If you’re getting into the rental property industry, you might be feeling equal parts nervous and excited. On the one hand, you have the opportunity to earn a passive income that can help you pay off an existing mortgage, purchase a new investment property, or simply increase your quality of living.
On the other hand, you risk damaging your investment if it’s placed in the hands of the wrong renter. You face potentially problematic tenants who skip on rent or cause trouble in the neighborhood. Depending on your management style, you might have to take maintenance calls in the middle of the night—unless you hire a handyman on retainer. And, to top it all off, you’re required to stay on top of all the latest housing legislation to prevent someone taking you to court over an obscure technicality.
As you can see, there’s a lot to keep up and it can be pretty headache-inducing for those who are new to the industry. That’s why we’ve pulled together a list of the three top tips for first-time landlords to help guide your change in career path.
- Choose Your Location Wisely
This may only apply to those searching for their first investment property, however, homeowners who are considering renting their place out and relocating with a second mortgage should also bear this point in mind.
Location is everything. School districts, shopping centers, public transportation, and proximity to points of interest should all be high on your list of search criteria. You might find a great deal on a property, but if it’s on the wrong side of town, the chances of seeing a return on your investment are slim.
Some up-and-coming neighborhoods undergoing gentrification could show some promise, but understand the calculated risk involved before pulling the trigger—especially if the place is a shabby fixer-upper that can turn out to be a money pit versus a gold mine.
- Conduct Market Research
While you’re scouting for the best location to purchase a rental property, or planning to list your current property for rent, be sure to take note of similar housing in the area to get a sense of the rent price you can set. You’ll want to look for rentals that are closest in distance with a similar size in square footage, as well as the number of bedrooms and bathrooms.
While you might be able to charge a higher rent price for certain amenities, such as modern kitchen equipment, on-site parking, or an in-unit washer and dryer, you should be careful to not get carried away with these markups.
When comparing available rentals in the area, the first thing prospective tenants will compare is the rent price. They might be able to justify paying slightly more for nicer features, but if you set your price way out of the ball park of their budget, they won’t even look at your listing—no matter how nice it is.
Those who are thinking about renovating a property and converting it into a rental business should be very careful when adding value to the home. They might not see a return on investment if they can’t command the rent price that will recoup their losses.
- Carefully Consider Each Tenant Applicant
The most important tip you can follow as a new landlord is to choose your tenants with extreme care and consideration. It’s natural to want to fill your vacant unit as soon as possible in order to see the rental income start streaming in—but making a leasing decision too soon can be a devastating mistake should the applicant prove to be underqualified or disrespectful.
Run a credit check on every application you receive to confirm that your prospective tenant demonstrates a strong history of fulfilled financial obligations. You should also verify their proof of income (with multiple documents) to reduce the risk of fraudulent information, and request references from former landlords who can attest to their behavior as a tenant.
You don’t want to wind up with a renter who ruins your beautifully landscaped lawn, continuously skips on rent, or violates the term of their lease—so make sure you’re fully confident before ever signing the dotted line.
If you’re a new landlord, remember these three tips: choose the location wisely; set the price strategically; and choose your tenants carefully. These decisions are most pivotal to your success.