Today there are 10 homes up for sale in my neighborhood. I was half-serious when I asked my husband if he thought we could make some easy extra cash by purchasing a home as a rental property. He raised his eyebrows and told me I better do some research on the subject before making a decision.
We had a party to go to the next day so I had a chance to talk to some of our friends and family who are already landlords. What I learned from talking to them is only the tip of the iceberg. If you’re seriously considering becoming a landlord, do your research. In the meantime, consider the following issues before you do anything.
Location, location, location
Just like when searching for your own home, location also matters for rental properties—you’ll want to purchase a rental property in a good location.
First, look for a rental property in an area where people will want to live. Consider the school system, freeway access and local amenities—the same things you would consider important before purchasing a home. A well-maintained home on a street with similar properties will be attractive to renters.
Consider purchasing a rental property in a college town, near a hospital or in a community surrounding a large employer in the area. Well-established trendy neighborhoods with some neat local features are also a good idea. These types of areas will most likely have a larger pool of potential tenants.
Second, think about how often you’ll need to commute to your property. You may want to keep an eye on your property on a regular basis or even need to stop there for showings to potential tenants, regular maintenance issues or rent collection. You won’t want to drive 45 minutes each way to your rental property.
Almost perfect property
Whether your first rental property is a single family home, duplex, or apartment, the property typically needs to be brought up to good rental condition before renters can move in. Budget some time in case you have to paint walls, repair appliances or replace fixtures.
A rental property in good condition will impress potential tenants and may limit the number of trips you have to make there for maintenance or repairs.
Speaking of repairs, decide on whether you’ll be the handyman for the property or if you’ll need to hire contractors when issues arise. Who knows? You may be lucky enough to find a tenant who will do their own repairs—just make sure you discuss this in your lease agreement.
Once you do purchase a rental property, you’re going to need to find tenants. In some areas, a sign on the front lawn may be all you need to attract renters, but you might have to use bulletin boards, Craigslist or the classifieds to reach potential renters.
Working with tenants can be challenging so you’ll want to do your best to get good ones who will consistently make their rent payments on time and not cause severe damage to your property. You will have to decide on which methods you’ll use to screen potential tenants. Depending on your state or local laws, you may be able to review the following:
- Employment history
- Income history
- Credit report
- Background check
One tip both of my friends mentioned is to bypass the most recent landlord reference as they may tell you anything to get rid of their tenant. They advise you to always check with the second previous landlord reference, as they may provide more honest feedback on their former tenants.
As a landlord, you are going to want to have insurance to protect your rental property from damage. Make sure to let your insurance company know that you are going to be using the home as a rental property.
It’s also a good idea to require your tenants to purchase their own renters insurance policy. Let them know that only their own renters insurance policy will protect their personal belongings such as clothes, furniture, jewelry and electronics in case of damage or theft. Renters insurance also provides liability coverage for bodily injury or property damage your tenants or their family may be liable for. Additionally, it may also cover their guests in case of a mishap or even hotel expenses if your tenant is forced out of the rental due to a covered claim.
For me, just this initial research opened my eyes to the fact that becoming a landlord is definitely not a decision to be made lightly. If you find you are excited about becoming a landlord, be sure to:
- Check with your city or state government or your local community college for landlord classes/seminars to learn about equal housing laws, evictions and landlord-tenant laws;
- Meet with your legal counsel regarding legal documents and landlord-tenant rights;
- Check online for more information about becoming a landlord; and,
- Talk to other landlords to get their thoughts on what works best for them.
Bottom line: Do your homework—you owe it to yourself to explore all of the information available before making your final decision.