So you want to be a landlord? Well, so did I, almost. I gave it some thought a while ago, attracted by the idea of money just rolling in from tenants every month. I then spoke with a bunch of people who have owned rental property for many years and my eyes opened up a bit. Perhaps I'll instead fund my retirement through investing in solid stocks, such as Wal-Mart
Here are some recommendations for you, if you're interested in becoming a landlord.
- First off, buy carefully. Give the neighborhood a close look, remembering that you may be called there in the middle of the night on occasion to tend to some emergency or other. If it's a neighborhood you're afraid to go to, think twice about it. Also, if you see a lot of For Sale or For Rent signs, that may indicate low demand for housing in the area (or perhaps just an abundant supply). If so, you may not be able to demand much for rent.
- Next, expect unexpected outlays of money, some of which may be sizable. On the whole, landlording can be a satisfying and worthwhile endeavor, but it does come with some doozie experiences. One landlord I spoke with told the story of how, when she went to collect the rent one day, she was amazed at how clean the windows were -- until she went for a closer look and found them all gone. All, gone. The tenant had sold them and the landlord ended up (despite a trip to court) having to replace 18 windows and frames and 18 storm windows, costing roughly $4,000. Ouch.
- Expect routine cash outlays. Rental properties aren't all about money coming in. You'll probably want to paint apartments (or offices) between tenants and every few years for remaining tenants. Rugs will need to be replaced. Locks changed. Various repairs and upgrades made. If you want to attract and keep tenants, your property should look clean and decent.
- Don't expect to hike the rent each year. You could do so, of course, but there are some compelling reasons not to. Chiefly, the importance of keeping good tenants. If you have a good tenant who takes care of the property and pays on time, you'll want to keep him happy. You're probably better off getting a reliable $800 per month instead of a more iffy and troublesome $1,100 per month. You can certainly hike the rate between tenants, and for a tenant who stays many years, occasional increases are reasonable.
- Expect to be demanding. Don't let tenants fall more than 2-4 weeks behind in the rent, because many people who fall behind will never be able to catch up. If there are problems, negotiate with the tenants. One landlord explained that he switched a tenant to paying weekly instead of monthly, because that was more manageable for the tenant. The same landlord recommended collecting the rent in person because it allows you to check up on the property's condition and make a connection with the tenants. (But be careful, too -- you might become a robbery target if you're known to be making the rounds at the same time each month, collecting cash. Perhaps, don't go alone.)
- Expect to learn the rules and laws governing rental properties, so you know how to deal with various issues. You'll need to know things like when and how to evict, and when you can and can't lock someone out of the property. You'll also want to make sure you understand your insurance policy and what it does and doesn't cover. One landlord recommended preparing a summary sheet for each new tenant, listing your responsibilities and theirs. That can even prove useful later, if things end badly and you land in court.
- Seek out and develop relationships with people who can help you, such as friendly, experienced landlords in the area. They can be terrific resources when you need to know how to deal with various situations -- they may have a lawyer or service people to recommend, too.
- Expect to put your handiness to use or to become a little handy, if you're not already. You can save a lot of money by doing simple things like painting an apartment yourself. Learning a few lock and plumbing tricks can help, too. It's also critical to find good professional service people (carpenters, electricians, plumbers, contractors, roofers, etc.) and to develop strong relationships with them. You'll need them to bail you out when a boiler stops working on a cold night, or a toilet breaks. Treat them well.
- Expect some tenants to be jerks. The landlords I spoke with estimated that in their long experience, roughly 3% to 10% of their tenants have caused a lot of trouble. This might seem easy enough to deal with, but remember that they're not always evenly spaced out. You might go several years with few or no problems and then run into a string of terrible tenants for several years.
- Assess your personality and see if you think you have what it takes. I was advised that you need a strong constitution (you'll probably see some gruesome messes, among other things as a landlord, and will likely have to clean some up). You shouldn't let people walk all over you, because some will try. You also need to be fair and even-tempered, and be able to read people. Some folks will have real problems that interfere with their ability to pay you, but you may be able to work it out and get payments in installments. Other times, it will be hard, but you'll need to evict them. It's always smart to avoid developing friendships with your tenants -- if you really want to do so, perhaps wait until after they move to another dwelling.
- Be careful checking references. One landlord suggests calling not just the last landlord (which might also be the current landlord eager to get rid of these tenants), but the previous one or two. Those will have no reason to not be honest about the tenants.
- Learn more. One useful book on the topic is The Complete Idiot's Guide to Being a Smart Landlord, by Brian F. Edwards, Casey Edwards, and Susannah Craig. Others are Landlording: A Handymanual for Scrupulous Landlords and Landladies Who Do It Themselves by Leigh Robinson, and Property Management for Dummies by Robert S. Griswold.
These are just a few of the many things you'll want to consider if you're on the road to owning rental property. They're by no means comprehensive. I invite you to share any additional pieces of advice for would-be landlords, or to ask any questions on our Owning Rental Property discussion board. If I see a bunch of good suggestions, I may include them in a follow-up article.
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Selena Maranjian patronized landlords for nearly two decades before finally buying her own home last year. She owns shares of Berkshire Hathaway, Pfizer, Microsoft, and Johnson & Johnson. For more about Selena, viewher bio andher profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool isFools writing for Fools.