You may have heard that being a landlord is a great way to make some passive income. But before you sign your fist tenant, it’s a good idea to consider just how passive making this money will be. Carefully consider how much mortgage you can take on and ask yourself the right questions before you commit to becoming a landlord. If you decide it is the right move for you, check out some tips below to maximize your financial return and minimize the emotional stress.
1. Crunch the Numbers
In addition to finding a house you can afford in a neighborhood likely to attract renters, it’s important to create a budget to figure out what kind of return you can expect. Evaluate the rental market and ideally find a spot with low vacancy and high demand. Consider that mortgage payments will not be the only cost as maintaining rental property also means taking on property taxes, repair costs, advertising and tenant screening costs.
2. Treat Your Business Like a Business
While investing in real estate and becoming a rental property landlord can be something you do in addition to working full time, it’s important to remember that this is a business. The extra income is nice, but it will take time and effort to make it work. Take the time to be organized, get everything in writing and keep constant contact with your renter(s).
3. Screen Tenants Carefully
Speaking of renters, you want to be sure you find a good person to rent your property. The ideal tenant is someone with a monthly income that is at least three times the monthly rent, someone who doesn’t have a criminal record or recent evictions and someone who can provide references from previous landlords or employers. Some things to consider include the safety deposit, the length of the lease and the time you require for vacating the property. You may also want to check tenants’ credit scores to see how a potential renter has met financial obligations in the past.
4. Setting the Price
In addition to covering the monthly mortgage payments, ideally your rental will actually make you money. In order to do this it’s important to factor in the cost of time when the rental might be sitting vacant, the regular maintenance necessary and the cost of comparable rentals in the area.
5. Call in the Professionals
If you need more help in the process than you thought, don’t be discouraged. You might need help with managing the property. You can hire a management company but it’s important to factor this into your budget. Also, if you find yourself with questions, you may want to ask help from others who have experience as a landlord.
Becoming a landlord can be a great way to make money, but it does require time and care. It’s important to carefully consider whether you are ready to make the commitment.