Investing in a rental property is a great way to boost your monthly income and save for your future. The idea of a steady stream of rent payments can make a lot of people wonder how to become a landlord. Becoming a property owner, however, isn’t quite as easy as dreaming about its perks. You’ll need to learn how to purchase the right rental property, maintain the property, and how to select the right technology and amenities to attract and take care of your renters.
Most people who do decide to become a landlord don’t realize it isn’t as easy as simply purchasing a second home or multifamily property to rent out. Before you get started on this journey, below are several steps you should take to make sure you’re prepared for the challenges of property ownership prior to making an investment.
Before you make your final decision on whether to become a landlord, make sure this is the right financial move for you. Although becoming a successful landlord can be a very lucrative investment, it’s critical to remember that owning a rental property comes with its share of expenses as well.
Some common expenses you’ll have once you become a real estate investor are:
Rental income and rental property taxes.
Your financial situation should be the ultimate deciding factor in whether you invest in real estate. When learning how to become a landlord, having a proper understanding of your finances is the best place to start.
While you don’t need an LLC in order to own and manage a rental property, it can be a wise move long term. The benefit of owning your property through an LLC would be to limit your own personal risk and can affect the way you’re taxed. Typically, profits of an organization are taxed, and owners are taxed again personally. When using an LLC, your profits would only be taxed for you, individually.
Even more importantly, with an LLC, in the event of a lawsuit, you would only stand to lose anything owned by the LLC, your personal property would not be at risk. In other words, you would stand to lose your rental property, or anything owned directly by the LLC. Your own home and other property under your name would not be affected. Each state regulates LLC’s in a different way, so we recommend researching your state’s specific laws before deciding if an LLC is right for you.
Before you can actually rent out a home, you’ll need to understand the rental laws in your area. In addition to federal laws, each state has its own local laws and regulations as they pertain to renters and property owners. Landlord-tenant laws in your area are meant to protect your renters as well as you, and few things can hurt your bottom line like legal issues. Understanding and keeping up to date on your local renting laws are key to learning how to become a landlord. In addition, there are federal fair housing laws that must be observed by all property managers and owners.
So, you’ve decided that investing in a rental property is right for you, and you want to learn how to become a landlord. Let’s chat about how to purchase and properly maintain your rental property.
Once you’ve assessed your financial situation, you’ll need to find the right rental property. Finding a property at the right price that also generates enough profit is a difficult needle to thread.
Luckily, there are several sites, such as Realtors.com that can help you on your search. Search your area for properties in your preferred price range and location, and try to find the types of properties that will help generate income over time.
Properties with multiple units are great for collecting more rent, but there are more units to maintain and more vacancies to fill. A single family home has the benefits of being easier to maintain, and quicker to rent, but you collect fewer rent payments. The investment property you choose will make most of the difference between profit and loss.
From an outside perspective, it can seem like owning a rental property is a wonderful source of passive income; just steady cash flow without the kind of work expected from your career. However, one thing landlords constantly need to stay on top of is maintenance requests and upkeep.
Typically, a property should use 1.5 times the monthly rental income for annual maintenance expenses. Plus, making timely renovations or upgrades to your property is central to attracting potential tenants and retaining your old ones.
Steps you can take to proactively maintain your rental include:
Checking for water damage and leaks
Maintaining air conditioning filters
Keeping up with routine inspections
Testing smoke and carbon monoxide detectors
Tracking maintenance expenses
For more detail on how to create a maintenance checklist, see: How to maintain your rental property
You have your property and you’re almost set to start renting it out. But first, let’s talk about what you can do to attract reliable renters, and get them to sign a lease. Do you have everything you need to make sure your investment is protected and marketed correctly?
All property owners, whether they’ve owned property for years or are a first-time landlord, can use more time in their day.
Choosing the right management tools and technology for your rental property is a key factor in how to become a landlord. The right tools help cut down on administrative headaches and save you time on projects like:
Tenant screening and background checks
Hiring mechanics and vendors
Insuring your home.
If you’re still learning how to become a landlord, you may be under the impression that all you need to do to fill a vacancy is look over a rental application, collect payment, and hand over the keys. However, there’s a lot that goes into marketing your available rental properties so that they stand out from the competition.
Things you should consider include what type of renter you want to market your property to, and what these renters need from a property, especially as eviction moratoriums end, and property owners have more vacant units to fill. Modern renters are skewing younger and are searching for community and connectivity when it comes to a rental. Many new renters are college students who are finally getting a taste of freedom after over a year inside. Currently over half of renters and apartment hunters are millennials or GenZ, so marketing specifically to younger renters can be a needle-mover for you as you learn how to become a landlord.
Once you’ve purchased a rental property, you need to make sure your investment is protected. There are multiple kinds of insurance that can help keep your property protected from loss.
Landlord insurance: Landlord insurance protects the dwelling from structural damages and is meant to keep you, the landlord, protected from financial loss.
Renter’s insurance: A renter would purchase renter’s insurance to protect their belongings inside their home. Requiring renters insurance helps to minimize your personal risk. If a renter’s property is stolen or damaged, an uninsured renter may try to seek damages from you, the landlord. With renter’s insurance, like that offered by Rhino, you and your renters will be protected.
Security deposit insurance protects your property against the damages and missed rent payments that a cash security deposit generally would. With security deposit insurance, like Rhino, landlords get the coverage they need at no cost, while renters can save cash at move-in, making your property cheaper for them upfront. Set yourself up for success, even in the worst case scenario with the right insurance.
If you want to become a landlord, you’ll need to invest in tools that speed up your processes and save your bottom line. Rhino helps you attract more renters with security deposit insurance and renters insurance, without compromising your goal of turning a profit. By removing upfront costs for renters, you get a wider pool of applicants and lease agreements signed faster. First-time landlords can set themselves apart from the crowd by offering security deposit insurance. Protect your home and fill your vacancies at no cost to you.
Patience, research and smart investments are the building blocks of how to become a landlord. You won’t always make the correct decisions the first time you purchase a property and decide to rent it out. But nobody learns how to become a landlord without a healthy amount of mistakes. Remember: Successfully owning and operating a rental property comes down to building repeatable processes. Perhaps the best way to do this is by investing in technology, like Rhino, that can automate those processes, and drive success year over year.