Welcome to our “How to be a Landlord” primer. This is the first of a 5 part series that will walk you through the basics of how to be a landlord. Each post can be read independently but they do follow a natural progression of what you would go through in becoming a landlord. Here’s a preview of what this 5 part series on how to be a landlord will cover:
- Getting ready for being a landlord.
- How to get tenants.
- During the lease.
- Transitioning between tenants.
- Liability and setting up your business.
In this post I cover the basics of getting ready to be a landlord. I’ll be covering everything from getting mentally prepared to doing market research. The post is divided into sections and each section will, for the most part, stand on it’s own so you can just breeze through to find the content that is most helpful to you.
Find a landlord mentor or landlord club/group
Find a landlord mentor or group of people who are doing the same as you. This will help to bounce things off of each other and will also help you when you need advice on any given situation. It also just helps sometimes to have a person or group of people who you can vent to when your tenant does something really stupid, or you make some big mistake.
Mentally Preparing to be a Landlord
Becoming a landlord takes a certain kind of mind-set. You’ll need to get mentally prepared and disconnect yourself from your emotions that people sometimes attach to their homes. Many new landlords, especially husbands and wives renting out their first home, will struggle with seeing tenants taking over their home. In order to mentally deal with the stress of being a landlord we recommend the using the following check lists:
- Disconnect yourself from the emotion, remind yourself that your previous home is now a business. Write down the benefits you’ll gain from renting out your home and discuss this with your landlord mentor.
- Say goodbye to the home as if you were selling it… take mental pictures of everything but understand that it’s no longer yours to occupy. This sounds silly but it can be very helpful for new landlords. If you’re renting this out with your spouse be sure to have this discussion ahead of time and write down the things that will be hardest for you. This will help later on when things get tough or when you need to make decisions, or more importantly you just need to think through why things might be bugging you.
- Make a list of things you really want out of a tenant, this will help you later when you are trying to figure out how to get tenants and which tenants you want to rent your home to.
- Think about what benefit you’ll be getting out of renting your home out and write it down. You’ll need this later to weigh it against the reality of how much you’ll be able to rent your property out for. Try to decide at what point it is no longer worth renting out to you. Will you need to make $100 per month, break even, or lose no more than $100 / month?
Do your math
You’ll want to spend some time putting some numbers down on paper, so you can do the math and know what you’ll need to break even. Some of this will be dependent on what is important to you and what you consider mandatory to be included in your asking price. Go grab a pencil and some paper (or use my How to be a Landlord Google Docs Spreadsheet template) and write down the following:
- Current Mortgage Amount
- Current HOA Dues
- Average Home Warranty Quote
- Average Rental Property Insurance Quote
- Average Landscaping Quote
Once you’ve got these numbers down on paper, you can come up with your minimum asking price for monthly rent. If you decide you want to just break even you’ll need to take what your current mortgage is + any of the other quotes or fees that you must pay each month and you’ll have your break-even minimum asking price. Once you do your rental property market research you’ll know if you are set up for success or if you’re out of your league!
Do some rental property market research.
You’ll need to understand how much you can get for your rental so you know if you’ll have extra cash flow or still need to cover some of the expenses yourself. This will help you to feel good about your decision to rent out your property or stop yourself from making a bad decision when you can’t really afford it. When I get ready to rent my property I use a template and go through the following steps:
- Go to Rentals.com and search for homes in my zip code, making sure to filter the results down to comparable homes and features.
- Also, take note about what other landlords in the area are including in their rent…this will help you to differentiate when it comes time to figure out how to get tenants.
- Record the monthly rental price, square footage, number of rooms, and zip code in my “How to be a landlord: Estimates” template spreadsheet. I also make notes on anything special about the property.
- Look for any outliers in the data and make notes as to why they might be there. Sometimes I’ll throw out the highest and lowest rental property if they are skewing the data.
- Calculate a price / square foot for each property.
- Calculate an average price / square foot for all properties in my search.
- Calculate a price for my rental property based on the square footage of my home times the average price per square foot in my area.
- Adjust the price based on any extras my home may have to offer that wasn’t comprehended in the market data…this is generally my starting price but I will negotiate down as needed to my minimum offer.
I created a screen cast to walk you through the process: How to be a landlord: Doing some rental property market research.
Talk to the folks in your community.
Generally speaking there are two folks I want to speak with when renting out my property: My Neighbors, and the HOA property manager. When speaking with my neighbors I want to let them know that I don’t have any interest in renting out to folks that are going to cause a problem for them or a problem for me. I also want them to know how to get a hold of me if something goes wrong and I want them to be my eyes and ears on the ground so to speak so I know if any issues are starting to pop up. Below is my list of general points I try to hit when speaking with my neighbors:
- Let them know that I’m planning on moving out and that I’m planning to rent my property out to someone.
- Talk about what’s important to you in a tenant and all the work we do to screen and make sure we have someone good in there. Emphasis on how it’s important to me because the home is a huge investment for me and I want to keep it and the neighborhood looking good.
- Give them the general time line for getting someone into the home.
- Give them my phone number and contact information should they see something going on that is either bugging them or they think would bug me. Make sure to ask them to call me if they see something… so they know it’s okay to call and even appreciated.
- Give them my contact card from Vistaprint with the landlord website address (so they know what kinds of things are in the tenant agreement and what things are not allowed… i.e. smoking, subletting, etc…).
- Ask them if it’s okay if I give them a call once I know who’s signed the lease and give them some more details.
- I’ll typically give them names of the tenants, makes of cars they should expect to see there all the time (helps with subletting issues), let them know if pets are allowed at the house or not, etc…
When I talk to the property manager for the HOA I usually do so over email so I have everything in writing. I want them to know that I’m renting out my home and that I’ve given the new tenants a copy of the HOA rules. I will also let them know that I’ve given the tenants a key to the pool and mailbox. Lastly I want to make sure they have my new address. This helps later on if there are fines they know to send a copy to me and a copy to my tenants. Below is a template email that I send out to the HOA property manager
Lastly you’ll want to keep in touch with these folks… especially your neighbors. I try to stop by and chit-chat with them at least every other time I’m out at the property. Additionally I keep them on my list of folks I send Christmas cards to, so they remember we’re out there and that they can contact us should they need to.
Decide if you want to get a home warranty
In my opinion home warranties are worth the cost, however I have lots of landlord friends that don’t carry them and instead just put money into savings. The cost of a home warranty will vary depending on what is included, the size of your home, and your area. Generally speaking home warranties will cover any issues you have with major appliances, some plumbing, heating and cooling, and other things that could break. You will have to pay for a repair person to come out each time something goes wrong but the small service fee is often much less than what it would cost for parts and labor on a repair you’d have to do yourself or hire to have done. I also like that I can give the number of the home warranty company to my tenants should things go wrong when we are out-of-town. Call around and get some quotes and then decide if it’s worth it to you based on the age of your home and your situation.
Rental Property Account Management
You’ll need to put some thought into opening a lot of new accounts. This will help you separate your rental property business accounts from your personal accounts. Some services / accounts to think about opening or separating if you already have them:
- Bank accounts (we tell you why in this post on how to be a landlord: setting up your business)
- PO Boxes
- Rental Property Websites (like rentals.com)
- Google Docs
It could be important later to be able to refer back to what was in the house and the condition of the home prior to the new tenants moving in. Digital media is so cheap now and so easy to create that we’ve started taking photo and video catalogs of everything in our rental property prior to our new tenants moving in. We’ve already detailed out how to use our Free rental walk through form, but you can use the information here as well to help in any instances where there is a discrepancy on the condition of the property at move-in. Here’s our short list:
- Record serial numbers of all your appliances, keep them in a spreadsheet and take pictures and put those pictures and the table of serial numbers / model numbers in Evernote for future reference.
- Use our free rental walk through form to record on paper any issues… this will also help serve as a guide for when you do your video walk through. Don’t forget to add the condition of the lawn, trees, sprinklers, etc… if applicable.
- Do a video walk-through of each room in HD quality if possible (if you’ve got a new model iPhone this is so easy). Be sure to point out on video any issues that are already there. Upload this video to a private YouTube account to serve as proof of when the video was made and for future reference should your local copy get deleted or lost.
- Do a video walk-through for each of your major appliances. Show on video that they are working and demonstrate that. Upload this video to a private YouTube account to serve as proof of when the video was made and for future reference should your local copy get deleted or lost.
- Do a video walk-through of the front and back yards if applicable. Show how the sprinklers are working or any other outdoor appliance (built-in grill, misters, etc..). Upload this video to a private YouTube account to serve as proof of when the video was made and for future reference should your local copy get deleted or lost.
Think about timing
Put some thought into when it will be best to put you place on the market. You can also talk to neighbors, peers, or potential renters… you can easily do a quick poll of Facebook and get feedback too. Some things I try to think about:
- When will kids be going back to school… am I targeting families and do I want to make the timing of the lease start and end to coincide with summer break?
- Do I mind pro-rating the first month or do I want to start the lease right on the first day of the month?
- Is there seasonal work in the area and am I targeting those folks… if so do I want to start rending out to align with that seasonality?