Thinking of becoming a landlord? While this can be financially and personally rewarding, you must do your homework before you take the leap.
To help you learn the ropes and avoid any costly missteps, here are some handy tips of the trade.
It cannot be overstated how important it is for landlords to do their pre-closing homework.
During the home inspection, remember to take a thorough look at the property to see what will need to be repaired or replaced.
For example, you might want to change the toilets to low-flow models. You'll also probably want to invest in essential upgrades to three common areas: water, door locks, and flooring.
Don't make the rookie mistake of underestimating the costs of fixing and maintaining the property, both before and after a tenant has moved in.
Most landlords account for insurance and taxes, but it's easy to miss expenses like garbage, gardening, and regular maintenance.
According to Money, you should set aside at least 35 to 45% of your annual rental income to cover these costs. (And when you're calculating this income, it's a good rule of thumb to account for only 10 or 11 monthly payments per year.)
When it comes to finding a tenant, don't be too relaxed. Interview prospective tenants on the phone first to find out if they meet your requirements. Then, it's important to check your potential tenants' credit and speak to their references. Confirm the source and amount of their income. It should be at least 2.5 times the annual rent. You should also learn what's legal in your town. For example, can you ban pets?
Once you've found a great tenant, act fast to get the lease signed. From there, never forget that you're running a business and your tenant is a customer. Treat your customer right, and success is more likely to come your way.