Getting Started: Are you Landlord Material?

As conditions in the marketplace change, new challenges are constantly presenting themselves. The trick is finding opportunities within those situations and developing solutions that benefit everyone. Right now, the ongoing sub-prime mortgage debacle is certainly making itself felt in numerous ways but for some it may prove to be a dark storm cloud with the silver lining. The terrific glut of properties on the market has prompted some homeowners to consider becoming landlords during the current lull in sales values and activity as a way of surviving the temporary economic downturn while minimizing loss, reducing risk and at the same time adding to the market of solid rental properties available. Whatever your motivation for considering getting into the rental property business, there are some things you ought to contemplate first. For example, any potential landlord needs to do a realistic assessment of the income potential of their specific property. Do yourself a favor then and make time for a little legwork before you go hanging up a “For Rent” sign in your window. Also, beware of those cable T. V. shows that make it seem like you can doll up your property for next to nothing in one easy weekend and have an income stream up and running with the snap of your fingers. Let your zest for Carpe Diem balance nicely with Caveat Emptor and let Apartments.com, with nearly two decades, as the leader in the apartment rental industry be your guide to successful renting. We want to be your resource for learning the ropes from start to finish.

Here then are some of the important areas to consider before taking the plunge into the landlord business. First of all, make sure you are ready to take a methodical approach. Many potential landlords get very excited thinking they just found the goose that laid the golden egg only to find out that being a landlord takes more time and energy and money than they thought. On the other hand, if you are patient then being a landlord can be a great way to build a healthy bank account. It’s important to think about what your goals are. If you want money right away for something this may not be the investment or you, but many people use the income from rental properties as a way of creating a nest egg for retirement, a plan they execute over many years. That makes good sense.

Probably two of the most important yet over looked predictors of whether or not someone will be a successful landlord are related to personal temperament and basic business skills and common sense. Be honest with yourself. Are you ready to leap out of bed at three in the morning when a tenant calls to say that the bathroom in the apartment above is now flooding his bedroom? If you don’t own a property already do you have what it takes to acquire a property suitable for renting? Are you ready to do the work involved in screening potential tenants, managing the books, collecting rent and so on?

Being a successful landlord takes a combination of people skills and business sense and generally, a certain amount of cash on hand. Landlords who do very well will all tell you that especially in the beginning you will put in more energy and money than you get out. Initial costs can often be higher than expected and the returns are not instantaneous and huge. Being a landlord is a game of gathering wealth in small increments over the long haul. Be reasonable about what to expect in terms of profit. Many landlords say that if you earn 10% over a year’s time, you’re doing great, especially if you’re a small scale operator.

If you are going to purchase a property to use for rental investment you should know that the costs of those kinds of loans are higher than for regular home owners. Down payments range from 25% to as much as 40% and the interest in generally higher because of the banker’s perception that the transaction presents higher risk than a plain residential mortgage. There are numerous options out there though. You just have to be willing to do the research. One good way for first timers to get financing for a rental property is to live in one of the units in the building they want to buy.

Though costs for acquiring the property can be high, as a landlord you will get tax breaks for certain things like depreciation, repairs, and maintenance to your rental property. While those breaks do help you deal with the costs of being a landlord you would be wise to plan on them actually making you any money. Think of the money from those tax breaks as more of a cushion not as bringing in any profit.

Be ready to wait for good tenants and know how to tell the good ones from the not-so-good ones. Credit checks are easy and inexpensive to get, and while checking references can take time, it doesn’t really cost you anything. Some new landlords fall into difficulties because they fail to do the basic homework and later can end up with very expensive problems. For instance, make sure that the phone numbers a potential tenant gives you is for what they say it is and not just their friend’s number.  Think of being proactive in protecting your property and your security, especially if you are going to live in one of the units. It’s not paranoia to check out potential renters, it’s good practical sense that can save you terrific headaches and money later.

Aside from thorough tenant screening the other area that new landlords must be very well educated in the arena of landlord-tenant rights. Every state and every city is different. Small mistakes in your paperwork due to lack of education can cost you big time. Most major cities have associations that can help you get educated. Find them and do your homework.

By now, you have also figured out that a good accountant might be a good investment and you’d be right. Also, some landlords hire property managers, who for either a flat fee or a percentage of the rent, take care of all the tasks you’d rather not address yourself. They make life easier but remember those fees will take away from your profits too. The more you do yourself, the more money into your own pocket. On the flip side though, again, be honest, if you aren’t up to the tasks either on the business side or on the practical, down and dirty maintenance and repairs end, hire it out. Plenty of people have lost money trying to do things themselves only to find that once they ripped a big whole in the wall of the rental property that they had to hire a contractor after all and that it costs more because now they also have to fix their mistakes.

So, while all this may seem like a lot to take on, we suggest that you take a deep breath and reflect. In many ways this is an ideal time for new people to get into the rental marketplace as first time landlords. Yes, there is a lot to consider but if you take your time and do your homework, honestly assess your situation and expectations; you will be able to enjoy a successful career as a long-term landlord, slowly building your wealth, one apartment at a time.