What are the pros and cons of becoming a landlord?
From the outside looking in, being a landlord seems like an easy job. Owning a rental property does have many advantages, but it can also be rather challenging at times. Landlords may face many obstacles and difficulties, including:
- Difficulty finding new tenants.
- Trouble managing current tenants.
- Maintaining and repairing the property.
- Complying with state and local legal requirements.
- Managing disputes between tenants, or between tenants and neighbors.
- Keeping tenants happy in order to keep tenants paying rent on time.
- Evicting tenants that cannot afford rent due to changed circumstances, or misfortune.
Landlords have always faced the risk of a tenant not being able to pay rent, but thorough tenant screening practices can help lower that risk significantly.
While there are many challenges that await landlords, there are numerous benefits and advantages. Some, for example, include:
- Collecting monthly rent that generates consistent revenue.
- Appreciating property values that generate equity.
- Setting up property management with a manager to create a passive income stream.
- Owning a secure and stable investment.
With the right approach, or help, many landlords are able to minimize the amount of time they spend managing their properties, allowing them the flexibility to pursue other business, care for family, or simply enjoy their freetime.
What are the best real estate markets to start out in?
Most landlords get their start with residential rentals as commercial real estate can often involve much higher upfront costs. What is best, however, depends on your own goals, budget, and bandwidth.
When it comes to purchasing your first rental property, you may want to carefully research the market you plan to enter. While you may want to purchase your first investment or rental property close to home, location is everything when it comes to real estate. If you can enter a hot rental market in a nearby city, this can pay off with higher rents and higher returns.
For residential or commercial properties, you may want to look into whether the available rentals on the market in your area, or target market, are being rented or sitting empty. It is important to consider what other landlords are charging for rent on similar units, and whether your venture will generate enough revenue at that rate to turn a profit and cover the mortgage, taxes, tenant management, repairs, maintenance, and unexpected costs.
Can I buy a property that already has good tenants?
Landlords can buy and sell tenant-occupied properties. Some rental properties may be labeled as turn-key investments. This typically means the property is already occupied by a secure or long-term tenant.
These opportunities can be a good place to start for new landlords as much of the work has already been done. Like any investment, however, there may be drawbacks to purchasing a tenant-occupied property, particularly if the existing Lease Agreement:
- Recently renewed and does not allow for rent increases.
- Requires the landlord to pay high maintenance or repair costs immediately, or in the near future.
- Limits the landlord's rights.
- Obligates the landlord to perform burdensome or costly tasks, such as providing parking lot security.
If you are considering a turn-key or tenant-occupied property, you may want a lawyer to review the existing Lease Agreements before committing to the purchase.
How can I avoid bad tenants?
Getting your first tenant may be exciting, but it is important to make sure that tenant, and every other tenant you rent to meets certain minimum qualifications that you set. Landlords frequently require prospective tenants to submit:
- A Rental Application.
- Credit reports.
As part of the application process, landlords often require proof of income, such as by asking for recent paystubs, tax documents, or bank statements. Calling references and confirming information can also be an important part of the process.
While screening tenants, it is important to be mindful of federal, state, and local laws. Generally, this means that your screening criteria cannot favor or disadvantage a prospective renter because of their race, gender, religion, national origin, sexual orientation, disability, age, or family status.
Some landlords may wish to reduce their risks of getting stuck with a bad tenant for a long lease by using a Month-to-Month Rental Agreement rather than an annual or multi-year lease. Landlords in areas with strong renters protection may want to review local laws and restrictions on ending a Month-to-Month Rental Agreement.
Finally, if you decide to work with a tenant who falls behind on rent, you may wish to have them sign a Late Rent Payment Agreement. This document clarifies how they will catch up on rent while helping to preserve your right to evict or pursue other remedies in case of future non-payment.
If you have more questions about becoming a landlord, or managing a rental property, reach out to a Rocket Lawyer network attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.