5 Things You Need to Know Before You Become a Landlord
Hey, here’s a great idea! You know that extra house, apartment, or in-law suite you have sitting around doing nothing? Why not lend it out to people and make some fast cash? What about that house for sale down the street? Why not buy it and rent it out? Seriously, how hard could it be to be a landlord?
Not so fast, eager capitalist. Whether you want to be a landlord as part of an overall investment strategy or just because you can’t sell your house and want to move, you need to take the time to think things through.
Here are 5 items to cover before you decide to become a landlord.
Run the numbers.
Does being a landlord actually make financial sense for you? It’s the most obvious question for any business owner, and make no mistake—when you’re a landlord, you’re running a business.
Consider all of your costs, including your mortgage payment, insurance, repairs, marketing, and the value of the time you’ll spend managing everything. Then, compare similar rental properties for a clear-eyed look at the kind of monthly income you can reasonably expect.
Now ask yourself: is renting that property worth it?
Of course, you may already be sinking money into a property you own. That might change your financial calculations—even if you don’t break even, you might still be able to recoup some of your investment.
Or it might be better to just sell the property. You need to run the numbers to know.
Look at the legality.
You know the contracts you’ve signed when you’ve rented properties? You’ll be responsible for those now.
You’ll also want to stay on the right side of the law, which varies by state. For example, here’s a booklet on tenant rights in North Carolina. And here’s a chapter on Landlords and Tenants from the North Carolina General Statutes. Don’t worry; you don’t need to memorize all of this information. But you should make sure you understand your responsibilities and obligations as a landlord.
Ultimately, you might want to work with a lawyer. In that case, add those costs when you run the financials.
Putting your property on Craigslist or another online listing service is just the beginning.
You’ll also have to give tours of the property and make sure it’s in viewable condition. You could hire someone to do this for you, but once again, that will add to your overall costs.
Prepare for management and maintenance.
Depending on the lease agreement, landlords can be responsible for a wide variety of property maintenance.
This isn’t just to keep the current tenant safe and happy—it’s to keep the property in good condition for future tenants or buyers. This could mean anything from refreshing a chipped coat of paint to climbing out of bed to fix a broken toilet at 3 in the morning.
Want to hire a property manager or maintenance person to deal with this for you? Sure! But you guessed it, you’ll have to add it to your costs.
Expect the unexpected.
Tenant behavior can be unpredictable, even if you try to get the best-behaved occupants possible. You’ll need to be ready for unpleasant surprises.
Even if you hire a management company to run the day-to-day affairs, there will still be decisions that only you as the owner can make. If the air conditioning unit needs to be replaced, your property manager might have to give you a call. Plus, you still need to find people you trust as property managers.
Despite its challenges, being a landlord can be very rewarding. For a frank discussion on what to expect, and how renting a property might fit your personal financial situation, talk to a mortgage banker at First Bank.