Congratulations on your first foray into becoming a rental property owner!
You’re in good company. According to data from the 2015 American Housing Survey, you’re poised to own one of 48.5 million rental units in the United States.
How do you turn that rental property into a wild success with potential tenants coming out of your ears? Great question. Here’s how you can get started.
Tips for Beginners on Rental Properties
Here’s what you need to know about rental properties, from buying to marketing them to getting the right tenants firmly in place.
Tip 1: Remember, you’re starting a business.
You’d better make sure you’re going to make money off this rental property. Becoming a landlord is different than being a private homeowner. It’s a business and it’s your job to treat it like one.
Don’t have a good business plan? Put one together, pronto. You’ll find yourself heaving a sigh of relief as soon as you do.
Tip 2: Make sure you qualify for a loan.
You’ll also need to be able to qualify for a loan — don’t make the mistake of finding the property first, then look for financing. What happens when you look for months and months, find the perfect rental property, then it takes forever to get preapproved at the bank?
Someone could come along and swoop it right out from under you! (Someone else might think it’s a perfect rental property, too.)
You could look at houses in one price range and realize later that you don’t qualify for that price range at all. Getting preapproved lets you pinpoint rental houses using an educated decision.
You want to jump on a rental property as soon as you can — and as soon as the bank says you can.
Keep in mind that you need a heftier down payment and stellar credit to buy a rental property. In fact, to be specific, if you’re borrowing money for your first rental house, you’re going to need at least a 20 percent down payment.
Tip 3: Figure out your return on investment (ROI).
Can you make money?
No? You’d better steer clear.
How do you know the return on investment (ROI) on an investment property? Here’s how to calculate your ROI:
Calculate the property’s net annual income, or the rent money after you pay taxes, insurance, property management fees, repairs, potential vacancy periods, utilities and any other fees.
Divide the annual income by the amount you spend on the property. For example, if the net annual income is $6,000 and you spent $100,000 on the property, your ROI settles at 6 percent.
Tip 4: Make sure you buy in a desirable area.
Don’t just buy a rental property because it’s cheap. You want to know every little thing about the property — and it’s area. What does the neighborhood and location offer? Is it located within a vibrant community?
You want to make sure that its purpose fits the people who will live there. For example, if you’re considering purchasing a large single-family home, you want to take a look at the family-friendly amenities the neighborhood presents. Are great schools accessible? Parks and recreation close? Is it in a safe neighborhood? Consider those way-of-life factors!
Tip 5: Buy property with growth in mind.
What will you do in the long term? Do you plan to buy a condo, then buy up other condos in the same neighborhood? What if you want to sell later on? Want to flip it? No matter what you want to do, you want to make a profit. If your goal is to sell within a few years, you might want to go for a property that allows you just enough time to make a few small upgrades, then sell. Consider your long-term goals no matter what type of rental you end up buying.
Tip 6: Don’t expect instant profitability.
Especially if you have a mortgage on the rental, you won’t get to roll around in your money right away. The bank, your insurance company and your community (through property taxes) are much more likely to enjoy the money from your investment than you for up to 30 years (depending on your mortgage amount).
Tip 7: Shop around (for insurance)!
You may have paid more for your primary residence than your rental property, but that’s not so when it comes to insurance. If you keep all home insurance policies at the same company, you could get a discount. An insurance agent can also get you a good umbrella policy to protect yourself, your property and your family.
Tip 8: Figure out how you want to collect rent.
Now, let’s get into the nitty-gritty once you actually have tenants. Using an online system is the quick and convenient way to maintain a digital paper trail. Check bounces happen and you’ll need to pay a non-sufficient funds fee and try to get money out of your tenant.
Asking for cash puts you in a position where it’s harder to form a paper trail. Using an online payment portal means you can avoid these situations altogether.
Tip 9: Put together a well-written lease.
Not to state the obvious, but your lease is important as a binding contract. It explains:
What tenants can and cannot do.
Basic language based on your state’s tenant-landlord laws.
The parties responsible for maintaining the lawn.
Where tenants can park and the number of cars allowed.
Painting the walls and other property alterations.
Whether pets or subletting are allowed.
How pest control gets handled.
How tenants can use the property.
What happens if a tenant does not follow these rules.
Tip 10: Remember, your tenant is not your friend.
Sure, you want to act friendly toward your tenants. In fact, you want to act as courteous as you possibly can toward your tenants. However, stop short of allowing your actual friends to move in — it could cause a major conflict. At the end of the day, what matters most is your business, and as we pointed out in tip No. 1, your rental property is a business, not a boarding house for your friends and family.
Tip 11: Use SmartMove to find the best tenants possible.
TransUnion SmartMove, used by millions of landlords, can help identify great renters. Its online service enables landlords to conduct checks easily and quickly. Signup to transaction is rapid, with tenant reports delivered in a matter of minutes to make a more informed decision on the spot.
SmartMove offers standard credit checks for tenants, but more than that they’ve tailored their product with unique enhancements and features to make it tailored to call risk for rental screening. SmartMove’s proprietary ResidentScore, a renter credit score built with TransUnion sophisticated analytics, predicts rental eviction risk 15 percent better than traditional credit scores so you can make a confident rental decision. Also, the income insights report, unique to SmartMove, helps to reduce non-payment risk by quickly analyzing applicant income to determine if more verifications are necessary. Plus, only the SmartMove platform offers a pay option for both landlord or the applicant, enabling convenience in the process.
They also have eviction reports and you can tap into over 370 million criminal records from state and national databases for complete and comprehensive information.
It’s free to sign up and no subscriptions or volume commitments. Just get pay-as-you-go and choose from 3 packages that will meet your needs.
Don’t Miss a Beat with SmartMove
You can’t afford to make a mistake when you’re making this very expensive investment. A rental property isn’t all fun and games — it requires hard work and sweat equity. An ounce of prevention is better than a pound of cure, and proper tenant screening is a great way to ensure you get a consistent rental income stream. Get SmartMove on your side so you find the best tenants possible. Plus, our top tips can help you get exactly what you want out of the experience.
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