It’s no secret that there is always some risk involved when it comes to investing. A rental property, however, is one of the most stable investments you can make because a huge portion of American households are occupied by renters.
Buying a rental property is also a guaranteed form of income each month, due to regular cash flow from your tenants, tax benefits, and the appreciation of your property.
But before you dive into the responsibility of becoming a first time landlord, here’s how to make your life easier, while securing your investment for the future.
Pro Tips to Keep in Mind As a First Time Landlord
So, how exactly is a residential property defined? Basically, it is a dwelling located in a residential neighborhood. A rental property ranges from single to multi-family homes. The most common types of properties that are worth investing in are houses, apartments, condos, townhouses, duplexes, and even mobile homes.
Bear in mind that as a landlord, you have power over which areas and amenities of the property your tenants have access to. When it comes to a shared building, hallways, walkways, laundry rooms, and entranceways are shared communally. These areas cannot be ”owned” by a tenant.
Here’s how to set yourself up for success as a first time landlord:
1. Always Prioritize Rental Payments
Don’t fall into the trap of becoming a ”Mr. Nice Guy” landlord. The rent your tenants owe is your income. It’s the income you use to pay off the loan/mortgage for your rental property. If you fall behind on these payments, you are the one that lands in hot water, not your tenants!
So make sure rent collection is always a top priority, and your tenants know it. Remember to be fair in situations of late payment — but not to the point that it’s unreasonable for you. Make sure that rent collection is a simplified, stress-free process for both you and your tenants.
There’s no need to collect rent via the mail. It’s time-consuming and risky, so make sure your rent is collected online.
2. Do Your Homework on Investment Partners
Whether you choose to invest in a rental property with an investor or take out a loan/mortgage with a bank, it’s super important to do your research first.
You want to look for an investment partner that is both honest and open about their finances and how they conduct business. Don’t settle for an investment partner that you barely know. Having some form of relationship with them beforehand is important. You must both have the same end-goals.
The same goes for choosing a lender. Do your homework on the best mortgage lenders on the market, interest rates, and loan terms that suit you best.
3. Thoroughly Screen Your Tenants
Screening the people that are going to live in your rental property is crucial. You have to do a background check on what they are like as tenants, based on previous rental history. You need to know what you’re getting into.
Gauging a clear idea of their credit history and credit score is also important. You need to know that they are able to meet the rental agreement and have a good history of doing so. Ultimately, this all affects your bottom line and the quality of your investment.
It’s wise to understand credit score rankings. Bear in mind that anything below 600 is considered poor or bad credit. These are the types of tenants you might want to avoid.
4. Be Wary of Allowing Pets
Some landlords are happy to rent out properties that allow for the addition of pets. Of course, this is a totally personal decision, but it’s important to consider a few things first.
If your rental property is on the smaller side, pets may not be a good idea. This is because there is little space for pets to move around, and a greater likelihood of them ruining certain rental facilities, such as carpeting, cupboards, etc.
There is also the after-effects of allowing for pets, such as a lingering smell. This can be difficult to get rid of and may take months before your property is odor-free. This limits your ability to rent out your property in a timely manner once previous tenants have moved out.
5. Make the Most of Tax Perks
One of the best things about investing in a rental property is the tax breaks. A rental property is not subject to self-employment tax, like other home businesses. Unless you have formed a corporation — then you’ll have to file for corporate tax.
You can also benefit from the depreciation of your property, although depreciation is not always common. If your property depreciates, you can deduct this from your taxable income, to account for wear and tear. You also pay less tax on your rental income if the property depreciates.
As a landlord, you can also claim tax deductions for your rental property. Some of these include mortgage interest, property insurance, property tax, maintenance fees, and advertising.
6. Being a Landlord is a Hands-On Job
While you may be receiving a passive form of income by being a landlord, this doesn’t mean it’s a passive job.
You have to be actively involved in managing the property. You’re required to manage your tenants and learn about updated landlord-tenant laws. You’ll also need to liaise with contractors, handle property maintenance, and HOA requirements.
7. Market Your Property in a Relevant Way
As a rental property owner, your tenants will come and go throughout the years. Most tenants may stay one, two, or even three years, then move onto a new property. This means that you’ll need to constantly invest in relevant and up-to-date ways of marketing your property to new tenants.
Use online resources to market yourself, as well as social media sites. Make sure all your property photos are professional, clear, and represent a true depiction of the property. Leverage the industry contacts you have and the willingness of previous tenants who may be able to help in finding new renters.
In Need of Professional Property Management?
If you’re a first time landlord looking for professional expertise in managing your property or multiple properties, for that matter, then Zona Properties Inc. is your go-to.
Based in Rochester, NY, we offer expertise in managing all property sizes. Whether it’s a single-family home, a small office building, or a 1-100 unit building. Learn more about our residential property management services today.