Updated: 6 hours ago
For a lot of us, becoming a landlord is our first step into wealth-building. We read many blogs and books and listen to podcast. Sometimes even those things cannot prepare us for what we are about to get ourselves into. I researched for five years before purchasing my first rental property, and I still came across experiences I was not prepared for. I overcame them and wish to share them with you to spread the wisdom.
1. Train your Residents (Tenants)
Your tenants only know what they can and can't do unless you give clear guidance. Let them know early what your expectations are. Expectations can be made clear through the lease, email, letter, or text message. If you prefer no pets, then make that clear in the lease agreement. If you don't mind pets but require a pet deposit and pet rent, then make that clear as well. Sometimes bad tenant-landlord relationships are created based on unclear communication in the beginning. This can save you a headache in the future, and if your tenant violates any of your expectations, they have been told ahead of time what the consequences will be.
2. Manage Your Property Manager
Owning buy and hold real estate is indeed passive income, but do not be mistaken that it is entirely hands-off, especially with a property manager. Yes, having a property manager alleviates you as the landlord of several responsibilities, but you still need to manage your property manager. Your rental property is your baby. Even though you are paying your property manager, he or she will more than likely not take care of your property like you would. Follow up on the status of semi-annual or annual inspections, if your tenant isn't paying rent, follow up on if your property manager has submitted a payment plan to the tenant. This involvement on your behalf allows you to be engaged in what's going on with your property along with keeping your property manager on their "A" game.
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3. Don't Be Afraid To Raise Rents
If the market demands it, raise your rent! Do not be afraid to raise the rent on a great tenant because you're fearful of losing them. Also, be reasonable when it comes to increasing rent. If your local rent raised 7% every year and you know that may be a bit harsh on your tenants, provide a 60-day notice before their lease is up that their rent will increase by 3%. So if the rent is $900 on their current lease, they have 60 days before their rent goes up to $927. That's an extra $324 annually. So imagine if you did that with five different units. That's an additional $135 a month and an extra $1620 a year. Easiest raise ever! If you are concerned about turning your tenant off from renewing, then offer them $50-100 off their first-month rent. This instant gratification will make them happy, and you get to keep your tenant another 12 or more months, securing your ability to pay the mortgage and cash flow. I use Rentometer, Zillow, and Trulia to verify rents in my local area.
4. Longevity Is Key
The longer you have your tenant in a lease, the less you have to worry about the mortgage being paid. Promote 18-36 month leases and offer $100-200 off first and last month's rent to provide incentive. You make the tenant happy by saving a couple of hundred dollars, and you get to secure your cash flow for an extended period. According to Moving Labor , 80% of all moves in the United States occur between April and September. Increase your chances of turning over the unit quickly by arranging your tenants' leases to end between April and September.
5. Ensure Repairs Are Handled Swiftly
I am big on keeping a tenant-landlord relationship as healthy as possible. This is where a bit of humanity comes into play. If a tenant puts in a trouble call about an issue within their home, then have the same sense of urgency you would when it comes to fixing it if It were your own primary home. This is something to consider, especially if your resident has been taking care of your unit as if it was their own and consistently paying rent. The tenant wants to feel like they are in good hands and are not dealing with a slum-lord. No one likes to be taken advantage of. I know as landlords we can be on the defensive when it comes to trouble calls that we feel are bogus or self-inflicted issues, but that's where I ask your humane thought processing to come into play.
6. Utilities In Your Name and The Tenants
When it comes to purchasing a rental property, what you have to pay for, and what your tenants will have to pay for matters, this is a massive part of your cash flow. In my opinion, if you can find real estate that doesn't require you to pay utilities at all and it is strictly the tenants' responsibility, then hop on that deal fast. If this is not the case and let's just say you pay the water bill while your tenants pay the gas and electric bill, then there are some strategic ways to remain profitable. Look into products that will lower your utility bill. For example, LED lights and low flow showerheads If you find yourself not wanting to pay the water bill anymore and you are confident this will not dramatically affect a tenant being able to afford to live in your unit, then you can do two things: Look into getting the water meter split into however many units you have (this applies to multifamilies). This will enable you to turn over the water bill responsibilities to the tenants, and now they have to pay for the city. I recommend you not doing this during the lease. They agreed to the terms they signed for, and I believe they should be honored. Give your tenant 60 days or more notice before the expiration of the lease that you will be splitting the water meters, and it will be their responsibility to pay the water bill. That way, they have time to decide if they want to accept that responsibility when their lease is up for renewal. You can also charge a water service fee. For my duplex, it cost $150 a month on average for my water utility bill. I charge both tenants $75 a month as a water service fee to cover the water bill. You can annotate in the lease agreement that if they go over a certain amount, you will charge them an additional cost.
7. Board Up Unused Garages or Dwellings
One of my properties has a 700 square foot stand-alone garage. The garage is bare-bones empty with nothing in it that would deem it habitable. My landscaper at the time saw that the door to my garage was ajar as he was cutting the grass. He then noticed our local female street employee (you know what I mean) come out of the garage with an unknown man. One hour later, my landscaper saw her go out of my garage with another man. At this point, he could tell what was going on. He gave me a call to board up my garage as soon as possible due to my garage being used for transactions I definitely would disapprove of. I recommend using screws to drill in and not nails when boarding up windows and doors. Nails can be pulled out. Screws cannot be pulled out. During the winter, homeless people also get cold and are looking for a place to dwell in. My garage would be the perfect place for unwanted visitors. This is another reason why I ensure my garage is boarded up.
8. Build A Vacancy, Repair and Capex Savings
During my first year, I have had gaps when tenants would be not in occupying my units or when they could not pay rent (mostly due to COVID-19). If it had not been for me putting money aside for a vacancy, I would have in a deep bind trying to pay the mortgages. Also, when it came to paying for repairs, putting money aside for repairs and Capex (significant repairs like for your roof and foundation) also was a lifesaver. I recommend using your first year to squirrel up all your cash flow, creating a suitable, financially insulated property for the unknowns.
This is my journey as a landlord, and will continue to share as I grow within the real estate realm. Year 1 was full of learning lessons and victories. Do not be discouraged by their own known and obstacles. I keep myself always open to new ways of doing things even when I feel as though what I am doing is incredible. Continue to do research, network, and do not be frozen by the risks. The reward is always worth it when it comes to great deals in real estate.
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