So you're moving into a bigger residence, but considering renting out your house or apartment rather than selling it altogether.
Great! There are many benefits to renting out your former place of residence. Read on for seven tips on becoming an expert in renting property!
Renting property for the first time
It's obvious that there are many good reasons to rent out your home. Some of these include:
- Building equity.
- Starting your real estate portfolio.
- Creating cash flow.
- Achieving a passive side hustle.
- Owning your first business.
So, to help you get where you want to be, the following are seven key tips for becoming a first-time landlord:
1. Do the job yourself
The best way to avoid paying anyone for third party assistance is to do the job yourself. How successful you’ll be will depend a lot upon the market you live in. In a high-demand apartment rental market like San Francisco, a simple FOR RENT sign or a Craigslist ad might do the trick!
First, make sure you understand all legal rules and regulations because there may even be restrictions on the sign you can put up in your front yard. Next, when renting out your home, make sure you carefully word any Craigslist ads and do online research to make sure you are not inadvertently discriminating against anyone by placing the wrong verbiage in your ad.
Then, be sure you are renting out at market rates. For example, if you’re renting out your studio apartment in an affordable city like Minneapolis, make sure you check local sources for current median rents.
Next, have a method to accept applications. When renting out your house or apartment and choosing the DIY method, you need to look like a pro, and that means you’ll need the right application materials; way to check prospective tenant credit scores; the capability to order tenant background checks; and a method to take online payments. Finally, you will need to contact at least two former landlords to make sure your prospective tenant had paid the rent on time and did not cause any trouble in the past.
If all of this sounds too difficult, then consider using a professional realtor.
2. Use a realtor
In some cities like Austin, TX, the Multiple Listing Service (MLS) is a big deal. Many people who are looking to rent an apartment or home will employ a renters’ agent to help them find a property.
That agent, especially if they are a realtor or a real estate agent, will first look to MLS for listings. Sometimes real estate professionals will shy away from DIY renters because the real estate agents want to make sure that their commissions are protected, and DIY landlords may not understand that someone is actually entitled to a commission for helping to rent out your home or apartment.
In an MLS setting, the transaction will most likely be between realtors, and commissions will be respected and paid. The agent might also have some quality real estate software to help get your place rented, too.
That said, commissions can be a significant issue. Some real estate agents will want 80 to 100 percent of the first month’s rent as compensation for finding you a tenant. If you have already lost a month’s rent because you needed to do repairs after a move out, another month or even partial rental loss can be a serious pocketbook blow.
Some Realtors prefer to take a percentage of an entire lease. For example, if you leased your one-bedroom out for $1000 per month, a Realtor may demand a six percent commission, or $720. And if your tenant renews their lease, the real estate professional may require another $720 payment for year two.
Do remember that in exchange for their fees, the real estate agent you hire should take care of everything we have mentioned above, from placing your listing on MLS to doing a thorough background check along with the collection of rents and a security deposit. If you use a realtor to represent you, make sure they also help you stage your home or apartment properly.
3. Consider using a national rental service
An alternative to DIY and employing a real estate professional exists, as propertyware.com says:
“Newspaper classified ads are dead; long live the Internet! As property managers and owners, we work in a world where renters are looking for dynamic content that gives them more than the number of bedrooms and baths. We need the most up-to-date property management solutions to make a great impression. They want videos, rental reviews, social integration, 3D walkthroughs, real-time mapping, and interactive media. Gone are the days of simply placing a sign outside a home when you're trying to rent it. Today, you're aiming for website traffic in addition to foot traffic when you're trying to advertise your rental property.”
As we have mentioned, a real estate agent can provide you with these services, but national sites will take your property and place in on their widely viewed website database that allows anyone in the world to instantly look at your property.
You might also have an awesome real estate website of your own, so use that, too! Of course, you will have to be on site to show the property to prospective tenants and you’ll have to have resources in place to vet your prospective tenants and get them the legal paperwork that they and you will need.
4. Require security deposits
This tricky issue is often governed by specific local laws as opposed to national statutes. In some cities you will need to keep your tenant’s security deposit in a separate checking account and you won’t be able to touch that money until you have to repair damage caused by the tenant. In other places like Texas, you can do what you want to with the security deposit funds until the tenant moves out.
Also, different locales have different rules pertaining to the withholding of security deposit funds. According to NOLO, “Wisconsin state law does not limit how much a landlord can charge for a security deposit. However, it does limit when it must be returned (within 21 days after a tenant moves) and sets other restrictions on deposits.”
Furthermore, in some states, if a tenant takes you to court because you have not returned their security deposit (except for a valid reason) you can be forced to pay three times the original security deposit amount. Therefore, make sure you understand your municipality’s security deposit intricacies.
5. Do well with presentation
When renting out your home or apartment, you need to present it properly. If it’s small, you need to make it look bigger. If it’s dingy, you need to brighten it up. If it’s dirty, get a cleaning crew to solve that problem. And if it needs paint, make sure you get professionals to do a great job.
6. Invest in smart home technology
Prospective tenants like new technology, and smart systems can get you a higher rent amount. Lighting, HVAC, sprinkler systems and entrance ways can all be linked to apps that can be controlled through your tenant’s mobile device. That old round thermostat that controlled the heat at your parents’ house just may not cut it anymore if renters are viewing homes with smart HVAC systems.
If you have an old system, seriously consider going smart. The best landlords completely automate their properties and have them set up so that both they and the tenant can control systems from a single mobile device.
7. Remember: it’s a business
Sure, being a landlord can be a side gig, but it’s still a business, and businesses today have to be more responsive than ever. Make sure that your tenant can reach you by phone, email and text if necessary. Respond quickly to all requests, and get repairs completed promptly.
In today’s online world, a negative Google or Yelp review can cause serious damage to your reputation. When you were a tenant, remember the characteristics that you liked in a good landlord and try to duplicate them. Especially recall anytime you were treated unfairly and do whatever you can to keep your customer — the tenant — happy. You’ll find that it costs a lot of money to get a new tenant, and it’s a lot cheaper to keep your existing one.
Takeaways and bonus advice
Here’s our final tip: Be careful when you raise the rent. Simple math tells us that a $50 a month rent increase may make you feel better, but that raise will only bring you $600 per year. If you have a good tenant and he or she wants to stay, consider leaving the rent alone because if a $50 increase makes them look elsewhere, by the time you repaint, re-carpet and pay a real estate professional to find you another tenant, you may have spent thousands of dollars.
Being a landlord can be a profitable experience because if it works as it should, your tenant will in effect be making your mortgage payments and you will be gaining serious equity. You can’t put the process on auto-pilot, however, so be ready to roll up your sleeves and do the work involved to ensure success.