Investing in real estate is an enticing option for anyone who wants a steady source of income. However, operating a rental property can be a bit tricky, particularly if you aren’t prepared. There are critical things to know before becoming a landlord if you want to avoid various missteps.
If you’re asking questions like, “Do you need a license to be a landlord?” or “What are the costs of being a landlord?” it’s wise to do some research. To help you on that journey, here’s some first-time landlord advice to ensure you have all of the necessary information.
First-Time Landlord Tips for All Property Types
Being a Successful Landlord Costs More Than You’d Expect
When acquiring an investment property for the first time, it’s easy to underestimate the costs of being a landlord. Often, you’ll need a larger down payment than you do with primary residences, with 20 percent typically being the minimum.
Additionally, along with the cost of the property, it’s common to need to cover repairs. Plus, you have ongoing expenses like taxes, insurance, maintenance, and income taxes for any rent generated.
In many cases, you’ll want to estimate the costs associated with owning and operating a particular rental property. That way, you can determine if the potential rent is enough to cover the expenses and leave you with some income.
Don’t Focus on Your Preferences. Align with the Market Instead
When you’re becoming a rental property owner for the first time, it’s easy to assume that your tastes match everyone else’s. However, that might not be the case. Since your goal is to secure a renter, you must let the market guide your decisions.
What are tenants looking for in residential properties when renting from a private landlord? Are households looking for homes, condos, or apartments? What features do they want in a property? What’s normal for this neighborhood?
If you’re focused on being a commercial landlord, what businesses thrive in that area, and can the property align with one of those options? Is there ample foot traffic? What about visibility from the street? Are there safety concerns or regulations that limit the kinds of businesses that can operate in the area?
In both cases, it’s also wise to consider if a neighborhood is becoming more or less popular. With the former, you also need to factor in who’s moving to the area, as that may help you identify opportunities based on anticipated growth in that part of town.
Being Direct – If Not Outright Blunt – Might Be a Necessity
When dealing with tenants, niceties, pleasantries, or flowery language won’t always get the job done. Sometimes, you’ll need to have tough conversations about critical issues, like past due rent or tenant-caused damage to the property. In these cases, being straightforward, if not a bit confrontational, could be necessary.
If you struggle with directness, you’ll need to prepare for the inevitable in one of two ways. First, practice conveying points bluntly before speaking with a troublesome tenant. Second, consider hiring a property manager instead of operating as a landlord, as they’ll handle the tough talk for you.
Hire an Attorney to Create Your Lease
While you can technically find generic leases online for free, you’re usually better off hiring an attorney that understands the local landlord-tenant laws in the area. New York State landlord rights are complex. The same goes for New York State tenant rights.
Being a landlord for the first time is challenging enough without lease issues making things harder. Since that’s the case, one of your first steps to becoming a landlord should always be hiring a lawyer to ensure your leases are on point.
Arrange for Inspections Regularly
As a landlord, keeping an eye on your investment is wise. However, that can get tricky once you have a tenant, as there are usually rules regarding when you can enter a property, barring specific emergencies.
Since that’s the case, you want to coordinate regular inspections. One prime moment is during certain building maintenance or annual service appointments that involve entry into the property. That allows you to ensure the property is in good shape without inconveniencing tenants any more than necessary.
Get the Right Insurance
If you’re operating a rental property, you need the right kind of insurance. Usually, you’ll need to insure the physical structure and secure some liability coverage to protect you if someone gets injured on the property and if there are certain types of lawsuits.
Like homeowner’s and renter’s insurance, there are exclusions in many landlord insurance policies. You might need specialty coverage to protect against floods, hurricanes, or earthquakes. Additionally, you might have to add riders or get specialized coverage for protection against vandalism.
First-Time Landlord Advice for Residential Properties
Skipping or Delaying Repairs Is a No-No
Once you have a tenant in place, you might find coordinating certain repairs is a hassle. However, if you don’t ensure the property is livable, you can run into trouble.
New York – as well as most other states – have landlord-tenant laws regarding habitability. In a basic sense, landlords must ensure that homes and apartments are safe and secure. Additionally, the properties need to meet specific comfort standards, particularly regarding heating and the function of specific key areas, such as kitchens and bathrooms.
If a repair is needed to maintain habitability, getting it done as soon as possible is essential. If you don’t, you could face legal ramifications for the delay.
Enforce Every Rule Outlined in the Lease
Operating a rental property means you’re effectively running a business. You need to take an objective approach when it comes to managing tenants, ensuring you enforce every rule in the lease properly.
At times, this can be challenging when you own a residential rental, as you may feel for tenants who experience certain hardships. However, the lease agreement should guide you on how to act, particularly if you have several properties. That ensures you’re operating in a fair manner, particularly during emotionally-challenging situations.
Screen Potential Tenants Several Ways
When considering a tenant, you’ll want to use a multi-faceted screening process every time. Along with an application, get proof of income through pay stubs, salary verification letters, or similar means. Additionally, conduct a credit and criminal background check and contact personal and professional references. If possible, speak to their last landlord as well, as that can give you some powerful insights.
First-Time Landlord Guide for Commercial Properties
Vet Prospective Tenants Carefully
In some cases, vetting prospective commercial rental tenants is a bit more challenging than residential ones, especially if the person is just launching their company. However, it’s still possible to do a thorough job.
Begin by conducting background and credit checks. Then, learn as much as possible about the business. Ask to see the business plan, balance sheets, profit and loss statements, and operating reports. Also, perform searches to determine if the company has experienced any legal trouble.
Avoid Ambiguity in the Relationship
With commercial tenants, there may be unique facets you don’t see as often with residential tenants. For example, a commercial renter may try to cover rent shortages with goods or services relating to the company or may casually offer you a discount due to your connection.
However, accepting any of these could blur some lines. It may make it seem like covering rent in something other than money is acceptable long-term. It could also imply that, since they gave you a discount, you owe them a favor. There might even be tax ramifications or legal complications.
As a landlord, operating professionally is essential. So, if anything may introduce ambiguity into the equation, it’s best to avoid it entirely.
Understand Local Operational Codes
Zoning and local ordinances can impact the types of businesses that can operate in an area, either directly or indirectly. For example, some neighborhoods may have use or noise restrictions, making certain kinds of companies impractical or impossible in that location. By knowing what may impact businesses in that region, you can make sure you target the right types of tenants.