Everything You Need to Know About Being a Landlord [10 Tips]
You have just bought your first rental property, renovated it, and are now ready to start advertising to potential tenants. While you can start earning rental income immediately, being a landlord comes with challenges. It is easy to make mistakes, especially when you are just starting.
To help ensure your success as a new landlord and avoid making costly mistakes, here are some tips to help you make money and minimize issues.
Purchase Properties in Strong Rental Markets
Location, location, location. Real estate agents often emphasize the importance of location when buying property. Location can be even more important than the features or appearance of the property itself.
Many potential tenants will pay good money for small apartments in excellent locations. In addition, they'll have more job opportunities and access to critical resources like public transportation, coffee shops, restaurants, grocery stores, schools, etc.
To be a successful landlord, purchase in areas with a robust rental market or those expected to have a strong market in the future.
Do the Math to Ensure Cash Flow
It is essential to carefully evaluate your budget to determine how much you can afford to spend on a rental property. Your budget should include the down payment, closing costs, holding costs, repair costs, and reserves.
Once you know how much money you can spend, pick a property while remembering to account for ongoing costs such as:
Property maintenance Annual property taxes Property insurance Common utilities Holding costs for when the unit is vacant.
By looking at your budget in detail now, you'll save yourself major financial headaches later down the road.
Set the Right Rental Price
Setting the right rental price for your properties to ensure that you meet the market demand while still making a profit is essential.
Do intensive market research to determine what similar rental units go for in your property area. Lean on a local real estate agent who has a firm grasp on the local market and can help guide you on price adjustments based on market conditions, seasonality, and the unique pluses and minuses of your property and specific location.
You should rent your units at the highest price possible without pricing tenants out.
For example, if similar units in your area go for $2,500 a month, you can rent your units for the same price or slightly cheaper to attract multiple tenants and minimize your days on the market.
Screen Your Tenants
To profit from your rental units, you need to have at least one tenant in each unit. Choose tenants who will take care of your property, pay rent on time, and follow lease terms. Solid tenants will make managing your rental portfolio much easier.
A high-quality rental agent can help you create a win-win. A happy tenant maximizes the chances that they stay longer, pay rent on time, and take care of your unit, which in the long run will save you stress and time and ultimately lead to better long-term results.
Use Written Rental Agreements
Once you find the perfect renters for your property, offer them a written rental agreement that spells out what you are both agreeing to, including (but not limited to):
The amount of rent that is due The due date for rent payments How tenants should deliver rent Your pet policy How tenants should make maintenance requests What utilities the tenant and owner are responsible for When the owner and tenant agree to renew/quit the lease
Having written rental agreements is crucial, so you and your tenants have clear expectations. Comprehensive and carefully written rental agreements ensure everything is clear between you and your tenants regarding who owes what or what you or they are allowed to do.
To ensure your rental agreements are complete, consider working with a real estate agent who works with landlords and frequently handles a high volume of rentals.
Brush Up on Landlord-Tenant Laws
Landlord-tenant laws in your state can significantly impact various aspects of your rental business.
These laws impact when you can enter a rental unit, how to initiate eviction proceedings, what upfront payments you can collect, and limitations on rental increases.
These laws can also cover many other important topics. Therefore, it is essential to familiarize yourself with the specific laws in your state.
As a new landlord, it is essential to familiarize yourself with landlord-tenant laws thoroughly. These laws also include the critical Fair Housing Act, which prohibits discrimination against prospective tenants based on race, sex, religion, and other protected characteristics.
Ensure you understand what is and is not allowed in your state and local municipality. Municipal housing laws can impact how you handle maintenance requests, how you tackle evictions for challenging tenants, and other challenges that may come up during your time as a landlord.
When in doubt, reach out to an experience real estate attorney to help guide you on real estate law.
Suggest Renters' Insurance
Renters' insurance is an additional cost tenants pay on top of their regular rent. This insurance covers their personal belongings in the rented unit.
Some tenants may decide to pass, but renters insurance is an essential financial shield for the tenant.
For example, suppose a bathroom floods above your unit and destroys the tenants' personal belongings. In that case, renters insurance will protect the cost of the tenant’s personal belongings for a relatively inexpensive monthly fee.
In addition, with renters insurance, tenants frequently have access to funds to pay for lost/stolen goods when they travel.
Without renters insurance, the tenants will be responsible for their personal belongings in the event of an accident outside the landlord's control - so make sure you are clear with tenants from the beginning!
Collect a Security Deposit (or Not)
Security deposits are complicated, especially in Cambridge, Somerville, and Massachusetts.
Although many landlords choose to collect a security deposit from their tenants, they must follow strict laws to do so. These laws can be complex, and it is essential to follow them precisely to avoid noncompliance. As a result, some landlords decide to refrain from collecting a security deposit at all.
In Massachusetts, landlords must use the security deposit to cover any damages or destroyed property caused by the tenant. The amount of the security deposit cannot exceed one month's rent. For example, if you charge $1,200 monthly rent, the tenant can provide a security deposit of no more than $1,200.
You must store the security deposit funds in a separate escrow account, among many other requirements, to remain compliant with the law in Massachusetts. If you have questions on security deposits, contact a trusted real estate attorney to ensure you comply with the law.
Set Fair Boundaries for Repairs and Requests
Lastly, as a new landlord, you must learn how to build a relationship with your tenants.
As a landlord, it is vital to find a balance between meeting the reasonable repair requests of your tenants and setting appropriate boundaries for unreasonable requests. This relationship requires a strong understanding of what is reasonable and may take time and experience to develop. However, being responsive to your tenants' needs and knowing when to draw the line is essential.
Conclusion
There is a lot to consider when becoming a successful landlord. However, the more experience you gain, the more knowledge you will accumulate and the better you will become at keeping your tenants happy and maximizing your profits. As you begin your search for a rental property, keep these tips in mind to help ensure a smooth start.
These tips only matter if you can find the perfect property for your ambitions.
Cambridge Sage can help. We're the perfect team to find multi-families on the market and help you begin building your real estate empire. Contact us today.