the rental market.
Do Your Research
It helps to understand the housing market and housing laws and regulations before investing in real estate. Doing your research gives you a clear picture of what to expect. Thus, you have a better experience starting your journey as a landlord.
Below are some things to research when considering becoming a landlord:
The Local Rental Market
Researching the rental market helps you choose an investment that will yield a good return. Rental advertisements can give you a picture of the local rental market. Look out for the following in rental advertisements:
- Popular rental units
- Average rent prices
- The availability of vacancies
The Best Investment Location
Location matters in rental investment because rental units are more in demand in some areas than others. It helps to think like a tenant when deciding on an investment location. Consider the utilities your ideal tenant would check for when searching for a rental house.
For instance, if your ideal tenants are families, invest in a location near a school. Tenants also consider proximity to hospitals, supermarkets, and transportation when looking for a rental unit.
Investing in a nearby location is ideal because it helps you keep a close watch on your property. You can inspect your property more regularly and resolve tenants’ complaints faster. Still, you can buy an investment property in a different area and hire a property manager to oversee your investment.
Local and state landlord-tenant laws govern the relationship between parties in a residential rental agreement. The regulations include the obligations, rules, and rights of landlords and tenants.
Landlord-tenant laws vary in different states. Thus, you must know the laws that apply in your state.
The laws are a handy guideline for developing residential lease agreements. They help ensure that all your transactions with tenants are lawful; hence you avoid legal liability. Knowing the federal laws governing housing and discrimination is also essential.
Choose a Rental Property
If you do not already own a rental property, you have to acquire one. Your research should give you enough knowledge to choose an investment property. This is because you know which rental properties are popular among tenants after researching the local rental market.
Before looking at properties, it is vital to set a budget. Working with a budget ensures you do not buy an overpriced property. If you are new to the property market, consider hiring a realtor to help you find a property that fits your budget.
There are three property options for rental investment; a multi-unit property, a condo, or a single unit. The upfront costs and maintenance costs for each type of property vary.
Single-unit homes or condos are ideal for a first-timer in the rental market as managing them is not as tasking as managing a multi-unit property.
Investing in a single unit or condo allows you to gain property management experience before investing in a multi-unit building.
When choosing a property, you also need to consider how long it will take to get a return on your investment. The required downpayment for the house is also an important consideration.
Figure Out Your Finances
Once you find the perfect property, you must figure out how to finance your investment. If you have some cash saved, you can make a cash purchase. However, most people take out a mortgage to purchase an investment property.
If you plan on getting a loan, you have three options:
A Commercial Investment Property Loan
You are eligible for a commercial investment property loan if you want to buy a multi-unit building or several single-unit homes. Commercial lenders have to check the viability of your investment before lending you money. So, they will ask to see your business plan.
A Second Mortgage on Your Home
If you have paid off all or most of your mortgage, you may leverage your home equity to get a second mortgage to finance your investment.
Banks, mortgage lenders, and credit unions offer home equity lines of credit (HELOC) and loans. Therefore, you can shop around to get favorable terms.
You can get a traditional loan if you do not qualify for a second mortgage or commercial investment property loan. But, these loans require a larger downpayment and have higher interest rates.
FHA and VA Loans
Federal Housing Administration (FHA) loans are government-insured home mortgages. The loans help low to moderate-income earners buy homes. FHA loans require lower down payments than most loans and have lower interests, making borrowing more affordable.
VA loans help veterans or their surviving spouses, and military service members acquire homes. You can buy up to four residential units with a VA loan without a downpayment.
FHA and VA loans strictly exist to help qualifying individuals buy homes. However, you can buy a rental property using these loans if you live in the building.
Remember, the lower the interest on a loan, the more profit you get from your property. Therefore, do your research well before settling on a financing option.
Prepare For Expenses
You will incur some expenses when managing your rental property. For instance, you have to maintain your building periodically to preserve its aesthetic appeal. Maintenance services are also necessary before and after a tenant moves into the house.
Other times, your tenants may be unable to pay the rent on time. When your rental income is low, you need to set aside money to cater to property management expenses.
Learn What Becoming a Landlord Entails
First-time landlords have difficulty managing a rental property because they do not know the responsibilities that come with the job. Some landlords collect rent and may even do routine maintenance themselves. Others hire someone to manage their property.
Even when you have a property manager, a lot of administrative work goes into rental property management. Below is an overview of what landlord jobs entail:
Finding Suitable Tenants
Your first responsibility as a landlord is to find tenants. There are many platforms where you can advertise your building to find tenants. These include Craigslist, social media, and newspaper ads.
After you advertise your property, you have to show prospective tenants around. Interacting with prospective tenants allows you to determine if they are a good fit for your property.
Completing Tenancy Agreements
Before handing over a rental unit to a tenant, they must sign a tenancy agreement. Have an attorney draft a lease or rental agreement which applies to all your tenants.
If you choose to draft one yourself, have an attorney check it to determine whether it is enforceable.
Collecting Rents and Deposits
Successful landlords are keen on collecting rents and deposits as these are their sources of income. Ensure your tenants pay the full amount they owe you on time.
You should also set rules on payments, including the consequences of late payments and defaulting payments.
Record keeping is essential for tax purposes. Keeping proper records also protects you from legal liability in disputes between you and your tenants. You must maintain records of your rental income, mortgage payments, and insurance.
Filing your income tax is also a vital responsibility. If you are not proficient at bookkeeping, consider hiring an accountant to take the burden off your hands.
Screen Your Tenants
Once you market your property, you will get many people who want to rent your units. Choosing the right tenants makes or breaks landlord careers. Hence, before giving someone access to your property, it is essential to do a background check.
Check prospective tenants’ employment history, criminal records, and income records. A tenant credit check is also vital as it helps determine whether a tenant will be faithful in making rent payments. Remember also to check for previous evictions indicated on public records.
You need a person’s consent before conducting a background check on them. While it is good to be cautious about the tenants you choose, remember there are laws on discrimination. So avoid disqualifying prospective tenants without having a clear picture of their background.
Get Help Finding The Best Tenants
Your career to becoming a landlord begins the day you review and take in tenants into your property. However, choosing the right tenant is not always easy. Therefore, you need to be thorough in your tenant checks.
You can screen prospective tenants yourself. However, getting help from a professional is best to avoid missing important details.
Tenant screening services offer credit check tools and help you search tenant records. These professionals help you know prospective tenants better, giving you the information you need to make a good choice.
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