Checklist for Success
Here's ten ways to become an effective, profitable landlord:
1. Do your homework before you invest.
Will you hire a real estate professional to find your investment properties or find them yourself? Are you experienced in selecting investment properties? How will you decide if a property is a good or poor investment?
2. Search for the lowest mortgage rate.
Getting the best rate increases your profitability and lowers your cost of doing business. Keep the term of borrowed money as low as your budget will allow. What this means is if you can justify financing for 15 years versus 30 years, you are much better off because you are increasing your equity rate at a faster pace. The more equity you get and the quicker you get that equity, the better your position in terms of generating cash for future investments.
3. Establish a business entity.
While you may or may not need to establish a corporation, be sure you comply with all local, state and federal requirements. For instance, if you need a business license, be sure to obtain one. Open a separate bank account, establish a business checking account and keep rental monies separate from other business or personal monies.
4. Screen tenants and do credit checks.
Every day that an apartment or rental property sits empty, you lose money. The best way to keep the properties occupied and to generate cash flow is to minimize your risk factor by doing background and credit checks before you rent.
5. Decide how to handle maintenance and repair issues.
For instance, will you be responsible for performing the required maintenance or making repairs or will you hire someone to do it for you? What types of expenses in these areas can you expect in the immediate future? How about over the long-term? What will happen if an excessively expensive repair needs to be done but you don't have the finances to pay for it?
6. Be prepared to handle complaints.
Treat everybody's rental unit as if it is their castle. If you are at the property frequently and develop a relationship with your tenants, they are less likely to call you for every little thing. On the other hand, they will let you know about items that need repair or maintenance before they become larger or more expensive issues.
If you own many properties, make sure that your property manager and employees understand how vital it is to develop and maintain a good relationship with all the tenants. However, understand that there will be complaints and as the landlord, you may be responsible for the ultimate conflict resolution.
7. Stay current on all tax and legal guidelines and restrictions.
Know and understand the Landlord and Tenant Act for your locality. Stay current on any new IRS rules or guidelines. If you own a large number of properties or apartments, consider hiring an accountant or other professional to help you take advantage of all the legal deductions.
8. Think before you make improvements.
Constantly weigh the cost of improvements against the return on investment (ROI). Oftentimes, new investors get excited about making improvements, but they fail to consider whether the cost of the improvement will generate adequate additional return.
9. Research the options for insurance coverage.
Insurance protects your property, your income and your investment. Compare prices and coverages to get the most insurance for the least premium.
10. Enlist your previous tenant to find your next tenant.
Stress to tenants how important it is to give you sufficient notice prior to vacating. Involve them if possible in the process of finding a new tenant by encouraging them to keep their quarters in pristine condition. Oftentimes, tenants may even show the apartment for you and an occupied, furnished apartment could show better than an empty one with blank walls.