The Truth about Becoming a Landlord
Becoming a landlord may sound like easy street to you, but many people are simply not prepared for the new responsibilities involved in being a landlord. You soon find that becoming a landlord requires you to have a wholly new psychological attitude than you did even as a homeowner. There are lots of pitfalls first time landlords fall into simply because they have not yet adjusted to this new role.
Nevertheless, with the real estate market in its current state, becoming a landlord may be the best option for earning a profit on that extra home until the economy turns around and real-estate prices climb again.
Here are some things to consider before becoming a landlord.
Cost of Repairs and Maintenance
Unlike when you sell a home, where the cost of repairs after the sale falls on the new owners, any repairs that arise while you are a landlord will fall squarely on your shoulders. You can no doubt remember how quickly you were to call your landlord when the toilet broke or a leak developed. Well, now you are the one answering the phone on the other end of that call.
Ideally, you have the time and ability to do the repairs yourself. If you need to hire someone every time a renter complains about a leaky faucet, you may soon find yourself losing money rather than making money from your rental property.
Be especially aware of these costs if you have an older property you know needs several repairs. Even if you rent your property to someone who has experience in construction and repairs, you should not expect they will do this without remuneration. Also having a tenant with a financial incentive in making repairs to your property may make for an uncomfortable conflict of interest.
Finding the Right Tenants for Your Property
Another pitfall people fall into is when becoming a landlord comes when trying to find the right tenants. Many first time landlords simply haven’t completely thought through this process and then find themselves stuck with less than ideal renters. You want to be sure you do a credit check and some sort of a background check on any potential tenants. Have them provide you with references for their last three residences and follow through checking up on them.
Look for red flags. If they come to the interview in a beaten down car or dress in a shabby and un-kept manner, you should expect them to take care of your property in the same manner. Establish a firm rule on pets and kids. If a potential tenant keeps cats, for example, you will likely have damage to both carpets and architectural features like columns—not to mention cat smells. Similarly, smokers and partiers can have a financial cost. Unless your home already has that smoker’s smell that many sensitive renters notice, you probably want to take into account the smells and potential damage caused by smoker’s habits.
Also, be aware of the pitfalls of younger and inexperienced renters. Even if you are in a college town, there is a big difference between a graduate student with a short record of rentals and a sophomore getting his first apartment with his pals. Younger renters are more likely to be ignorant of both costs involved in renting and in ways of properly taking care of a home. They are more likely to call you in regard to minor problems that older renters will easily fix themselves and to throw the sorts of parties that leave their marks on your carpets and walls.
Vacancy Costs
Another consideration is the amount of time and labor it takes to find new renters and to clean up after old ones. Many renters go from one property to another year after year. Ideally, you want long-term renters but this is difficult to achieve. So you should expect to have your property vacant for at least one month every year and factor that in when considering the amount of rent you are likely to collect. You should also consider the cost of cleaning, repainting, and repairing the property after renters have left. Although you can take part of this cost from your security deposit, you need to be careful you don’t use the security deposit inappropriately. Be careful with rent control laws in your city.
So, if you still decide becoming a landlord is for you, you can now go into it with an open mind a clear idea of the difficulties involved.