Buying your first rental property is an exciting time. You’re taking an important step that could transform your financial future. But before you invest in a property, it’s a good idea to make sure you are prepared to help you avoid costly mistakes and to maximize your chances of success.
Before You Start Renting
There are some things you must take care of before you advertise your property. Getting your property ready for tenants will help minimize your liability and ensure you are prepared for unexpected expenses.
1. Understand your legal obligations
Knowing what you can and can’t do legally as a landlord may help you avoid legal issues and disputes. Be sure to find out about local permit requirements, zoning regulations, and building codes. This will ensure your property can be legally rented and that any necessary renovation work can be completed.
It’s also important to learn about the fair housing and landlord-tenant laws that govern the area where your property is located. Fair housing laws prevent landlords from discriminating based on race, religion, disability, and other criteria. Landlord-tenant laws regulate various issues involved with renting a property, like rent increases, evictions, and security deposits.
2. Get the right insurance
Landlords need a special kind of insurance policy known as landlord insurance, which covers things that may happen to the property and unattached structures, like storage buildings or garages. It may also cover appliances and other items inside.
Landlord insurance policies also provide liability coverage in case someone is injured on your property. They may also cover the loss of rental income if a property is damaged and needs repairs before it can be rented again.
Landlord insurance may not cover everything that may happen to your property. If it is located in a flood zone, for example, you may need a separate flood insurance policy. Be sure to talk to an insurance representative for policy recommendations.
3. Prepare your finances
You will need a financial reserve to cover various maintenance issues and vacancies. Many landlords prefer to keep three to six months of rental income in reserve for expenses. If you are starting out with less, you can build your reserve by not taking a profit until you have a sufficient amount saved.
Finding the Right Tenants
The tenants you select are vitally important to your success as a landlord. Taking the time to carefully evaluate applicants can help you find great tenants. This may help minimize future problems.
4. Determine your ideal tenant criteria
Before you advertise a vacancy, take the time to consider the criteria you will use to evaluate applicants. You can establish certain minimums to help you pick the best renter. You have to be careful with this, however, to make sure you are compliant with fair housing laws and you don’t discriminate unlawfully.
Common criteria to consider include:
- Verifiable employment history
- Passes a background check
- Previous landlords give good references
- No history of evictions
- Good credit score
5. Advertise your property effectively
You can’t rent a property if people don’t know it’s available. In addition to putting a “for rent” sign in the yard, you can also use internet listings to get the word out about your property. Some listings are free, while others charge a fee.
A few ways you can advertise your property online include:
- Facebook Marketplace
- Craigslist
- Community forums
- Rent.com, Apartments.com, and other rental websites
Be sure to describe your property with as much detail as possible, and include quality photos. You should also include the monthly rent, your pet policy, proximity to schools and amenities, and other important information.
6. Screen tenants thoroughly
Screening applicants can help you find renters who will pay on time and be respectful of your property and neighbors. It can help you verify the information they provide, and it could also reveal some additional information.
Some ways you can screen tenants include:
- Background checks
- Credit checks
- Contacting references
- Verifying income
You can verify income by requesting pay stubs or bank statements. You can also call employers to verify how long applicants have been working for them.
Having a prepared list of questions when you call references can help to ensure you cover everything and that you are consistent in your screening. Also, before you end a call, be sure to ask the person you are talking to if there is anything else you should know about the applicant. An open-ended question like this could reveal important information you otherwise wouldn’t have discovered.
7. Have a solid lease agreement
Your lease agreement should be comprehensive to prevent confusion or disputes. It should also be easy to read and understand. Be sure to consult with an attorney if you need to add additional clauses or make other modifications.
Some common lease clauses include:
- Rent amount, due date, and late fee
- Security deposit
- Property rules (pets, noise, parking, etc.)
- Maintenance, alterations, and improvements
- Renters insurance requirement
Be sure to go over the lease with the tenant before they sign it, and give them an opportunity to ask questions. After it’s signed, make sure the tenant receives a copy.
Managing Your Property as a Landlord
Property management doesn’t have to be time-consuming. By being proactive about inspections, you can take care of small problems before they turn into big issues.
8. Establish clear communication
Your tenants should feel comfortable contacting you if they have questions or concerns about anything. If you are hard to reach, don’t return calls, or ignore maintenance requests, your tenants may put off letting you know about problems. A delay in addressing an issue could cause it to get worse, which could result in significant damage to your property or cause other problems.
Be sure your tenants have your phone number and email address. If a tenant does contact you, respond as soon as possible so they will know you take their concerns seriously.
9. Stay on top of maintenance
Many maintenance issues can be prevented with regular inspections using a property management checklist. You could arrange quarterly, biannual, or annual inspections.
Before you inspect a property, be sure to follow the landlord-tenant laws pertaining to entry notifications to make sure you are compliant.
10. Collect rent effectively
The monthly rent you collect is vital to the success of your investment. Missed rent payments could make it hard for you to make your monthly note payments. There are some things you can do to improve your rent collection, however.
First, you can give your tenants multiple options for paying rent. In addition to paying by check, you could also allow them to pay online. You can do this with some property management software, through PayPal or Venmo, or with bank transfers.
Another option is to encourage tenants to set up automatic payments. This practically guarantees you’ll collect rent each month. You could offer tenants a modest discount on their rent as an incentive to sign up.
11. Handle tenant conflicts calmly
Dealing with tenant complaints is a normal part of being a landlord. It isn’t a question of if they will happen, but when. How you handle situations when they arise can affect the outcome.
If a tenant has a complaint, take it seriously. Be sure to remain calm and listen to what they have to say without interrupting or arguing. Make sure you fully understand the problem, and then offer a solution.
You may not always be able to satisfy your tenants, especially if they have unreasonable requests. Make sure you document all complaints and actions taken to address them in case the situation escalates.
12. Plan for turnover, but do your best to retain tenants
Tenants usually don’t stay forever. Some may leave after saving enough for a down payment on a home. Others may move because of a job transfer. But that doesn’t mean you can’t have some long-term renters.
Some things you can do to retain tenants include:
- Responding promptly to concerns
- Maintaining your property
- Making sure your rent is competitively priced
- Offering incentives for lease renewals, like rent discounts
- Gradual rent increases
Continuing Education and Growth
Being a landlord can be personally fulfilling and financially rewarding, but great landlords aren’t made overnight. It takes time to learn the ropes. By investing in yourself through educational resources, you can develop the skills you need to deal with issues and find new opportunities.
13. Stay up to date with changing laws and best practices
Real estate investing is constantly evolving. You’ll want to keep up with what’s working today, as well as current real estate laws, to make sure you are positioned for success.
The best way to keep up with the latest trends is with BiggerPockets. With over 2 million members, we’re the most trusted site for all things pertaining to real estate investing.
BiggerPockets has many educational resources to help you keep up with the latest developments, including:
Real estate investing isn’t something you want to learn by trial and error. Take advantage of educational resources to help you both avoid costly mistakes and recognize opportunities.
14. Network with other landlords and real estate investors
One of the most effective ways you can grow as a landlord is to leverage the expertise of other real estate investors in your community and beyond. They may offer some valuable tips to help you in your real estate journey. You may even decide to partner with them on some opportunities. You can find like-minded investors by joining local and national real estate groups, or by attending real estate conferences.
Perhaps one of the best ways to grow your network is with BiggerPockets. You can participate in the forums and have your questions answered by experienced investors. BiggerPockets’ annual convention, BPCON, is also a great way to get to know other landlords while you learn from seasoned professionals.
15. Consider hiring a property manager as you scale
Most new landlords manage their properties themselves. As you acquire more properties, however, managing them will become increasingly more time-consuming. It may also be difficult to handle everything if you also work a job.
You can find a property management company to take care of daily tasks—like maintenance issues and showing properties. Although using a property manager comes at a cost, it may be worth it if it frees your time for other things—like finding new investments or spending time with your family.
Final Thoughts
Although being a landlord may seem challenging and time-consuming when you are new, it doesn’t have to be when you have systems in place. As you gain experience and learn more through educational resources and networking, you’ll become more efficient.
Buying your first rental property is like laying a foundation. Just as every new skyscraper construction begins with the pouring of concrete footers, the experience you gain from owning your first rental property can also grow into something much greater. Your first rental property could be the cornerstone that leads to a diverse investment portfolio and future financial independence.
Save time and money with this refreshing guide to managing your own properties.
In The Self-Managing Landlord, Amelia McGee and Grace Gudenkauf share the secrets of efficient property management, tenant screening and onboarding, and scaling your business—all to help you break free from the 9-to-5 grind and create lasting wealth through real estate.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
