Key Takeaways
- Accidental landlords need to think like business owners, understanding legal duties, disclosures, and housing laws.
- Running the property professionally, with proper pricing, maintenance, insurance, and tax planning, is key to long-term success.
- Setting the right rental rate matters, using market comparisons and guidelines like the 1% rule to avoid vacancies or lost income.
- Strong leases and careful resident screening help protect your investment and reduce costly problems down the road.
Most of the time, being a landlord is a deliberate decision. You may want to invest in a rental property to grow long-term wealth, enjoy passive income, or diversify your investment portfolio, among other benefits.
However, for some, being a landlord can happen by accident. You may find yourself becoming one after any of the following scenarios occur.
- You inherit a home from a relative.
- You relocate elsewhere, but are not successful in selling the old home.
- You move in with a partner and decide to convert one of the “spare” houses into a rental.
If you suddenly find yourself in any of these situations, getting started as a landlord can prove challenging. You may not even know where to begin.
Luckily you’ll just need to master the basics to be successful.
Here is a guide by Rent Easy to ensure you have a smooth transition from being an accidental landlord to an active investor.
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Familiarize Yourself with the Responsibilities of a Landlord
Even if the property is just a single-family home, being a landlord is a business. The following are some of the things you’ll want to know to get started.
- The mandatory disclosures landlords must provide residents with.
- The state’s security deposit rules if you require security deposits as part of the initial move-in costs.
- The applicable fair housing laws.
- The eviction laws to follow when looking to remove a resident from the property.
- The minimum safety, health, and building codes required to meet the basic habitability standards.
If you fail to abide by such legal obligations, you may risk certain legal and/or financial ramifications.
Treat the Investment like a Business
To be successful with your newfound investment, you’ll want to run it as professionally as possible. The following are some tips to keep in mind in this regard.
- Determine the right rental rate.
- Be proactive with repairs to protect your asset’s value and keep the resident happy and comfortable.
- Know your tax obligations and act accordingly.
- Get the right insurance for your investment property. You may also want to require residents to obtain a renters’ insurance policy as well.
You may also want to consider hiring a professional property manager to help you with managing the property.
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Determine the Right Rental Rate
To maximize your return on investment (ROI), you’ll want to charge the right rental rate. One of the worst mistakes you can make as a landlord is to overprice or underprice your investment property.
If you overprice your rental property, you may risk making it unattractive to prospective residents. This could cost you in terms of extended vacancies. On the other hand, underpricing may mean leaving money on the table.
To set the right rental rate, do a comparative market analysis. Find out what other comparative rentals in the area are charging. A quick Google search can suffice. Alternatively, you could simply interview the landlords about how much rent they are charging residents.
Generally, though, the right rental rate is usually about 1% of a rental investment. To get the ballpark figure, simply multiply 1% by the property’s value. Suppose, for instance, that your property’s total value is $200,000. In such a scenario, it should rent for at least $2,000 per month.
The 1% rule is a guideline, though. The formula doesn’t account for things like maintenance, insurance, and taxes.
Create a Solid Lease Agreement
To be a successful landlord, you’ll need to draft a solid lease agreement. You’ll want to ensure that it covers all the essential terms of the rental to protect you and the investment in a dispute.
The following are some of the terms that a detailed lease agreement should cover.
- The rent-related details, such as the rent amount, due date, and late fees and grace periods (if any).
- The duration that the lease will be running.
- The security deposit terms.
- The applicable policies.
- The resident responsibilities.
You’ll also want to ensure that all these terms comply with the applicable federal, state, and local laws. If you are not quite conversant with your legal obligations, consider hiring an expert property manager.
Rent to the Right Residents
Don’t rush to fill your vacant rental unit with just any person who shows interest in living there. This can be a potentially costly mistake to make.
Always screen prospective residents carefully before signing a lease with them. Your screening process should entail checking credit reports, income levels, as well as employment, criminal, and rental backgrounds.
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Conclusion
While being a landlord might not have been in your immediate plans, it can become a valuable opportunity if you have the right knowledge and approach. Ideally, though, when starting out, consider working with a professional in the industry to minimize mistakes and maximize ROI.
Rent Easy provides expert property management services to rental property owners in Chesapeake, VA. Get in touch to learn about how our full-service property management services can help you succeed!
