10 Tips for Landlords and Rental Property Owners
Rental property can be a great investment, but can also be a disaster if your knowledge of the process is inadequate. Follow these tips in order to turn a good profit.
1. Acquire smart investment properties
The first piece of advice for success in real estate investment is choosing the right properties. Which will attract the best tenants? Multi-family units are efficient to manage, but single family homes may attract more stable renters.
A good real estate professional will help you sort through neighborhood data, search for appropriate properties, and calculate return on potential investments.
2. Make sure you understand landlord-tenant law
Study landlord-tenant law in your state and follow it to the letter. You will find it online or through your state’s real estate commission.
Landlord-tenant law covers issues such as maintenance, notice, security deposits, and eviction procedures. Sample forms, including lease agreements and notices to quit, can be found in the AllBusiness.com Business Forms and Agreements Center. The Landlord Protection Agency, a private organization, offers free downloadable forms for landlords at www.thelpa.com
Likewise, become familiar with federal and state fair housing regulations for landlords. Establish documented, fair procedures for dealing with tenants so that you won’t be accused of discriminating on the basis of race, color, religion, sex, disability, familial status, national origin, or any other status protected in your state.
Fines for federal fair housing violations can run up to $10,000, with incarceration up to 10 years. Federal laws apply to all landlords except those renting units in a property they occupy themselves, as long as that property contains no more than four units.
Federal legislation also mandates that landlords provide information and disclosures regarding lead-based paint for tenants renting properties built prior to 1978. Penalties for non-compliance are hefty. You will find details and forms online at the HUD housing website.
3. Screen your tenants
Require potential tenants to provide copies of their credit reports and search state court databases for charges that may have been brought against them. You may also find fee-based local services that will do this screening for you.
You don’t have to accept the first tenant who applies. Take applications until a certain date and then use an objective scoring system to determine the best applicant. Maintain records of your screening procedures.
If you set rents at or slightly under market, you will attract more applicants, and with a bigger pool you will be more likely to find good tenants.
4. Get everything in writing
Oral lease agreements of less than a year may be legally valid, but they’re not a wise idea. For each tenant, you should have a completed application, including references, employers, contact information, and nearest relative. You should also have a signed agreement spelling out the terms of the lease. Many landlords prefer month-to-month arrangements because giving notice is easier than with a periodic lease.
At the time of occupancy, complete a written property inventory. Include a list of appliances and other removable items as well as notes on the condition of walls, floors, doors, windows, and such. It’s a good idea to have your attorney review the forms you plan to use.
5. Be fair (but firm) with your tenants
Keeping good tenants minimizes problems. Keep your properties in good condition and perform regular maintenance. Respond to tenant complaints and concerns in a timely and fair manner.
When tenant-initiated problems arise, talk with your renters about the legal consequences of their actions. For instance, if the rent is late, remind them of the late fee and advise them that if it’s not paid by a given date, you will be giving a written eviction notice per state law. Follow up with a letter summarizing what you've said.
6. Be sensible about property improvements
Keep properties clean, comfortable, light, and bright. A good rule of thumb is to maintain properties to the standard you would expect for your own family.
Survey properties for potential hazards like missing guardrails and unsafe dryer venting. Replace flooring and paint when needed, but don’t overimprove.
7. Budget for problems
Rental properties require more of your involvement than other investments. As you acquire properties, make sure you have enough time and money set aside to deal with potential problems like vacancies, maintenance, and damage.
Depending on vacancy rates in your area, you may need to reserve up to 25% of rents to deal with these issues.
8. Follow your instincts
If you have concerns about a tenant, give notice (subject to applicable law). Don’t allow fear of vacancies to impact your decision.
Don’t let potential tenants talk you into unreasonable terms like stretching a deposit over several months or holding a unit for more than a week or two without payment.
9. Distinguish fact from fiction
Don’t manage your rentals based on information you have picked up from potentially uninformed sources; there’s plenty of misinformation out there. For instance, landlords can’t technically evict tenants. Eviction is a legal process that can only be carried out by the proper authorities.
10. Protect your interests
Consider umbrella insurance to cover damages from tenant lawsuits.
An investment analysis by a real estate professional will help you determine when return on a particular property begins to diminish, so you will know when it’s time to sell.
Life circumstances sometimes force landlords out of the market. If you’ve maintained your property well and can show good cash flow, you should be able to sell even if the market is sluggish.
