There’s no doubt that being a landlord can be very rewarding. In fact, many of the world’s richest people earned their wealth through real estate investments.
Some examples of wealthy property investors include Donald Bren, Leonard Stern, Stephen Ross, and Sun Hongbin. Real estate is one of the top investments in the Austin area.
With that being said, owning a rental property is not always a guarantee to financial freedom. Some unlucky first-time landlords find themselves ending up with an endless money pit rather than a cash cow.
Just like any other business venture, being a landlord has its challenges. It’s how you deal with those challenges that can make all the difference.
If you are a first-time landlord, here are 8 tips to help you avoid potential pitfalls.
Tips for Succeeding as a First-Time Landlord
Treat Your Investment Property like a Business
Many investors treat their rental investments as side hustles. Consequently, they end up not putting in as much effort as they would for their primary businesses. Often, this doesn’t end up well.
To succeed as landlord, you need to take your business seriously. Some ways to ensure you’re leaving no stone unturned include:
- Understanding all the laws that affect your rental property.
- Caring for your property by carrying out preventative maintenance.
- Screening all prospective tenants to ensure they’re of the right caliber.
- Using professional services when necessary, especially when dealing with maintenance issues.
Make an Effort to Learn Tenancy Laws
Not knowing tenancy laws can be a grave mistake. You may end up losing a good tenant; or worse, you could even find yourself battling a lawsuit in court.
Enacted in 1968, the Fair Housing Act prohibits housing discrimination based on select characteristics. These characteristics include: sex, race, color, disability, religion, familial status, and national origin.
You should avoid making policies that are biased against particular groups of people. Not only can this help you avoid legal troubles, it’s also the right thing to do. Housing is a human need, and as a landlord you should provide for tenants in a responsible way.
If your listings include statements and questions that are discriminatory, a tenant could report you to the Department of Housing and Urban Development (HUD) for legal action.
Other relevant rental policy laws include those that govern state security deposits and habitability standards. It’s always a good idea to consult with a legal expert to make sure there aren’t any local laws you’ve overlooked.
Charge the Right Rent
Charging your tenants the right amount of rent is key to long-term success. Pricing your rental too high will make your rental unit undesirable to prospective tenants.
Overcharging on rent can make your rental remain vacant for an unreasonable period of time, generating less income than if you undercharged.
Pricing your rental too low is also not ideal. It’ll only mean leaving money on the table. Because your rental income is partially used to maintain and improve your units, insufficient rental income can have a negative chain reaction.
How can you ensure you’re setting your rental charge at the perfect amount? You’ll need to research the rates of similar rental properties in the area. Next, you should factor in any special features your property may have, such as location or amenities.
The right rent amount should be able to meet two important criteria. One, it should make your rental competitive. Two, it should ensure maximum profits.
Long gone are the days of advertising only on local dailies and hoping for the best. Nowadays, a vast majority of tenants search for their next apartment online. Specifically, tenants often use online platforms like Craigslist, Trulia, HotPads, Zillow, and Apartments.com.
By advertising your rental on these sites, you may be able to reach a wide audience of quality prospective tenants who will stay for a long time. Just make sure that the rental ad you create is attractive and has plenty of photos.
Of course, there are still plenty of more traditional prospective tenants who will be searching in person, by looking for signs, visiting rental offices, or through word of mouth. That’s why it’s important to take a multifaceted approach to marketing your rental units.
Screen Prospective Tenants
After the successful marketing of your property, potential leads will begin contacting you. Note, however, that no two tenants are ever created the same. Some are respectful and reliable, while others can be problematic to deal with.
Fortunately, by screening your tenants effectively, you’ll be able to increase your chances of landing the right kind of tenant. Your goal should be to find tenants that are honest, trustworthy, responsible, and can afford to pay rent.
So, what exactly should you look for? Well, an effective screening process is one that checks for monthly income, creditworthiness. It’s also important to verify a prospective tenant’s criminal, employment, and rental background.
And as already mentioned, don’t discriminate against certain classes of tenants. You can ensure that prospective tenants have a history of respecting their homes without excluding them based on their backgrounds.
Draft a Foolproof Lease or Rental Agreement
A lease agreement is a legal document that highlights the rights and responsibilities of each party. Make yours as detailed as possible in order to avoid any misunderstanding and confusion later on.
Some of the must-have classes it should contain include:
- The rent amount, when and how it should be paid, and the amount of late fee if any.
- Limits on occupancy.
- Names of all tenants.
- Deposits and fees.
- Repairs and maintenance policies.
- Landlord entry policies.
If you find this number of terms and conditions to be daunting, you can consider hiring professional legal help.
Enforce Your Terms Strictly
As a landlord, it’s your responsibility to enforce all terms of the lease or rental agreement.
For instance, when a tenant misses or even fails to pay rent, it’s your responsibility to take the necessary action. This action may include sending the tenant a relevant notice or imposing a late fee.
In particularly drastic circumstances, you may need to enact eviction procedures.
Choose Whether to Allow Pets
America is a nation of pet lovers. Statistics show that more than two-thirds of American households have pets. By allowing pets, you’ll be able to tap into a large tenant pool.
Allowing pets, however, has downsides too. They are known to cause property damage, and can also leave an unpleasant smell that can take more than just a scrub to get rid of.
Therefore, before making your decision, make sure you consider the pros and cons of allowing tenants to have pets.
The Bottom Line
Real estate investing can be lucrative. However, to succeed you need the necessary skills and experience. If you are just starting out, it could be in your best interest to hire a professional property manager.
Bigham & Associates is a full-service property management company that has been serving the Austin area for years.
If you’re looking for peace of mind and excellent performance for your rental property investment, get in touch with us today.