Interested in purchasing a rental property? Buying a rental property is a great way to diversify your investment portfolio. You may have visions of purchasing a rental property and sitting back and collecting rent while your mortgage is paid for you. Most of the time, that just isn’t the reality of the situation.
Becoming a landlord is a long-term investment strategy, and as with any strategy, a proper foundation must be built to ensure success. Learning how to become a landlord takes time, patience, process implementation, and a clear vision for the long-term success that can reaped from those efforts.
Below, we will walk you through the 24 things to consider, along with a few of our curated tips and tricks on how to become a landlord. We will start from the beginning, and discuss how to purchase a great rental property, all the way through picking a great tenant and putting processes in place to communicate with that renter and maintain the property.
Below, we have compiled the ultimate guide to becoming a landlord. We recommend starting from the beginning and working your way down, you can quickly jump to a section below if needed.
- Buying Rental Property
- How to Price a Rental Property
- How to Become a Landlord: Getting Prepared
- Create a Marketing Plan to Rent Your House
- Tenant Screening for Landlords
- Becoming a Landlord: Signing the Lease
- Managing Tenants
1. Buying Rental Property
Buying a rental property is the first step to becoming a landlord, and the most important. There is so much to consider when purchasing a rental property. You must always keep the marketability of the rental property top of mind. While the most affordable and “best deals” might seem enticing, that isn’t always the best investment strategy.
Put yourself in a potential renters shoes. What is the neighborhood like? Is it established, or an up and coming neighborhood? If the rental will be marketed towards a family, are there quality schools in the district? If the rental is geared towards a younger generation of tenants, is there easy access to public transportation, restaurants and shopping?
Understanding who your potential renter will be, will help you evaluate the property through a different lens. The profitability of the rental is dependent on finding and keeping great tenants, and that starts with having a clear vision of who that will be.
You will also want to consider how close the rental is to your permanent home. As the landlord you may need to take care of showing the property, maintenance issues, tenant lockouts, and general property upkeep. Your time is valuable and understanding how often you will have to visit the rental property needs to be considered as well.
2. How to Price a Rental Property
Setting a rent price can be tricky. You want to make sure that you set it high enough to cover all of your expenses, but not too high which could potentially lead to prolonged vacancies. Here are a few easy steps to take to help you set a competitive rent amount.
Know Your Competition
You will want to do a thorough analysis of rental prices in the neighborhood or building where your property is located. Your potential tenants will be doing this, so you need to understand where you fit and why. Find a property with similar square footage, bedrooms, bathrooms, and amenities to help you get a starting point. If you have more amenities, a newer property, parking, lawn care, etc, these are all things to consider when pricing your rental.
Another benefit of researching the competition yourself, is seeing how other landlords are marketing their properties including their descriptions, photos, and policies. Take notes of listing that catch your eye and understand why so you can use the same tactics when marketing your rental.
Purchase a Rent Estimate Report
Rent estimate reports will usually provide you with everything we discussed above, but they will do the leg work for you. It will provide you will an appropriate range based on location, size, and amenities. Depending on your overhead you can adjust the price accordingly to cover expenses while still remaining competitive.
Short Term vs. Long Term Rental Rates
Deciding the length of the lease is another strategic investment decision. While doing your rent research take note of the most common lease length offerings in your vicinity. If they are all year-long lease commitments it would make sense to position yours similarly. If they seem to be shorter or month-to-month leases, do more research to find out why that might be the case.
A month-to-month lease can be a better option for tenants, but benefit the landlord less. In that case you may be able to charge a premium for a month-to-month lease option. Tenant turnover is one of the most costly and time-consuming expenses that you will have as a landlord, avoiding that by securing long-term tenants at a competitive rental price will often provide the best immediate return on your investment.
When and How to Raise Rent
You will need to establish your policies regarding rent increase, and be transparent with your tenant regarding the amount and timing. Often landlords will raise the rent around 3% per year, at the time of lease renewal to adjust for inflation. Legally landlords are allowed to raise the rent at time of lease renewal, but be sure to check local and state laws for specific laws in your area regarding rent increases.
If you make major improvements to the property, update appliances or increase square footage, that might warrant a larger increase. The key is to be transparent and give your tenants a formal letter, at least 30 days before the rent increase, explaining the exact details of the increase and when it will go into effect.
3. How to Become a Landlord: Getting Prepared
As stated above, building a solid foundation is key when learning how to become a landlord. Putting processes and procedures in place in the beginning will set you up for continued success in the long run, and make your life and your tenant’s lives easier.
Paperwork: Documents Every Landlord Needs
The best thing you can do to protect yourself as a landlord, is provide proper documentation in writing whenever you are interacting with your tenants and keep those records on file even after the tenancy is done, in some states for as long as 6 years, but again, check your local and state laws for specifics timelines.
Document needs can be broken down into three phases – pre-move-in, during tenancy, and pre/post-move-out.
Here are a few of the essential pre-move in documents you will need:
- Lease agreement
- Pet lease (if applicable)
- Co-signer agreement
- Welcome letter
- Move-in checklist
- Tenant rules and regulations
Once the tenant has signed the lease and moved in, anytime you enter the property, need to document a noise complaint, notify them of a returned check, or late rent, you will want to provide written notice. Here are a few of the must-have documents:
- 24-hour cleaning notice
- Noise complaint letter
- Work order
- Notice of return check
- Notice of late rent
- Notice of rent increase
If your tenant has decided not to renew their lease, you will want to properly close-out that tenancy. Here are a few of the essential documents:
- Tenant 30-day notice of termination
- Move-out inspection checklist
- Move-out cleaning checklist
- Resident survey
Purchase and download TurboTenant’s Ultimate Landlord forms pack here.
If you are renting out a home you own, you will need to purchase landlord insurance. The purpose of landlord insurance is to protect you from financial losses, so in the event of a fire, flood or other tragedies, you are covered. There are two types of landlord insurance: property and liability protection.
Property coverage typically covers anything related to the physical property and equipment used to maintain that property. This would include repairs for things like fire, flood, hail and other covered losses.
The other coverage you will want to get is liability coverage. This will help pay for medical expenses or legal expenses if someone was injured on the property and the court deemed that it was due to negligence or lack of maintenance by the landlord. Please note that each policy is subject to its own deductible and limits. It is best to contact your local insurance provider to determine what type and amount of coverage is best for your property.
Landlord insurance will not cover any damages to your tenant’s belongs. It is advisable to require your tenants to carry their own renters insurance and make them aware of this before they move in. If you will require them to have it, keep a copy on file for your records.
Know When to Hire a Property Manager
To hire or not to hire-that is the question. There are pros and cons to consider when evaluating whether or not to hire a property manager. With the rise of online property management tools, the need to have someone on-site or nearby is not always necessary. Again, this will depend on the individual needs of the landlord and tenant, and will need to be evaluated as such. Here is a breakdown of pros and cons to consider when deciding to hire a property manager.
If you want to be a hands-off property owner, and dealing with issues related to marketing, filling vacancies, screening tenants, and maintenance requests sounds like torture, then hire a property manager. It might not even sound like torture, it might just be physically impossible to do if you live far away from the property. Hiring a skilled property manager will save you time, and when it comes to an investment property your time is money. If the learning curve seems too great, the best option might be to hire a skilled and seasoned property manager.
The most obvious con is the cost of hiring a property manager. That cost will directly affect the bottom line of your investment. It is best to do a cost-benefit analysis to determine if it is financially feasible. If you purchased your rental at a great time and are able to charge premium rent, the cost might be easily absorbed and well worth the added peace of mind. However, if the rent barely covers the mortgage, it might not be a wise financial decision to hire a property manager.
Each situation will warrant its own analysis, always taking into consideration the financial and logistical necessities involved in renting your investment property.
Tax Advantages for Landlords
There are many tax advantages for landlords. The best way to set yourself up to take advantage of those deductions, is to put a process in place to track expenses. This way, when tax season rolls around you are prepared. Here is a list of the top 9 tax deductions for landlords.
- Pass-through tax deduction
- Repairs and maintenance
- Home office
- Professional and legal services
The goal of becoming a landlord is to maximize the return on your investment. When it comes to taxes, that means taking advantage of your eligible deductions to help you boost your bottom line.
Learn Landlord-Tenant Law
One law you will want to understand and abide by is the Federal Fair Housing Act. This law protects people from discrimination when they are renting, buying or securing financing for housing. The Fair Housing Act makes it illegal to advertise “any preference, limitation, or discrimination because of race, color, religion, sex, handicap, familial status, or national origin, or intention to make any such preference, limitation, or discrimination.”
If you are going to reject a tenant you want to make sure that you properly document why you are rejecting them, and make sure it isn’t based on a protected class covered by the Federal Fair Housing Act.
There are state-specific laws, rights, and responsibilities for landlords and tenants as well. Understanding and abiding by each law in your area are crucial to your success as a landlord. Legal fees and lawsuits are expensive and time-consuming, and knowledge is power when it comes to understanding the law. Brush up on both Federal and local laws, making sure that your rental advertising, application and selection processes don’t break any laws.
There are some rental policies that can be individualized based on the landlords preferences, and as long as federal, state and local housing laws are followed, you should be covered. Some standard policies to put in place are:
- Pet Policies
- Deposit amount
- Lease length
- Rent Collection
Each landlord should create their policies, have the tenants sign off on the policy and keep a copy in the tenant’s file. You will also want to state in each policy what the penalty is for breaking the agreed-upon terms. If you make any updates to your policies, let your tenants know and have them sign an amended policy so their file is up to date and everyone is operating under the agreed-upon terms.
4. Create a Marketing Plan to Rent Your House
Effectively marketing your rental is a critical part of learning how to become a landlord. Prolonged vacancies are one of the most stressful, costly and time-consuming aspects of being a landlord. The best way to stop that from happening is to communicate with your tenants about upcoming vacancies and lease renewals, time move-out and move-ins accordingly and market on the right online and offline channels.
- Preparing Your Rental: After each move-out you will want to prepare the rental for the next tenant. This prep work can be as simple as having the carpets and space professionally cleaned to more time-consuming preparations like repainting, and upgrading appliances.
- Photos: Once the rental is move-in ready, you will want to take photos for your rental ad. The first thing potential tenants will do is scan the photos in your listings. It is critical that you have well-lit photos of every room in the house. Also include photos of the exterior, lawn and backyard if applicable. If there are certain amenities that make your rental a stand-out, be sure to include photos of those as well.
- Property Description: Your photos will tell the visual story of the property, and your description should be the verbal extension of that story. When writing your rental ad, provide as many details as possible regarding square footage, room and bathroom counts, amenities, recent upgrades, and information regarding pets, deposit and smoking policies. Also include information about the neighborhood, nearby shopping and restaurants.
- Advertising Your Rental-Online: Now that you have your great photos and description, you need to post your rental online. The best way to cut down on time when posting your rental, will be to find a site that will syndicate your listing to the most popular listing sites. Meaning, you post it once and the listing will automatically post on sites like Zillow, Trulia, and Rent.com. You will also want to consider posting on Craigslist and Facebook.
- Advertising Your Rental-Offline: Offline methods for marketing your vacancy include yard signs and flyers. Often times people will drive around neighborhoods they like looking for vacancies and for rent signs. By not having rental signs, you could be missing out on a great potential tenant. Be sure to include a few details-rent, bedroom/bathroom count, and contact information.
5. Tenant Screening for Landlords
Your rental is posted on all of the popular listing sites, you have great photos and a great description, and the leads start to come in. Tenant screening is the next highly critical step in the selection process.
The best way to cut down on the time you will spend sorting through rental leads, is to set clear expectations in your rental advertisement. If you keep getting the same questions from prospects, update your description to include those answers. This will save you time and deter renters who are not a good fit from inquiring. It is also good to have a list of pre-qualifying questions that you will want each prospect to answer. These may include:
- Contact Information
- Employment Situation
- Monthly Income
- Desired Move-in Date
- Number of people they will be living with
- Additional questions they may have for you
Once you have pre-screened your rental prospects and have identified a few that you would like to move forward with, you will want them to fill out a rental application and run a credit, criminal and eviction background check on each applicant. These tenant screening reports provide hard data regarding their credit score, criminal history, eviction and payment history. This is one of the best ways to protect yourself as a landlord and is a standard procedure for savvy landlords.
You will also want to request references from past landlords. The answers will provide another data point to help you narrow down your rental leads. Example questions to ask are:
- Did you have a formal lease agreement in place?
- Did they have pets?
- Did they pay rent on time?
- Did you ever have any problems with noise or other disturbances?
The tenant screening phase is all about gathering data on each rental prospect and continuing to narrow down the leads into one great tenant.
Tenant Screening Warning Signs
If you are getting resistance or push back on tenant screening questions and requests, that could be an indicator that the prospect has something to hide. Be firm on your policies and treat each prospect fairly, if you get resistance, it might be time to move on to the next lead.
6. Becoming a Landlord: Signing the Lease
Becoming a landlord officially starts when the lease is signed. Congratulations! Having a solid lease agreement is foundational when becoming a landlord. Lease agreements are also regulated state-by-state and you will want to make sure that you have a legally binding lease. There are online services like LawDepot, that will step you through the process of creating a lease.
Once the lease is signed, you will want to coordinate move-in and an initial inspection with your new tenant. You will want to use a move-in checklist with the goal of establishing and agreeing upon a baseline in terms of the condition of the rental. It is best to do this alongside the tenant and to take pictures for reference during routine and move-out inspections.
7. Managing Tenants
You spent time and money finding a great tenant. Now, the goal is to keep them. Becoming a landlord involves building and maintaining a good relationship with your tenant.
You will want to establish policies around rent collection as well. Be clear and concise about expectations when discussing payment options with your tenant. Here are a few questions to consider:
- What methods of payment will you accept? Online payments, check, credit card, ACH?
- When is it due?
- Does the tenant need to mail the check, or can they drop it off?
- When is it considered late?
- What will your late fee amount and policy be?
Online rent payments are starting to become the standard for landlords and renters. Renters can usually pay with a variety of methods, including credit card and ACH. Some payment platforms will let you set automatic payments as well, that way the renter doesn’t have to remember to pay rent each month, and the landlord knows exactly when to expect payment. Whatever method you choose, just communicate clearly and concisely to ensure that rent is paid on time.
How to Handle Maintenance Requests and Tenant Complaints
Maintenance requests and tenant complaints will inevitably come up turning your renters tenancy. Again, the best way to set yourself up for success is to have policies and procedures in place for addressing maintenance requests and tenant complaints. Here are a few of the best ways to handle these situations.
- Set Expectations: Be clear with your tenant on turnaround time for maintenance requests, as well as the appropriate route for emergency and non-emergency requests. You will want to know about emergencies immediately, so a phone call or text might be the best method.
- Get it in Writing: Although your tenants may want to text or call you the minute there is something that needs to be fixed or addressed, it is best to have them make those request in writing as well, preferably via email. This allows you to track the request, document it, and start to plan how to address it. If it was an emergency request and the tenant called. Be sure to document the request and put it in the tenant’s file.
- Notice to Enter: If you need to schedule repairs or need to enter the rental to assess the request you will need to give your tenant prior notice before entering. Usually landlords will give a tenant a 24-hour notice before entering.
- Communicate: Regardless of how big or small the maintenance request or noise complaint is, the most important thing you will want to do is communicate how you will address it, next steps and a timeline for remedying.
If your tenant has a noise complaint or receives one, you will want to let them know in writing and keep a record of the complaint in their tenant file. Here is a sample template:
NOISE COMPLAINT LETTER
We have received complaints regarding loud noise coming from your unit. Please make sure any noise is always kept to a reasonable volume, with extra care between the hours of 10pm-8am. This is for the benefit and enjoyment of all tenants.
Loud noise is in violation of City Ordinance and is a Misdemeanor. In the future if we receive complaints we will be forced to notify the Police Department directly.
Thank you in advance for your cooperation in this matter.
Conducting periodic inspections is essential to ensuring that your property is in good condition, and that there aren’t any maintenance issues that need to be addressed. It can depend on the tenant, but it is best to perform routine inspections every couple of months.
You will want to reference your previous inspection checklist and pictures you took, documenting anything that has changed or needs to be repaired. Both the landlord and the tenant should sign off on the inspection. You will also need to give your tenant prior notice before entering the rental.
How to Keep Communications
In our world of constant connectivity, communicating with your tenants may take place in a variety of channels. They may call, text, email, or discuss issues and concerns with you in person. While the best way to keep a great tenant is to communicate effectively and efficiently with them, it is important to set boundaries and expectations regarding communication as well. Give each tenant an emergency contact sheet, and highlight the best and preferred method of communication for both emergency and non-emergency topics.
As the landlord, you will also want to make sure that you are respecting the privacy of your tenants. If you happen to live nearby or in the same building as your rental, don’t become overbearing or nosey. Respect your tenant and give them the space they need to live in peace.
Evictions are costly and time-consuming. It is best to try and avoid them at all costs. One of the best ways to avoid an eviction is to screen your tenants and properly vet them during the selection process. After that, taking a proactive approach to building a healthy landlord-tenant relationship is essential. As mentioned above numerous times, having clear policies and keeping proper documentation can help set you up for the greatest success in this arena. However, sometimes evictions are unavoidable. Here is a list of common reasons eviction proceedings take place.
- Non-payment of rent – typically the most common
- Lease violation
- Property damage
- Illegal activities
- Expiration of lease
It is also important to know your State’s laws regarding eviction proceedings. They can vary, and you will want to make sure you understand how the process will work. Follow every law to protect yourself and resolve the eviction quickly.
8. The Move Out Process
If your tenant chooses to move-out, you will want to make that process as smooth as possible. This will help you fill the vacancy quickly and decrease costs associated with tenant turnover. If your goal is to have minimal time without a renter, you will want to start to list your property as soon as you receive notice of non-lease renewal. If you need to take updated pictures or schedule showings while your current tenant is still there, be sure to give them at least a 24-hour notice of entry.
Once you have agreed on a move-out date, you will want to schedule the final move-out inspection. This is where you will reference all of your previous inspection checklists and document any damages and changes in appearance, and wear and tear. You will also need to set expectations regarding cleaning, returning keys and returning their deposit. Again, laws will vary state-by-state, but usually there is a legally determined number of days the landlord has to return the deposit as well as provide a list of deductions if applicable.
Becoming a Landlord FAQ’s
Below are some common questions you might have about becoming a landlord.
How much money can you make as a landlord?/Do landlords make a lot of money?
How much money you will make as a landlord is dependent on a lot of variables. Including but not limited to: the properties overhead (mortgage, insurance, taxes, etc.), competition within the rental market, tenant turnover, property manager costs if applicable, and maintenance costs.
Do you need a license to be a landlord?
Most states and cities will require that a landlord get a license to rent out a property. Again this will vary from state to state and city to city. It is advisable to contact your local Department of Housing to determine what licensing is required to legally rent your property.
How do I become a landlord for the first time?
The first step to becoming a landlord is strategically purchasing a rental property. The next step should be to understand your state and local laws regarding owning a rental and acquire any licensing that may be necessary.
How much profit should you make on a rental property?
The profit you can make from your rental property is dependent on multiple variables including the properties overhead (mortgage, insurance, taxes, etc.), and rent prices. You will want to do a cost-benefit analysis and aim to keep expenses as low as possible and rent as competitively priced as possible. Investing in a rental property is a long-game. The greatest gains will be seen as the property matures and vacancies are minimized.
What to ask when renting to tenants?
- Employment Situation
- Monthly Income
- Desired Move-in Date
- Number of people they will be living with
- Number of Pets
- Smoker or non-smoker
What to look for in your tenant’s background check?
When screening your tenants and running a credit, criminal and eviction report you will want to look at the following things:
- Credit Bureau Score
- Social Security Number Verification
- Employment History
- Fraud Indicators
- Payment History
- Collection Accounts
- Civil Records
- Address On File
- Failure to Pay Rent
- Judgments for Rent, Possession, and Money
- Unlawful Detainers
- Writs and Warrants of Eviction
- Criminal History
- Violent Offender Status
- Sexual Offender Status
Becoming a landlord is a long-term investment strategy. As with any successful business, creating a proper foundation is a key element to its success. While the list of prep work might seem daunting, establishing procedures is key to remaining efficient and profitable as a landlord. The best part about creating a solid foundation? When you decide to purchase another rental property, you will be set up for success.
Need help marketing your rental, accepting online rental applications, and screening tenants? TurboTenant can help you streamline the entire process, and, best of all, you can do it from anywhere.