One way to make money in real estate is to be a landlord. If you own a home that you aren’t ready to sell, you can rent it out to someone else, and they can pay the mortgage on the property until you are ready to sell. It’s also possible to buy multi-unit housing, from duplexes and fourplexes to apartment buildings with several units.
However, if you plan on being a landlord, no matter the capacity, it’s important to understand what you are getting into. My husband and I briefly thought about renting out our home once, but then decided that it would be too much effort to make it work effectively. Here’s what you should know before you take the plunge and become a landlord:
Screening Tenants is Important
One of my former neighbors had a terrible time with a tenant. She rented out her home after she moved, but failed to screen her tenant. The tenant was often late with rent, and damaged the home. In the end, an eviction process had to be followed, and the entire situation was difficult and expensive.
If you want to reduce the chances that something like this will happen, a tenant screening process is vital. Running credit checks and checking references are important activities if you want a more reliable tenant. While there is no guarantee that you will avoid problems, the reality is that you have a better chance of getting a clean, responsible tenant that pays on time if you screen your tenants.
You are Responsible for Repairs
Don’t forget that you are responsible for repairs and maintenance. It’s up to you to make sure that everything is up to code on the home. If an appliance breaks, you have to replace it. If a water main goes in the middle of the night, you’re the person who has to arrange the cleanup.
You can get around some of these management duties if you hire a property manager. However, if you have only one single family property to rent out, or if you have only a duplex or fourplex, it might not be worth it to hire a property manager. In that case, you need to make all the arrangements for repairs and maintenance, and be on call for emergencies.
If you do have a large apartment building, or multiple properties, hiring a property management company makes a lot of sense, since that will free you from always being at the mercy of problems with the property.
Insurance is a Must
Don’t forget that you need to have the right insurance policies on your property. You should have the right type of insurance to protect against various types of damage to the property, whether it’s from natural disasters or from tenants. It also makes sense to look into liability insurance for the property. In some states, you might need different types of insurance if you are a landlord. Find out what you need in order to be properly insured.
It can also makes sense to require a tenant to buy renter’s insurance. Your insurance won’t cover your tenant’s belongings if something happens, but it can be a good idea to require this insurance so that your tenant is covered, and has less incentive to ask you for recompense in the event that something unexpected happens.
Before you decide to become a landlord, make sure you understand what you are getting into, and that you know what to expect. Research the rental market in your area, and talk to other landlords about the situation, and get some pointers. You’ll have fewer unpleasant surprises that way, and be more likely to come out ahead in the end.
