10 Tips for First-Time Landlords
1. Make Rent the Priority
Rent is your revenue. It’s amazing how many landlords are not aggressive in pursuing rent and late charges. It’s sometimes a good idea to work with people who generally need help … if they communicate with you.
But if your tenants just stop paying rent and ignoring your calls or texts, you need to start eviction proceedings. Otherwise, you could be six months behind on rent before you know it, which makes this probably the most important of all the landlord tips.
2. Partner With the Right Investor
I have an amazing business partner who is completely honest and transparent, two qualities that are absolutely critical when choosing business partners. For some reason, some new landlords are very willing to partner with somebody they barely know just because a deal looks good. This is usually a mistake.
I knew my business partner for over five years before we did a business transaction together.
Additionally, we have the same end-goals and values, which is what ultimately influenced my decision to invest in properties with him.
3. Screen Tenants Properly
Screening tenants is a really big deal, and I am the first to admit that I have made some serious mistakes in this area. My first multifamily tenant had a 480 credit score, couldn’t produce previous rent references, and didn’t have a job.
Take a wild guess as to how that ended-up? Let’s just say that anything under 600 is considered bad credit. If you wish to be more prudent, here is the breakdown:
- Excellent credit — 750 and above
- Good credit — 700 to 749
- Fair credit — 650 to 699
- Poor credit — 600 to 649
- Bad credit — anything below 600
4. Don’t Allow Cats
Sorry if this is offensive to any cat lovers out there. I’m sure your cat is awesome. However, I’ve had a very bad experience with cats and will never forget it.
I renovated a property and was really excited about the new carpet I installed. I then rented the place to a manager of a local restaurant.
She paid on time for several months but then disappeared. She was relocated but didn’t tell anybody. She also “forgot” to bring her cat with her. The entire unit spelled like cat pee for several months, even after I installed new carpet. Lesson learned.
5. Don’t Ignore Extra Income Opportunities
Most investors think 1-1. What do I mean by that? If somebody buys a house, they simply rent the house out and that’s it. But that method means you could be ignoring several extra income ideas that could improve your property’s return on investment.
Here are some out-of-the-box ideas to think about for earning extra money:
- Could you install solar panels? Look into selling back any excess energy generated to the grid.
- Is there room on the property to install a billboard and/or cell phone tower?
- Is there an unused shed that you could rent out for self-storage?
6. Know Fair Housing Laws
For some reason, many investors choose not to educate themselves on fair housing laws, and there can be serious implications if you violate them.
There’s no excuse to not educating yourself on the laws in the real estate industry. Landlordology has created several easy-to-follow guides on fair housing.
7. Don’t Invest in Renovations That Won’t Produce Higher Rent
One of my friends has made a lot of money in his current profession and is now buying rental properties using all cash. There is nothing wrong with this.
However, he is absolutely going over the top renovating these properties. For instance, he is buying properties in what I would characterize as “B” neighborhoods.
Then he renovates them by putting tile in the bathrooms, marble countertops in the kitchen, and crown-molding in the den. After renovating the properties, they are nicer than many owner-occupied homes.
The problem is that these renovations don’t lead to a high enough rent rate to justify the expenses.
8. Collect Rent Online
There is no reason for you to be collecting rent by a check in the mail. Not only is it time-consuming to go to your P.O. Box or mailbox, keep up with all the checks, and then deposit the checks, but it’s riskier.
The check can bounce, and then you’ll need to pay a non-sufficient funds fee and then contact your tenant for the rent and the NSF fee.
When you collect rent online, this whole process is negated, and the process is dead simple if you use Cozy.
9. Use the Right Financing Strategy
Most investors focus on the interest rate, but there’s a lot more to consider when financing rental property.
- Is there a balloon payment?
- How long is the amortization period?
- Can there be an interest-only period when renovating the property?
- Can we have a line of credit instead of a term loan?
Investors focus 99% of their time finding deals. When they get a deal, they then scramble to find financing. I have seen several friends lose good real estate deals because they didn’t have enough time to put their financing in place. Be just as proactive about financing rental property as you are about finding deals.
It’s amazing to me how many real estate investors still advertise in the newspaper and use yard signs. From my experience (12 years now) potential tenants who call you and pretend to be interested in your property are just nosy neighbors.