Are you managing a property for the first time and feeling overwhelmed as a new landlord? Of course you want to do the best job possible, and we’re here to help. Here’s our list of 10 essential tips and best practices for first-time landlords.
1. Stay organized and keep records
One of the biggest mistakes landlords can make is not being organized and failing to keep a proper record of revenue and expenses. Without that information, you won’t know if your property is profitable. And if a former renter asks to see documentation related to their time as your tenant, it’s good to have that information at hand.
2. Follow Fair Housing laws
There are serious, legal consequences for violating Fair Housing laws, which were put into place to ensure that people of different races and ethnicities, disabled and elderly people, and people receiving government assistance are not discriminated against. Educate yourself on the laws, so you don’t discriminate against applicants.
3. Make rent the priority
Rent is your revenue. Be willing to aggressively pursue rent and late charges. If your renters stop paying rent and ignoring your calls or texts on a regular basis, you need to start eviction proceedings. Otherwise, you could find yourself six months behind on rent, which is a worst-case situation for any landlord.
4. Screen tenants properly
Screening tenants is important––you want to find the right person, someone who will pay the rent on time and take care of your rental property. Be sure to implement a thorough screening process. You can ask applicants to share their background checks and credit reports with you through Cozy, where you can compare applicants side-by-side.
5. Collect rent online
There’s no reason to collect rent checks these days. Not only is it time consuming to go to your P.O. Box or mailbox, keep up with the payments and deposit them, it’s a risky way to collect rent.
For example, a rent check could bounce. Then you’d need to pay a non-sufficient funds fee, which you’d need to eventually collect from your renter. Plus their rent payment for that month.
When you collect rent online using Cozy, you can see when payments will land in your bank account. And renters can choose to set up auto payments, so their rent will go to your bank account every month on the same date.
6. Don’t allow pets
So many Americans own pets, and by not allowing them, you significantly decrease the pool of potential renters for your property. But if you’re a first-time landlord, you may want to avoid the pitfalls of allowing pets, at least as you get going. Pets can damage carpets, walls, and other parts of a rental unit by peeing, pooping, and scratching. It costs money to repair these damages, and if you don’t know how to screen for a good renter and a good pet, it might not be worth it.
7. Don’t ignore extra income opportunities
Most investors think 1-1: if somebody buys a house, they rent the house out, and that’s it. But you could be ignoring several extra types of income that could improve your property’s return on your investment.
Here are some ideas for earning extra money:
- Is there an unused shed that you could rent out for self-storage?
- Is there room on the property to install a billboard and/or cell phone tower?
- Could you install solar panels? Look into selling back any excess energy generated to the grid.
8. Don’t invest in renovations that won’t produce higher rent
It might be tempting to renovate the property and make it as nice and modern as possible. True that after renovating the property, it’s possible it would be nicer than many owner-occupied homes. But those renovations might not lead to a high enough rent to justify the expenses. Depending on the city or neighborhood, you may have a hard time finding renters willing to pay a higher rent to make the renovations worth it. Look into which renovations make sense.
9. Partner with the right investor
Some new landlords will partner with somebody they barely know, just because a deal looks good. This can be a mistake.
I knew my business partner for more than five years before we did a business transaction together. In that time, I learned he’s honest and transparent, two qualities that are critical when choosing business partners. Additionally, we have the same end-goals and values, which is what ultimately influenced my decision to invest in properties with him.
10. Use the right financing strategy
A good deal with the wrong financing strategy is a bad deal. Most investors focus on the interest rate, but there’s a lot more to consider when financing rental property.
Is there a balloon payment?
How long is the amortization period?
Can there be an interest-only period when renovating the property?
Can you get a line of credit instead of a term loan?
Investors focus 99 percent of their time finding deals. When they get a deal, they scramble to find financing. I’ve seen several friends lose good real estate deals because they didn’t have enough time to put their financing in place. Be just as proactive about financing rental property as you are about finding deals.