The decision to become a landlord is not typically made on a whim. Many consider renting out their starter homes rather than selling them, but very few follow through. This is simply because becoming a landlord can seem daunting. Will renting out the property make you enough money to make this worth it? What if you get a bad tenant that damages the home? Can you actually handle the responsibility? It’s a decision that shouldn’t be taken lightly, however, if you follow these five easy steps, you can rest assured that not only will you make a good landlord, but your investment of time and energy will be well worth the effort.
Set your goals
Before listing your property as a rental, you should take some time to consider why you’re interested in becoming a landlord and what your end goal is. This information will inform exactly how you list your property. If you’re simply waiting for the housing market to improve, you may just want to make your home a short-term rental, such as an AirBnb. However, if your end goal is to use your home as a secondary income stream, then leasing your house out to renters for longer periods would be appropriate. You may also want to consider the tax benefits of renting your home out.
Figure out your rate of return
Though becoming a landlord is a great idea in theory, it only works if there is a market for your rental property. Make sure there is actually money to be made where your home is located. In order to do this, you should calculate your capitalization rate. Your capitalization rate will tell you how much net income your property will yield compared to its overall cost (mortgage, operation, etc). You can research properties that are comparable to your own in order to set your rental price. After doing so, you can calculate exactly how much money you stand to make (or not make) and decide whether or not to move forward with your plan.
Know the laws
Prior to renting your property, you should be well aware of federal landlord-tenant laws, along with your state’s specific laws. A good landlord will study and know the rental laws in order to write a legal lease and to protect the rights and privileges of both themselves and their tenants.
Write a lease
After familiarizing yourself with the laws of the land, you can begin drafting a lease for your property. Though you can find free standard lease forms online or even buy pre-made legal leases, it’s best to customize your lease to fit your own needs. Be as specific as possible on your lease about your expectations and about the rights of your tenants. For example, do you allow pets? Will you be including the cost of utilities in the rent, or will tenants be expected to set those services up with the utility company themselves? These are all important notes that should be included in your lease.
Find your tenants
Once you’ve drafted your lease and had a lawyer look it over, you can list your property!
When you start to get interested candidates, be sure to have them go through a thorough tenant screening. A full-service landlord software will help you keep your applications organized. Not only that, but the best softwares will post your property on multiple sites while also offering free background checks and credit reports on possible tenants as part of their services.
Bonus: decide if you need guidance on property management
Keeping track of rental checks, online applications, renter communications, maintenance, and landscaping can be a lot to handle. Consider taking an online course in management prior to listing your property. You can take an online learning self-assessment to determine if this is a good move for you.
Being a landlord is not an easy job, but it can be very rewarding. Making this commitment takes careful consideration, but once you’ve made the decision to become a landlord, it’s only a matter of completing these five steps before you can begin your new journey.