15 Things First-Time Landlords Should Know

As a business, renting out property seems like a great move. If it's well run and you have good tenants, you can basically sit back and collect passive income. However, it doesn't always work out that easily.

If you're considering renting out a property, there are a few things you should know before getting started. Here are 15 things first-time landlords should be aware of.

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Even if you're renting to a tenant under an informal arrangement, you should have a lease with them. This is, after all, a financial relationship, and you want to have a document that spells out each side's responsibilities. The lease should include information on late fees, property damage, pet ownership, and other common issues between landlords and tenants.

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The difference between a good tenant and a bad one can mean everything to a landlord. Ideally, you'll get a tenant who pays their rent on time and has few, if any, complaints. However, a bad tenant can make you regret becoming a landlord.

A bad tenant could refuse to pay you, destroy your property, or even sue you. Therefore, it's a good idea to screen your tenants by checking their employment status, references, and credit. You can also run a background check on the tenant with their permission.

Local jurisdictions can vary greatly when it comes to landlord-tenant laws. It's a good idea to know what the law supports or doesn't support when it comes to something like evictions.

Other important legal issues to understand include fair housing laws, security deposits, rent increases, and tenants' rights. Having a good understanding of the law can help you avoid legal trouble and ensure that the law is on your side when dealing with tenants.

Being a landlord means cleaning up other people's messes, especially when your tenants move out. You'll likely have to do a fair amount of painting, spackling, and even drywall to repair normal wear and tear. You'll also want to be familiar with the systems in your building so you can diagnose any problems.

You don't have to do all this work yourself. You can hire a handyperson or another repair tech, but you'll want to make sure you can trust the person you're working with.

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Every homeowner should have homeowners insurance, but you'll need a higher level of homeowners insurance as a landlord. You'll also want to ensure you have good liability insurance on the property to prevent yourself from getting sued if someone is injured there.

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If you're planning to buy a property to rent, make sure you know the local market well. You'll want to know the going rate for the kind of property you're renting, as well as your ability to raise the rent.

Additionally, it's a good idea to be familiar with the neighborhood you'd be renting in. Who would be the prospective tenants -- students, families, retirees? It's worth considering these questions before you buy your rental property.

In most states, you'll need a certificate of occupancy to rent out your house or apartment. You'll also want to make sure you have the necessary permits for any improvements on the property and that the building is up to code.

Running afoul of the law could get you in trouble if there's an accident or another issue, and if you don't have a certificate of occupancy, your tenant could be within their rights not to pay you.

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If you're renting out to strangers, it's a good idea to have a financial relationship that could support unexpected property costs that might arise. This could include needed repairs or, perhaps, legal fees you didn't anticipate.

You may want to consider getting a home equity line of credit (HELOC) on the property. However, you should be aware that the requirements are stricter than they would be if you lived in the home.

In addition to repairs and maintenance inside the house, you'll likely have to deal with maintenance outside. That could include lawnmowing, snowplowing or shoveling, cleaning gutters, raking leaves, and other landscaping work.

If you're planning on hiring someone to do the work, you'll want to factor that into your budget. If you're not, be sure you understand the time commitment.

Depending on how many properties you're planning to rent, you may want to have a marketing plan. Do you want to advertise your listing on social media sites like Craigslist or online real estate brokerages like Zillow? Do you want to hire a broker?

How much are you willing to spend on advertising? There are a number of options available to find the right tenant. Consider the one that is best for you.

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Make sure your tenants know the best way to pay the rent. Are they slipping a check under your door or paying you online?

You'll also need to keep track of rent payments for your own accounting and tax purposes. Depending on which state you live in, you may need to issue tenants receipts.

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If you think you need to evict one of your tenants, you'll want to know what that entails ahead of time. You'll likely have to serve your tenant with notice before eviction proceedings begin in your local housing court. Though, even if you're victorious, you can't do anything to retaliate against your tenant. That includes shutting off utilities or locking them out of the property.

As a landlord, your ability to raise the rent is key to making a profit. You should know how much you can raise the rent each year and what kind of notice you have to give your tenants.

Depending on state and local laws, rent increases could be tied to the consumer price index, or there may be another limit you should be aware of. The amount you can raise the rent may also be determined by the size of the building you own.

Depending on your situation and availability, you may want to hire a property manager, especially if you own multiple properties. A manager can take any spur-of-the-moment headaches off your hands and oversee regular maintenance, repairs, and other needs. While a property manager typically costs around 10% of the rent, it's worth it if you're busy with a job or other responsibilities.

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Once your tenant moves in, you'll have limited access to the property, so it's a good idea to hire an inspector while the property is vacant to find any problem areas with your property. If the building needs a new roof or boiler, do it before renting out the property. An inspection can also alert you to problems that could come up down the road.

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Like any other business venture, becoming a landlord exposes you to risk, so it's best to be prepared for anything that could go wrong. Have a lease that clarifies your tenant's responsibilities, and do your best to find responsible tenants who are a good fit for the property. If you do this effectively, you could be on your way to bringing in a new revenue stream and making the most of your rental property.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.