Whether you are an intentional first-time landlord with real estate investing dreams or an "accidental landlord" due to military orders, there are things you should know before you ask your first tenants to sign on the dotted line. The most successful rental property businesses bloom from plenty of prep work and education.
We’ve put together eight essential first-time landlord lessons to teach you how to become a landlord who’s not only financially successful but also enjoys renting their property and empathizes with fellow military members as they relocate.
Lesson 1: You now own a business, so it's time to get your finances in order.
Congrats, you’re a business owner! There’s a lot to learn, but organization is the one skill you must sharpen before renting to tenants.
Not only should you have impeccable financial records (you’ll thank yourself come tax season), but you also need a system for miscellaneous records like maintenance and repairs. Even if you have a property manager, don’t expect them to manage your rental business finances. Keep duplicate records of your income and expenses.
Organize your finances to easily turn them over to someone else, such as a property manager or spouse, in an emergency. Will your rental property operate seamlessly if you’re unexpectedly hospitalized for a month?
Lesson 2: Know both your and your tenant's legal rights.
Learning the landlord/tenant laws for your city and state can be time-consuming and sometimes confusing for first-time landlords. There’s more to being a landlord than simply emailing a lease and asking tenants to sign, especially when working with military members and their often unique circumstances.
If you want to take on the legal challenge, start by checking your state’s tenant and landlord resources to understand your rights and those of your tenants. For example, these are the Commonwealth of Virginia and California websites.
Keep in mind part of a property manager’s job is to know and stay up to date with rental property laws. If you need help, a local property manager will help you navigate the legal waters in which your rental property is swimming!
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Lesson 3: Understand landlord and tenant insurance responsibilities.
First, know that your standard homeowners insurance doesn’t cover the conversion into a rental property. Part of your due diligence as a property owner is finding adequate rental property insurance. Don’t forget to add these likely increased insurance fees to your operating budget.
Consider stipulating in the lease that your tenants must purchase renters insurance to keep everyone informed about coverage responsibility. They may be unaware that your rental property insurance does not cover their belongings. In case of a problem, you and your tenant should know what to expect.
Lesson 4: Know your rental property’s price point.
If, based on your market research and suggested rental amount from a reputable property manager, you believe that your home is priced appropriately, stick to your price point until the situation dictates something different. Be aware that the economic climate and military lifestyle scenarios can flux your asking price, however.
For example, if you’re in a heavily military-dominated market and have the misfortune of facing a turnover out of a traditional PCS season, you may want to lower your price point so the property doesn’t sit unoccupied. You may also consider a shorter-duration lease so that the house rotates back into the height of the moving season, even if you have to turn over the property sooner than you first thought.
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Lesson 5: Watch out for lowball offers.
Not every prospective renter who requests a lower rental amount has financial baggage to watch out for. They might legitimately think the rent is priced too high and figure it doesn’t hurt to ask, or maybe they have a cultural background that dictates that it's rude not to haggle.
However, if a prospective tenant is adamant about a price reduction, it could be a red flag that they’ll be problematic over the lease’s term. They may cause you undue hassle as they try to bargain and bicker over every item and issue with the home. Or, their negotiations could suggest they’re unsure if they’ll have enough money for rent each month. This is one of those situations when you’ll have to listen to your landlord's intuition and use screening tools to help you decide to offer a lease.
Lesson 6: Screen your tenants.
Investing in dependable, paying tenants is never a waste of money. Consider tenant screening fees as part of rental property operational costs and an inexpensive way to secure your property and find trustworthy renters.
For a reasonable fee, especially compared to hefty damage and eviction costs, you can get a credit report, rental history, eviction history, and criminal background check from RentRisk. That’s money well spent to help protect a much more significant investment—your property!
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Lesson 7: Require regular property inspections.
No one wants their living space invaded, but your tenants should expect reasonable property inspections on a predetermined basis. Reasonable doesn’t equate to a monthly walk-through, but in most cases, you should conduct a property inspection once per year.
Sometimes, more frequent and quick inspections can occur throughout the year, as maintenance calls require. If you or a trusted professional performs the maintenance, a visual inspection keeps a watchful eye on the landscaping, kitchen, and bathrooms. These are areas that often incur the highest amount in repairs.
Many military landlords often don’t live near their rental properties, so it's advisable to have a professional who will administer the inspections for you. Don’t rely on the adage that no news is good news, and hope the tenant keeps the house pristine. They may simply prefer to put up with a mold or water leakage rather than informing you before moving out.
Lesson 8: Think twice about renting to family.
Everyone wants the best for their family members, so deciding whether or not to become their landlord is complicated, especially if you let them move in without a lease. This is a major mistake new landlords can make.
Even if you verbally agree with a family member to pay rent monthly, you may encounter common problems. If your family member tenant refuses to pay, you have nothing in writing holding them to the payment. In the case of an eviction, a judge may side with your family member, particularly if they paid rent in cash without a paper trail to corroborate your side of the story. If you pursue eviction, depending on your state, it may take months before they eventually have to leave.
This is a worst-case scenario, but you could also run into problems with improper upkeep and maintenance, pet damage, sub-letters, and many other difficult situations. Download a comprehensive but straightforward lease from US Legal Forms to avoid unnecessary confrontation. They’re state-specific and accepted as a binding contract.
