When you become a landlord, your tenants pay you towards an appreciating asset!
Our step-by-step guidelines will show you how to find the right type of property and our free landlord forms and tips will assist youo to find and manage your tenants.
People generally rent or lease because they do not qualify for a mortgage and they are mostly salaried employees who commute to work daily. Cater for that market!
Do not look at an investment property as if yourself will be living in it. Your personal taste in carpets and tiles has nothing to do with how easy to rent the property will be. There is no need to spend a ton of money on cosmetic touches! Buy a neat property in good condition in an area where the rental demand is high.
Calculations are easy to do if you only have a couple of properties in your property investment portfolio. Once you've grown your real estate investing, you may have to buy rental property software to keep track of cash flow, return on investment etc.
In a nutshell...
Take a look at properties in a middle class suburb (preferably close to commuting routes) which does not need too high a rental in order to make your calculations pan out.
Ideally you are looking for an area where property shows excellent growth on investment. Alternatively you may invest in an area where the capital growth is not necessarily that high, but the rental income covers all the costs.
The determining factor to become a landlord is by how much you can subsidize the costs, but both have merit and are worth investigating as prospective landlord.
Incidentally, we have a number of properties where we still after a number of years need to cover a monthly shortfall (rates and taxes, levies, mortgage repayment vs rental income). However, those properties have doubled in value within 4 years which more than compensated for any monthly shortfall. We don't have crystal balls though, so it can be difficult to predict how property prices will go.
But you can take the guesswork out in many instances!
What are town planners proposing for the medium- to long-term? Is there a proposed major road, sports stadium, train route, shopping center or school which may either detract from or enhance your property investment?
Go out with experienced real estate agents in the area and pick their brains!
A furnished apartment obviously generates much higher rental although you may have shorter rental periods.
The trick is to source the furniture and appliances at a good price and buying them in good used condition can be ideal. If you have time on your side e.g. you buy off-plan from a developer, then gradually buy and store the goods until the building is complete.
Do not buy rubbish - you can not attract quality tenants such as those highly sought after corporate rentals for example, unless you supply quality furnishings.
These pages do not deal with speculating in property i.e. buy, quick lick of paint perhaps and resell.
It takes a long-term look, rather like a pension fund - except nobody else will contribute towards your pension fund to the extent that a tenant does, and there can also be a huge difference in growth between the property market and traditional pension funds.
I think you can gather by now where my money is.
You therefore also need to take a long-term look at the tax implications. Capital gains taxes vary from country to country and whether the property is bought in a private capacity, closed corporation or trust. (However, you have to look at the bigger picture - capital gains tax is not the only factor to consider).
Incidentally, there may be tax advantages for landlords who have a number of properties bought off plan i.e. brand new properties that aid government with housing demands. Ask your tax guru if there are any such tax benefits applicable in your area when you become a landlord.
You may want to refinance (re-mortgage) the property once its value has increased and in some countries that additional amount that you can take as cash is tax free. (Capital growth as opposed to capital gains.
Do it the best way right from the start - this is one department where you really need to consult the experts!
So you've got your investment property. Now you need a good tenant - one that looks after your property and pays on time. There's only one way to go about this.
Do proper tenant screening! We cannot overemphasize this.
Work through our detailed tenant screening tips to help you find the best candidate. We do not entrust this decision to the sole discretion of a property management company. It is within your rights to ask for copies of all the applications and relevant documents and to reserve approval of the tenant.
Some management companies will not let the landlord place a tenant because they do not want to accept responsibility for managing a tenant that they did not source. We believe it would be unreasonable to refuse a tenant that you personally vouch for e.g. child of a close personal friend etc. You need to clarify this beforehand with your agent.
Keeping meticulous record of your real estate investments and all the tenant information is vital when you become a landlord. Incidentally, some information that rental applicants provide such as salary stubs and bank records need to be stored securely.
It is also important to keep records to show that you followed legal process when you selected a tenant (i.e. no bias), handled security deposits, terminated a lease etc.
Whilst we provide a number of free legal forms and templates, you still need to work through them and customize them to suit your particular property.
We provide guidelines for our forms to assist you throughout.
Landlord Tenant Law need not be a daunting subject! Many governments see landlords as partners in providing housing and actively offer assistence - follow the link to our page listing the housing resources by country or state.
You can also check with your local authorities, chamber of commerce, homeowners association or your friendly letting agent about specific duties of landlords in your area, state, province or country such as lead paint disclosure, whether the unit must have a stove, smoke alarms, etc. etc.
Managing your properties is not difficult to do yourself, especially if they are located within reasonable distance from your home.
It will be much more cost effective if you can do regular inspections, attend to or oversee repairs, show the property to new tenants, do exit checks etc. rather than paying an agent to do this.
If however your do not have the time or your properties are in distant locations, you obviously need to hire someone to assist you.
Consider paying a retainer to a trusted person (perhaps a retired family friend) to be on standby for the above duties and an agreed extra fee for actual call outs. If such a person has some handyman skills it would be even better.
If you are opting for a professional management company, review the management services they offer, their rates and their management agreement and then do negotiate terms and rates!
There are some horror stories about the difficulties in evicting non-paying tenants or damage done to properties by tenants. Do not let that deter you if you want to become a landlord.
If you do thorough tenant screening - we just have to repeat this again - and have a hands-on approach, most of those problems can be eliminated.
Yes it can be time consuming at times, but for the most part it really is a passive undertaking.
In addition, your rentals should keep track with or even exceed inflation - unlike other investment instruments and you could also see a healthy growth on the property value.
When you become a landlord your philosophy should be the same as in any business. The customer (tenant) is king! Provide a good service, attend to complaints immediately and your business (investments) will flourish.
Related Content to Explore when you Become a Landlord:
Please visit our main Real Estate Contracts page for links to the below.
To assist you with your state or country specific landlord information, follow the links on the right to your respective Government sites.