First-time homebuyers are a declining group. Historically, 40% of homebuyers have been first-time buyers, calculated yearly from July to June. But that percentage continues to shrink, even if the true homeownership rate among millennials climbed ever so slightly last year.
If you're already a homeowner, your wheels might be spinning right about now -- if people aren't buying starter homes, then the rental market has to be booming. Right? It is in many areas, particularly where unemployment is low, the population is high, and homes aren't overpriced.
You might think you're ready to become a landlord, but learning how to be one by trial and error (the way I learned) is not necessarily the best way. Here are seven tips to consider before you take the plunge.
1. Ideally, you want to live near your rental property
That way, you can check on it periodically (after giving your tenants proper notice), take care of repairs yourself, and show the property when it's time to rerent it.
Forbes put together this list of the 40 top investment areas, but even if you don't live in a prime rental region, you can still invest in one. I was a cross-country landlord for many years; I just hired a property manager to take care of day-to-day details.
2. Know landlord-tenant law
Most states have specific landlord-tenant provisions that cover issues such as security deposits, what sort of access to your rental property you can expect to have, and how much notice you need to give your tenants when you want them to leave. There also are federal laws you need to know, such as habitability and anti-discrimination laws.
Ron Leshnower, real estate attorney and author of Fair Housing Helper for Apartment Professionals, says that "many landlords gloss over housing discrimination laws because they assume that as long as they're not racist or sexist, they needn't worry about fair housing violations."
But fair housing liability traps can arise in many ways, so it's important that you fully understand the law and ensure that you aren't breaking it.
3. Make sure you can enforce the rent being paid on time
This seems like a no-brainer, but believe me, if you get too friendly with your tenants, you might just let them slide a couple of weeks here and a partial payment there. Before you know it, your tenants are six months behind.
But that doesn't mean you shouldn't treat tenants with respect. Real estate consultant Elizabeth R. Elstien notes that "creating rapport shows respect and makes the job of collecting rents and dealing with repair requests that much easier."
Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage, says it's important to "have a thick skin" and advises people not to buy rental property if tenant shenanigans will "drive you crazy."
Case in point: Fleming once had an evicted tenant break into the house, change the locks, and move back in!
4. Screen potential tenants
It's worth the time to do a background and credit check on all potential tenants. I use an online tenant-screening service for this. Credit score alone is not always a reason to accept or deny an applicant, but it is a useful screening tool. You should also conduct an interview and check their references.
5. Customize the lease
If you don't hire an attorney or a property manager, you can use a standard lease form from Nolo, for example, but you should tweak it to fit your situation. For example, if you allow pets, specify how many, what kind, and any rules that apply.
My lease states that tenants should leash their dogs when outside the fenced-in yard and stipulates that pets do not become a nuisance to neighbors.
6. Inspect the property regularly
"Have language regarding inspections clearly written in your lease documents," says Timmi Ryerson, CEO of Smart Property Systems. She suggests taking pictures to establish a base line and conducting an inspection at three months. If you find problems, Ryerson recommends that landlords "issue a notice to comply and set another inspection in one week."
7. Understand this is not a get-rich-quick scheme
Being a landlord is not just sitting around collecting a big wad of cash each month. You'll need to spend some money to ready the property for tenants, buy landlord insurance, and pay property taxes. If you're taking out a mortgage, be prepared to fork over at least a 20% down payment.
Think of being a landlord as part of your overall investment strategy and realistically aim for getting around a 5% return on your investment.
This article originally appeared on Trulia.com.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.