If you want to improve your finances, one of your best options is to use what assets you have on hand. Sometimes you might have to spend money to make money. Becoming a landlord can be a very profitable investment and a great way to earn passive income. You can combine it with other sources of income to get multiple income streams, or you can invest more heavily in the real estate market and grow your portfolio.
Here are a few tips to help you actually make money as a landlord, and ideally with less stress.
- Raising Initial Capital
To become a landlord, you’re going to need a house. This means raising capital and making sure you can afford the property to start with.
The general rule for investment is to only use money you can afford to lose, and never go into debt for an investment. But real estate is an exception to this rule. Most people don’t have the cash to buy a house straight out, so it’s common practice to take out a mortgage, even if you’re buying to rent.
In this case, it’s a good idea to look up how this will affect your mortgage and any tax you have to pay.
Even for a mortgage, you will need to raise funds for a deposit, and your lender will likely do a credit check.
- Understand Renting Laws
You can’t just buy a house and get a tenant to give you money to live there without any contracts or legal discussions. Before you become a landlord, you should research any relevant rental laws, including national and state laws.
You will also need to provide legal documentation. This protects you and the tenant from any legal issues.
Generally, rental laws lay out the responsibilities of the landlord, such as making sure the property is habitable and ensuring that tenants are informed about any inspections in advance. They also let you know when you can evict a tenant, as well as what to do if a tenant doesn’t pay or causes damage to the property.
- Finding the Appropriate Property
You can’t become a landlord if you don’t own a property. Some people inherit homes and choose to rent them out, or they move house and rent out their previous home. But if you deliberately choose to invest in real estate, you need to be more selective when buying rental properties.
You want to find a property that someone will want to move into right away. While there’s something to be said about restoring a fixer-upper, you need to focus on profitability over character.
- Keep an Eye on the Market
As well as the property itself, think about why someone might want to move to the area. Check out other rental properties and look for red flags like properties constantly popping back onto the market, a stagnant market, or worse, a lot of properties staying vacant for a long time.
As well as helping you choose where to buy a property, keeping an eye on the market will help you choose a fair but profitable rental rate.
Look at other properties that are comparable to yours and try to set your rate to around the same. If you want to find a tenant quickly, it can be worth lowering the rent to be more attractive to potential renters, but this could hinder your profit margin over time.
Don’t forget that you can raise the rent after a set time as well, and this might be appropriate for a more up-and-coming market.
- Tenant Screening
Nobody wants a bad tenant. Bad tenants pay late or not at all, they’re awkward to communicate with, and they can even cause damage to your property.
While you can’t guarantee that your next tenant will be a good tenant who pays on time or explains if there’s a delay and looks after your property like it’s their own, you can reduce the risk of getting a bad tenant by using a tenant screening service. This looks for potential red flags, and if they’ve rented before, you can also get in touch with landlords to find out what they were like.
Tenant screening is especially important if you have a popular property with a lot of applicants.
- Creating a Good Relationship With Your Tenants
As well as increasing your chances of getting a good tenant, it’s important to maintain your relationship with them. Some landlords even prefer to get a slightly lower rent in return for a long-term tenant who looks after their property and pays on time.
Long-term tenants can be worth their weight in gold, because you lose money when your property is empty.
If you have a good relationship with your tenant, it can even be viable to raise rent without threatening this relationship as long as you’re reasonable and communicative.
- Property Maintenance
As a landlord, one of your responsibilities is to maintain your property.
Arrange for regular inspections to make sure that everything is working properly and, if your tenant comes to you with an issue, deal with it as quickly as possible. If you fail to do this, your tenant has every right to withhold payment of rent until the problem is fixed, and you could be in for some legal trouble.
- Watch Your Finances
While being a landlord is a passive income, it doesn’t mean it’s a mindless income. As well as the initial purchase of the property, you have to think about other regular costs. It’s important to make sure that the amount you charge in rent isn’t just appropriate for the market, but that it also covers your costs and provides a profit on top of that.
- Expanding Your Portfolio
If you want to earn more as a landlord and potentially make this your primary source of income, you may want to consider expanding your portfolio. Buying more properties or even investing in an apartment complex can massively increase the amount you can potentially earn in rent.
- Property Management Services
If you want to be a landlord but are worried about the hidden work, such as having to run around and find tenants or bouncing between different properties, you could consider using a property manager. The best property management company will be upfront about costs and will help you earn more from your properties, while doing less work.
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