If you’re thinking about investing in rental property or have recently become a landlord, the first steps you take can determine how successful you’ll be.
People invest in property for different reasons. Some rent out a couple of properties to supplement their income. Others see rental property investment as a way to become their own boss.
Regardless of their motivation, first-time landlords often make the same missteps starting out.
We asked the property management experts at Innago to give us the top 10 tips for new landlords, so that you can avoid common pitfalls and have an easier time getting your new rental business off the ground.
1. Make a Business Plan
A formal business plan is the shortest path to success. It helps you see your rentals for what they are: a business that requires clear goals, solid investment strategies, market analysis, and budgeting.
Your plan should address how you’ll keep the books, handle maintenance on your units, advertise your properties, and address legal issues (when you have to evict a tenant, for example).
Creating a plan helps many first-time landlords stop seeing their new venture as a hobby or a side hustle and start thinking of it as a business. It forces you to think about each step you need to take to establish a firm foundation for your property investments.
2. Create Great Listings
Listings are a prospective tenant’s first impression of your property. To get them to schedule a viewing, make sure you include attractive photos and tantalizing descriptions. If you’re aiming for high-end renters, consider investing in a professional photographer or a freelance writer to make your listings stand out.
Each rental property listing should answer the basic questions: How much is the rent? Are utilities included? How many bedrooms and bathrooms are there? What area of town is it in? And so on.
Once you craft that great listing, get it on as many different listing websites as you can. After a few months, you’ll learn which sites give you the best tenant leads and which you can stop advertising on. When you’re just starting out, however, the wider you spread your listings, the better.
3. Use a Rental Application
Create a rental application and link to it from your online listings. This tip may seem like a no-brainer, but you’d be surprised how many new landlords don’t use rental applications.
With an online rental application, anyone interested in your property can immediately apply, allowing you to jumpstart the screening process. Your application can ask applicants to agree to background, reference, and credit checks, and you can ask preliminary questions to help screen out unqualified applicants.
And speaking of screening …
4. Screen Your Tenants Carefully
Many first-time landlords don’t see the need for a documented screening process. Some think they are good judges of character or can trust their gut. But there are two significant reasons why your gut is not a good measure of potential tenants.
First, if you’re wrong and you rent to a bad tenant, it can cost you a lot of money in lost rent, property damage, or even driving away good tenants. You could also be wrong about a good tenant and miss out on gaining a reliable, multi-year renter.
And secondly, not having a documented screening process can expose you to legal liability. Federal, state, and local fair housing laws prevent you from discriminating against applicants based on race, color, religion, national origin, sex and gender identity, disability, and familial status. Without a documented way to prove why you denied an applicant, you could find yourself in court.
Establish a documented screening procedure that you follow for everyone who applies to rent your property. Ask the same questions of each applicant. This process will also allow you to maintain fairness and consistency when the screening prospective tenants, and you’ll have far fewer headaches as a result.
5. Establish a Good Lease
Having a lease may seem like another obvious practice, but you’d be surprised by how many property investors don’t have leases. If you don’t believe you need a lease because you only own a few properties, you’re leaving yourself open to legal trouble.
No matter how big or small your business, a lease gives you valuable protection by clearly communicating your rules and policies to your tenants.
What should you include in your lease? It’s best to get a lawyer’s advice, but at a minimum, you should include:
- Your pet policy
- Your smoking policy
- Rent due date and amount
- Your late fee policy
- The condition of the property at the time of move-in
- The move-out procedure
6. Get a Lawyer
Having a lawyer review your lease ensures it’s enforceable and allows you to establish a rapport with a property lawyer.
At some point, you will need a lawyer who knows landlord-tenant law. For example, you may get challenged over denying an application. More likely, you’ll have to evict a tenant. And there are a dozen other possible legal entanglements for which you’ll need a lawyer.
Establishing a relationship with a lawyer now prevents you from having to scramble to find a lawyer when you need one. You may not need to keep them on retainer, but you’ll know who to call when you’re forced to go to court.
However, having a lawyer doesn’t excuse you from learning the legal basics of landlord-tenant law. While you don’t have to memorize every housing law and regulation, you should at least become familiar with federal, state, and local housing legislation. Landlord-tenant laws differ depending on the state you’re in and maybe even the city, so ask your lawyer for a good, up-to-date resource and do your research.
Pay particular attention to laws about security deposits, evictions, and notice before entry, because those vary from state to state. And learn the details of the Fair Housing Act and any local housing regulations for your area.
7. Keep Good Records
Good recordkeeping practices are essential for any business, and the property rental business is no exception. Having your records organized and centralized makes life much easier come tax time or in case of legal issues.
If you’re wondering where to put the filing cabinet, remember that most (if not all) of your records will be generated and stored electronically. Rather than printing copies as backups, consider storing your documents in the cloud.
Cloud storage also makes it easier to get tenants a copy of their lease when they request it. And they will request it. Several property management software tools make cloud storage and access to your important documents a breeze.
8. Collect (and Return) a Security Deposit
Most people know that a security deposit is money paid at or before the move-in date by the tenant and held by the landlord until the tenant moves out. As the name implies, they provide you security against any unpaid rent or if the tenant, their pets, or their guests cause any damage to your property.
For that reason, you want to collect a security deposit. As we mentioned before, however, the laws about security deposits vary. Be sure you know what you’re allowed to charge, how you must handle security deposits, and any other legal restrictions that apply.
You also need to know the laws about returning security deposits. Many landlords think they get to keep the deposit no matter what, but that’s not the case. Unless the tenant owes you rent or damages your property (beyond normal wear and tear), the law says that money must be returned to them. You cannot keep it just because a tenant ended the rental agreement.
9. Have a Maintenance Plan
Another aspect of owning rental property is having a plan (and a budget) for maintenance. Everything you do to maintain your home, you’ll also need to do for the rental properties you own—including landscaping, emergency repairs, HVAC maintenance, and so on.
In addition, you’ll also need to refresh each unit after a tenant moves out. That means a fresh coat of paint, deep cleaning of all rooms and appliances, and updates to the fixtures.
Many new landlords plan to do it all themselves, then find themselves quickly overwhelmed. It can be incredibly challenging if you work a full-time job in addition to managing your rental property.
10. Use Property Management Software
Property management software can lift much of the landlord burden off your shoulders—and for less than you might expect.
Property management platforms simplify many things we’ve discussed above: rent collection, tenant screening, lease documentation, financial reporting, maintenance requests, and more.
Not only do they make your life easier, but they improve your tenants’ experience, too. And happy tenants are more likely to keep renting from you.
There are dozens of property management platforms available. Do a little research to find the platform that best fits your needs. You’ll save a lot of time, money, and headaches in the long run.
As a new landlord, you’re going to make mistakes. It’s part of the learning process.
With a solid business plan and the tips we’ve discussed, however, you should be able to avoid costly mistakes and legal troubles.