A lot of people have asked me over the years if they should get into rental properties. I’m a big fan of establishing multiple sources of income, but jumping into rental properties, while possibly a great business, definitely isn’t for everyone. Here are a few things to think about.
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Being a landlord is a business.You have to set rules and stick to them.Make very clear what you expect of your tenants and what they can expect from you.Pay an attorney to draft a lease for you and know the rental laws of your state.
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Do the math!Determine how much down payment you can make, what the mortgage payments will be, and how much the insurance and property taxes will be.Keep in mind that in many states, property taxes are higher on properties that aren’t your primary residence.Also, build in a cushion for normal wear and tear as well as for when you have vacancies (10% is a common percentage)
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Start small.A single family house or small multi-unit property would be better for a first time landlord compared to a large apartment building.One good way to start is to buy a property with an apartment attached or on the property.You can live in half and rent out the other half initially.Then, if you really like being a landlord, you can move and rent out where you used to live.This is great for a young couple or someone nearing retirement and looking for a way to “subsidize” their housing…
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It’s probably better if you are handy.There will be things that need to be fixed in your rental properties.Unless you get to where you have numerous properties and can afford to hire a management company, you will do better if you can make the repairs yourself.
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In spite of #2, hire a professional when something is beyond you.Don’t “wing it”.
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Visit your properties regularly.Put a mandatory walk through in your lease to be conducted every so often (every 6 months is common).Do regular “drive by” inspections too.
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Take good care of your best tenants.If someone has been with you for a while, always paid on time, and taken good care of the property, maybe you can skip increases in their rent or let them participate in some of the decisions you make to spruce up the rental. (Like if it’s time for new paint or carpet, let them have a say in the color).
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There will be surprises.There will be surprise expenses like a furnace or air conditioner going out, flooded basements, etc.Pretty much anything that can happen to your own home can happen in your rental.Tenants who you think will stay forever will suddenly move out, or units will remain vacant for longer than you thought.
A lot to think about, isn’t it? Still, if you are ambitious, like people, willing to work hard, and perhaps at least somewhat handy, rental properties might be for you. You probably won’t make a lot of money in the early going, but once the properties are paid off, they can be excellent cash flow generators!
As always, feel free to email me any questions at [email protected].