If you have ever dreamt of being able to buy a second home and renting it out to tenants, you are in very good company. Not only can renting out a property bring you valuable income, but it can also give you a lot of financial security. However, it’s not all sunshine and rainbows – there are many things you need to consider when starting out in the landlord business. Let’s take a look at everything you need to know.
OK, so we all want to earn money and think of ourselves as part of the landlord set, right? Sure, the income stream potential is attractive, but there is a lot of work involved, too. The first step is to find a property in the right place – somewhere you can maximize your rental income. Setting that price can be tricky, too – if you’re too expensive you won’t get tenants, but you’ll lose money if your rates are too low. As a rule, you need to learn about depreciation, repair costs, the prices of property management companies, mortgage interest and insurance, before deciding on your rental process.
Prepping your property
Before you start trying to attract tenants, you’ll need to make your second home appealing. You might need to call in commercial floor cleaning, plumbers, electricians and decorators – and possibly home inspectors if there is significant damage. When it comes to decorating the house, always go for neutral colors – they appeal to more people than homes with fancy decor.
Don’t forget you have a lot of obligations as a landlord. You will be responsible for meeting your monthly mortgage payments – even if the property is empty. You will need to have a thorough understanding of the laws, rules, and regulations set by the federal government and state. You will need to be ready for anything, too, so expect to be contacted 24/7/365. And don’t forget it is up to you to ensure the home is habitable for your tenants – all of which comes at a cost.
What many people forget is that being a landlord is a job – you are effectively running a business. So you will need to make sure you keep your accounts and records in perfect order, pay taxes, track expenses and keep within the law. Most landlords use professional accountants to help, as the rules surrounding rental income taxes are pretty complicated!
Your standard homeowner’s insurance is not enough to cover you for renting a property out. There may be losses involved when a tenant moves out, so make sure you have things like landlord liability insurance and basic landlord property insurance to cover fires and other destructive events. Also, if you live in an area susceptible to natural disasters, it’s advisable you get the correct cover – it would be devastating if your home was damaged by a tornado or earthquake with no cover, for example.
As you can see, there are lots of things to consider when becoming a landlord. But with the right attitude, there’s no reason why you can’t succeed – good luck!