How To Avoid Common Pitfalls Of A First Time Landlord
One of the top ways to earn passive income is to become a landlord. We use the term “passive” loosely here. Being a landlord, especially for the first time, is not a passive endeavor! That said, being a landlord allows you to have a steady cash flow and build wealth. Owning property is considered a powerful way to earn a nice return on your investment.
The biggest challenge for a first time landlord is knowing where to start and what to do if problems come up. If you’ve just acquired property or considering renting out your home, you might wonder how much you can expect to profit, how much to budget for repairs and vacancies. When you’re looking to become a first time landlord, there are pitfalls that could cost you money (and sleep!) or leave your property unrented. To be the best landlord for your renters, follow these tips:
1.Have A Realistic Budget
As a landlord, you’re the one who gets the call at 4 p.m. on a Saturday morning when the hot water tank stops working. In addition to determining a fair rent, you need to have a budget for regular property maintenance and unexpected repairs. Your budget should factor the history of the property maintenance and age of the home. TheBalance.com offers two different rules of thumb. The first being 1% of the purchase price of your home or rental should be set aside each year. The second being $1 per square foot per year.
Your budget should also include money to pay the mortgage during times of vacancies. In an ideal world, your place would be rented all the time, but that’s not realistic. According to an American Community Survey taken in 2015 the vacancy rate in Snohomish county was 14%. This means you should plan for your rental to be empty 1-2 months a year. When excellent screening is used to place your tenant and the home is properly managed you can positively influence your vacancy rate.
2. Communicate and Document
Having forms and documentation is one of the most important parts of being successful as a landlord. Come up with a package of common forms to submit to renters and a methodical approach to filling them out.
For every property, have a move in/ move out report that outlines any known issues or damages to the property. You’ll also need to have a lease that fits the state and local laws. There may be lead, bedbug, mold, or other legal disclosures that you need to make renters aware of. Give them a copy when they sign their lease.
Have a well defined way for your tenant to communicate any repair issues with you. Depending on the repair or maintenance issue, you may have prescribed and limited time to fix it. You’ll want to be sure you have any related communication documented. RCW 59.18.060 defines exactly what your duties as a landlord are.
3. Make the Most of Your Time
Being a landlord can be time consuming. Planning ahead can save you time. For every showing, repair, or tenant-related issue, come up with a plan and workflow. If there is plumbing work to be done, know who to send. Have a plan to address things like noise complaints. Know what steps you need to take to arrange a showing on an occupied property.
If you know your schedule is tight, you might consider a property manager. A fixed fee property manager can handle your showings and rental process to free up your time.
4. Get to Know the Fair Housing Laws
Landlords have power in many cases, but they aren’t above the law. There are fair housing laws in just about every municipality, which helps protect tenants.
For example, if you plan on showing a property, you might have to notify tenants in advance. If you’ve got a “no pet” rule, you might have to waive that rule or fee in the case of a support animal.
Be aware of which laws protect you and which protect tenants. This way, you’ll have a fruitful relationship with your renters and avoid legal issues.
5. Screen Every Potential Renter
Before you rent out your property, run a complete check on every applicant on the lease. A background check and a credit check could lend you valuable insight before you rent out your property. Get employment and rental references. Ensure income is sufficient to cover the rent. A general rule is that rent should not exceed 33% of tenant income. There are many services that offer background and tenant credit checks. Nearly all are fee based so you’ll want to factor this additional cost into your calculations.
While most people will be great tenants, one tenant that doesn’t pay or causes property damage could (will!) cost you money and time. Screening is the best way to reduce your chances of having issues with a tenant.
Becoming a First Time Landlord Can Be Rewarding (and challenging!)
Being involved in your community as a first time landlord is both exciting and engaging. As you can see, there are a lot of elements to plan and consider before renting your property. This is why many new residential landlords seek a qualified property manager, like VerraTerra in Snohomish and King County. To consult with a VerraTerra property manager about your first rental, contact us. We charge a simple, fixed fee for complete property management services. Other property managers usually charge a fee based on a percentage of your rental rate. This can cut into your bottom line. With VerraTerra, you’ll save money and enjoy the benefits of being a landlord without dealing with the management of the property.