Renting out a property has the potential to be a lucrative endeavor, but there are many to-do’s to cross off your list before you start taking in tenants
With rental vacancies low and rates climbing, renting a property might seem like a lucrative opportunity in today’s market. But before you get into the rental game, you need to have a rental game plan.
Here, experienced property managers share tips on getting started with your rental.
It’s a Time Commitment
“Depending on how many units someone wants to manage, it’s definitely a big time investment,” says Doug Breaker, CEO of HomeFinder.com, which provides online real estate tools. People often underestimate the amount of time it takes to be a landlord, Breaker adds.
Even when it comes to evicting a tenant, local, state or city regulations may permit a tenant to stay even when rent money is owed, says Peggy Murphy, a property owner in Chicago who has dealt with difficult evictions more than once.
Whether or not you use a property management service, screening and finding new tenants, dealing with leases, managing repairs and collecting rent all take time.
Have a Financial Plan in Place
“You have to analyze this like any investment,” says Bill Bluhm, a broker associate with Sotheby’s International Realty in Salinas, Calif. The key is knowing how to analyze real estate, which an agent or financial adviser may help you understand, Blum says.
Identify your long-term goals with the property and your expectations for appreciation, revenue and expenses.
Breaker advises putting aside 20 percent of annual rental income as a “rainy day fund” in the case that you are faced with a costly repair to your property.
When Finding Tenants, Do Your Homework
Run credit checks on all applicants and check their references of past landlords.
“Most individual owners don’t have the ability to run credit; they don’t know how to call and talk to a landlord, says Bluhm. A number of online credit-check services are available; most require a one-time or subscription fee.
Finding new tenants can be a time-consuming process and is an important consideration to take before renting your property, says Murphy.
Research Your Local Market
If it’s a neighborhood heavy in rentals, go on several rental sites and see the rental price of comparable units, says Breaker. On the other hand, if your property is in an area with a lot of homeownership, talk to a real estate agent about what people are looking for in the market and what’s important to them.
“Getting that first-hand knowledge will definitely be helpful as a person looks to either buy a rental unit or convert something they own to a rental unit,” Breaker says.
Get Legal Advice
If you’re a first-time landlord who has no prior knowledge of legal contracts and leases, sit down with a real estate attorney, says Bluhm. Make sure to have him or her recommend a contract that can be enforced, in the case that there is a tenant violation.
Use a Property Management Service
The easiest way to combat making fatal first-time errors is to hire a property-management service. From maintenance and repairs to credit checks, a good property manager can lessen the burden of landlord duties.
However, these services don’t come free. An average fee for property management is 10 percent of the annual rental income for its services, although some may have additional fees, says Bluhm.
“There’s definitely a cost to using a property management company, and depending the rental market, that can eat a lot of profit of the particular unit,” Breaker says.
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