Owning income generating rental property is one of the best ways to earn passive income however being a landlord can be challenging whether you’re a first-time Landlord or have a portfolio of multiple rental properties. When dealing with tenants, you have to know state laws, understand tenant safety and how to keep your property well maintained plus find the right tenants. Below I will cover a few important tips on how to be successful in your investments:
1. SET THE APPROPIRATE RENT PRICE
Pricing your rental at an optimal price that makes sense in your location can mean the difference between vacancies and attracting good tenants quickly. Do your research to understand the fair market rental prices in the area in order to set the perfect rental rate. Knowledge of recent rentals are always helpful or utilize online resources to help guide your rental rates. A local Realtor can also assist with this as they have access to rentals in the MLS.
As you set your rent price, you should keep in mind how it affects your financials. After all, rent payments are your main source of income on your rental property. Consider both fixed and variable expenses to see how rent prices will affect your monthly revenue.
- Fixed expenses are your mortgage payment, property taxes, insurance, and HOA fees. As a Landlord, you will need to work with your insurance agent to ensure you are protected by Landlord specific coverage.
- Variable expenses are utilities, repairs, property improvements, and management fees should you chose to hire a property manager.
Additionally, a 5% rental income factor should also be figured for vacancy, so you have reserves set aside during times between rentals when ether repairs are being completed or the house is being marketed. This will prepare you for transition periods between tenants when rents are not being received.
2. ATTRACT TENANTS ONLINE
The majority of tenants search online for their next rental, which means the most effective way to find tenants is to create an online rental listing. Promote your listing on sites such as Trulia, Hot Pads and Rentals.com. Be as detailed as possible with regard to items they are interested in such as number of bedrooms, bathrooms, square footage, type of property, address, amenities and restrictions. Be sure to upload clear photos of every room and common space, as tenants will have more interest if they can easily visualize the space. A listing that is appealing and highlights the best features is the best way to attract quality tenants that will take care of your property.
3. COLLECT RENT PAYMENTS ONLINE
Online rent payments are not just for millennials anymore! Even older generations pay most of their bills online nowadays. Check payments are slow and prone to mistakes. There can easily be an input error, it can end up in the wrong hands, or “getting lost in the mail”. If an online payment option is offered, it is makes it easier to pay and more likely tenants will pay and pay on time. It can even be set up as a reoccurring automatic deduction. Tenants appreciate the convenience and you will appreciate your payments coming in on time.
4. SCREEN YOUR TENANTS
There is not enough that can be said as to having a thorough and mandatory screening process in place for every application submitted. While credit checks are important to learn if the tenant is financially responsible or not, your screening process should additionally include credit history, rental history, income/employment verification, criminal history, eviction history as well as landlord references. When reviewing your prospective tenant’s credit and background reports, look out for these red flags: notable debt, undue payments, bankruptcy filing, and prior eviction history. Additionally, if you are looking to purchase rental property with a tenant in place you can perform background checks before potentially inheriting a problem tenant.
5. SET CLEAR EXPECTATIONS IN A RENTAL AGREEMENT
One of the best things you can do as a landlord is to be upfront and transparent with your tenants by providing well-defined lease terms in your rental agreement. The rental agreement will set the expectations for your tenants at the onset to ensure they have a good understanding of what you’re looking for from them and can forge a strong landlord-tenant relationship from the get-go. If you expect them to cut the grass and maintain the property on their own, it should be clearly stated. Be sure that rent payment dates are also clearly stated on the lease agreement to avoid any misunderstandings when it’s time to collect rent.
All of your rules and clauses must adhere to state specific laws ie: how security deposits are held (interest bearing or non-interest bearing), returned, and what kind of damage will cause a security deposit deduction. A defined rental agreement also sets specific rules and guidelines. You should thoroughly think through what rules you want to include such as pets, late rent fees, noise restrictions. etc. HOA rules, where applicable, will need to also be attached or included in the rental agreement as the tenant will be required to follow them. HOA rules may include such things as quiet hours, snow removal, parking and guest parking rules.
6. ENFORCE AND FOLLOW THE RULES
Tenants will take notice and take advantage of your leniency if you do not enforce the rules in your rental agreement, plus the rental agreement loses its importance. From the Landlords perspective, the most important rule to enforce is the late rent fee. You can allow a grace period, but after that, you should make sure late fees are applied and enforced. Other important rules may also regulate how long guests can stay, how many pets are on the premises, and breach of maintenance. However, Tenants are not the only ones that will need to follow the rules and Tenants are more likely to follow rules if you do too. An example of a rule Landlords should follow is the Notice of Entry rule, which typically requires 24-hour notice before entering the unit. It’s best to be respectful of the rules. Tenants will appreciate this too.
7. KNOW STATE LAWS
Having a good understanding of the state Landlord-Tenant laws is very important for any landlord. You need to know your rights and the rights of your tenants should any issues arise that may require legal action. Landlord-Tenant Law will cover items such as Landlord required disclosures (ie: Lead Based Paint, Asbestos, Safety issues, and move-in/move-out documentations), Handling of Security Deposits, Late Fees and other rent rules, as well as tenants right to withhold rent. In addition, you should be familiar with Fair Housing Laws. With legal problems that could occur it is best practice to protect your properties with an LLC. Either through your own research or through an attorney, stay up to date on the law and be aware of any changes that may affect you as a landlord.
8. REQUIRE RENTERS INSURANCE
By requiring renter’s insurance, you help avoid litigation if a renter’s belongings are damaged by disaster that a Landlords policy will not cover. Typically, a Landlords policy will only cover the structure and no contents. A renter’s insurance policy will cover items such as hotel costs if the tenant is temporarily displaced by the property becoming uninhabitable, dog bites or some medical expenses for injured guests. Renters insurance is generally low cost, so it’s a small financial burden most tenants can easily take on. Note: it’s important to consult a legal professional before adding a clause to your rental agreement about mandatory renter’s insurance. Laws regarding this issue differ state to state.
9. UPKEEP YOUR PROPERTY
Landlords will also want to keep the rental property well cared for to attract the right tenants. This may mean cosmetic maintenance by completing painting or touch-ups, maintaining landscape for good curb appeal or replacing outdated appliances. It is similar to the idea of putting a house up for sale. In order to attract the highest price, you would want your home in the best condition possible and the same goes for finding a good tenant.
Ongoing maintenance and repairs shouldn’t be overlooked either. If a property does not receive regular general maintenance, and if repairs are unnecessarily delayed, there can be other costly consequences. It will become a more involved project when the repairs are eventually undertaken, and it could negatively affect the value of a property, which in turn will cause a decrease in the rental income potential. Also, many landlord insurance providers expect the property to be maintained to their required standards, and failure to do so could result in future claims being denied.
10. KEEP DETAILED RECORDS
As a landlord, you should keep records of everything: deposit receipts, rent receipts, maintenance receipts, and a record of all landlord-tenant communication. It helps not only in litigation but to compare move-in conditions to move-out conditions if a security deposit deduction is required and will avoid any “he-said”, “she-said” disputes. Plus, If you have records of transactions and communications, then you are more likely to prove you’re right in court and you will have documentation to support your claim. Digital records are a convenient storage method and are easily accessible option that reduces paper clutter. Keeping good records is paramount, but storing records digitally is the is the most organized and up-to-date way to do it.
11. RETAIN THE GOOD TENANTS
There is no doubt that finding tenants is an investment of time and effort. After spending time fixing up and marketing your rental, touring tenants, screening tenants, and signing a rental agreement, and completing move-out, move-in inspections you wouldn’t want all of that effort to go to waste. If you have a tenant who pays rent on time and takes good care of your property, then you should ask him or her to renew their rental agreement about 90 days before it expires. If your good tenant is on the fence, then offer to walk them through the unit to discuss what they want. Sometimes even small incentives, like offering to clean the carpet will make your tenant feel appreciated and more inclined to stay. A phone call and good communications will go a long way. Renewals will help you avoid a vacancy and save you time by not having to search for new tenants. If for some reason your tenant is not planning to renew you will want to begin your re-marketing efforts at least 60 days in advance.
12. TREAT BEING A LANDLORD AS A BUSINESS
Managing your rental property is a business and it’s important to treat it like one even if it isn’t your main profession. Always remember to remain professional with your tenants, finances, and rental procedures. Rental investments come with regulations and it is important to know and follow laws at a state, federal and local level. It is also important that the property is safe for your tenant meaning proper safety equipment and checks are in place such as smoke detectors, carbon monoxide detectors, HVAC is properly maintained, and everything is up-to-code. Be prepared for maintenance emergencies by having good contacts available for various specialty trades such as a plumber, roofer, electrician and HVAC contractor that can respond at any time of day. By being professional, keeping your property in good repair, keeping good relations with your tenants and keeping good records you will avoid potential legal issues and maintain a positive reputation which helps to ensure your assets are protected.
13. CONSIDER HIRING A PROPERTY MANAGER
A property manager can be a worthwhile investment if you are wanting to save on the time and hassle involved in owning a rental property, especially if it’s not your main profession. A good property manager can also help manage multiple rental properties if you find yourself overwhelmed with landlord responsibilities and can easily make up their cost by savings or increased rental revenue. Hiring a property manager is especially helpful when you don’t live near your property and by putting the responsibilities on a third party, you can have peace of mind that your property is being professionally maintained. A professional Property Manager can make being a Landlord easy and lucrative. If you are interested in Property Management, would like a free rental analysis for your investment properties or just want to understand what services we provide, please visit us at www.pmiknoxville.com. You can also contact me directly by email: leslie@pmiknoxville.com or phone: 865.560.9401.
