Three things to know BEFORE becoming a landlord
The numbers make sense. The bank approved the loan, the seller accepted the fantastic offer, and you're closing in just a few weeks. Congratulations, you own an investment property. But now what? It's time to find (and keep) tenants, but there are a few things you need to do first.
Learn about Fair Housing. The laws cover most housing, which includes the one you just purchased. Read it, learn it, and be fair. This section of the law can get landlords in heaps of trouble. Check out the rules, and ensure you follow them as best you can.
Budget, budget, budget: While the mortgage on your rental will be due each month without fail, rent may not always hit your bank account. Make sure you've accounted for vacancy loss, maintenance expenses, property taxes, and insurance. When purchasing a house, there are many hidden fees, so make sure your numbers work for you.
Calculate your outgoing expenses: Are you paying for trash, or is the tenant? What repairs were listed on the home inspection? Typically, you should budget 1-3% of your purchase price annually for maintenance and repair.
Establish a rental price and if/when it will change. Check out other rentals in the area and confirm your rate is competitive. Will you charge pet rent? Or any additional fees for utilities? Add all these together for your income.
How are you going to collect rent payments? Because if you're not collecting rent, the investment is just an expense!
I recommend finding a way to collect rent online. Many first-time landlords will use a payment method they already know, such as Venmo, Zelle, or Paypal. However, be sure you're tracking your rental income correctly, and remember that you may have to pay a fee for these transactions.
Along with a way to get paid, have a sound system for tracking your income and expenses. At the end of the year, you'll need all this information to ensure you're profiting AND paying taxes.
These are just a few items to consider before you sit at a closing table. Being able to answer these questions as soon as you place your For Rent Sign in the yard means you won't be scrambling after the lease is signed!