The Accidental Landlord
Renters Warehouse Blog
It’s safe to say that everyone’s journey into the world of rental property looks a little bit different.
For some, the decision to own rental property is deliberate and intentional, and came about after careful consideration –and a lot of hard work. For others, though, their foray into the world of rental investing is less deliberate –and more, well, accidental!
Maybe you ended up with two homes after getting married, or inherited a home from a family member? Or, maybe you ended up moving for work, or due to a life change –and were left wondering what to do with your previous house?
While it is generally advisable to do your homework up front before becoming a landlord, the truth is, not everyone has that luxury. For some, it may be that they ended up with an extra home –and didn’t have a chance to assess its profitability ahead of time. For others, maybe there wasn’t time to evaluate the pros and cons of being a landlord before renting out their home.
If the term “accidental landlord” describes you, congratulations! An income property can prove to be an extremely valuable investment –one that offers both long-term and immediate returns. And with demand for single-family rentals (SFR) continuing to grow, it’s a sound investment for the future. But it’s important to remember –that not all investments are created equal. Regardless of how you ended up with your income property, it’s important to ensure that you’re managing your investment in a way that’ll help you to generate the best returns possible.
Here are a few things to consider if you have found yourself in the position of being a (somewhat!) accidental landlord.
- Update Your Insurance Policy
This should be one of the first things that you do. Rental insurance is very different from homeowner’s insurance and you’ll want to ensure that you touch base with your insurance provider to inform them that the property is now being used as a rental. Neglecting to do so could result in your claim being denied, should you need to make one. So be sure to take the time to do this as early as possible.
- Finding the Right Tenants
In most markets, it’s usually easy enough to find a tenant. But finding a good tenant requires a bit more finesse!
One of the biggest mistakes that first-time landlords make is being too quick to hand over the keys to their rental. But experienced landlords know that having an airtight tenant screening process in place and running each and every applicant through it is key to securing the right tenants.
Another common mistake? Screening tenants based on gut feelings alone –or worse yet, using discriminating (and very much illegal) screening methods. Most landlords know that the law prohibits screening on criteria like race, gender, disabilities, and marital or family status –but even measures like imposing a blanket ban on people with a criminal history isn’t allowed. Make sure you know what criteria you’re able to screen applicants on before you advertise your vacancy. (Hint: it’s simply their ability to pay rent, and abide by the terms of the lease!) Anything else is unnecessary.
- Run the Numbers
Just because you didn’t have a chance to run the numbers beforehand, doesn’t mean you can’t now!
When it comes to setting your rent, there’s a lot that’s out of your control. At the end of the day, you don’t determine the rent –the market does. So do your research and find out what the fair market rent is for your property. Start by looking at other, similar properties in your area on Zillow or Trulia –to see what they’re renting for. This will give you a much better idea about where you should be pricing your property.
Next, you’ll want to tally up your expenses.
- Maintenance and repairs (At least 2% of property’s value annually)
- Utilities (if you’re paying for them)
- Vacancies (National average is 7%)
- Property management fees
The amount that you have left over is your cash flow. You’ll also want to check to see what the annual average rate of appreciation is for your city. Try to look at averages over the last 30 years. If appreciation is high enough, it might make sense to hold onto the property –even if you’re just breaking even with cash flow. But if cash flow is important to you, as it is for many investors –then having the numbers will give you a good idea about whether you should keep the property, or consider selling it and investing in something that’s going to produce higher returns. See important numbers that you should be running on rental property.
- Know the Law
As a landlord, it’s your responsibility to keep the rental in good, habitable condition. You’re also required to perform repairs in a timely fashion. Different states have different timelines for responding to repairs requests along with different rules on things like security deposits, the eviction process, and notice for entry. Be sure to check your state’s legislation to ensure that you are in compliance.
- Do Your Research
Being informed is key to making smart investing decisions. So start by brushing up on your knowledge of rental investing. Get ahold of some good books on property management and real estate investing, and read up on tips, strategies, and best practices. Frequent helpful blogs (like the Renters Warehouse Blog!) and Bigger Pockets. You’ll also want to check out the Bigger Pockets forum and don’t be afraid to ask for advice from members. Soak up as much knowledge as you can so that you’ll have the knowledge that you need to be fully in control of your investment strategy.
- Assemble Your Team
Finally, and crucially –when it comes to overseeing your investments, it’s important to realize that you don’t have to go it alone. Sure, many investors start out that way, managing their properties themselves and doing maintenance on the weekends, but after a while, all of that work can really add up. This is especially true if you have multiple rentals –or properties that are located out of town. Many investors find that having a good property manager on their side can help them to expand their portfolio and free them up to invest in multiple properties.
Likewise, consider enlisting the help of other professionals who can help to further streamline the process. From an accountant to do the taxes to an investor-friendly real estate agent –who can help to provide investment advice and alert you to potential properties that come available, having the right team can make your job easier, and often –your investments more profitable as well.
Remember, just because your route to becoming a landlord may have been largely unintentional –doesn’t mean that your investment strategy should be left to chance. Take control of your investment by running the numbers, getting organized, and treating your rental property like an income-producing business. Then look to assemble your team. With the right approach, you’ll be able to take the steps that are necessary to get your investment strategy on the right track.
All the best on your journey!
What about you? Are you an intentional or accidental landlord? To learn more about the benefits of SFR investments, be sure to check out this helpful guide: Real Estate Portfolio Guide: Starting and Growing the Right Way.
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