When you think of real estate investors, you likely think of someone sitting back as they watch their rent roll into their bank account every month. The landlord’s life seems like a dream, but it turns out that it’s not as easy as it looks. Whether you’re planning on turning your primary residence into a rental, or purchasing a brand new property, becoming a landlord demands time, money, a lot of knowledge on how the law works, and a knack for property management.
In other words, it will eat up your energy – it’s not all about collecting rent.
If it’s truly your dream to invest in real estate, in this article, we will share a few valuable tips to become an investor.
What is a landlord?
A landlord is someone who owns a property that is then rented out to a tenant or tenants. Full-time landlords oversee the day-to-day operations of their rental properties, however, they may also enlist the services of a property management company, especially if they are long-distance landlords.
Whether or not they become a full-time landlord depends on how willing they are to commit their time to their rental units. Those that cannot commit to it full-time often use their investment properties as sources of passive income.
Why should you become a landlord?
The common reason for becoming a landlord is the freedom that it offers. Although it’s unarguable that being a landlord has its fair share of hassles, for many landlords, the pros outweigh the cons. Here are a few of the benefits of owning real estate and then renting it out:
- Wealth diversification. Investors know the importance of putting their money into different assets, including real estate, stocks, bonds, and so on. By diversifying their wealth, they’re able to lower the risk in case of fluctuations in the market.
- Passive income. Rental properties are lucrative. They’re a source of passive income for people that aren’t keen on putting in too much work into their investments.
- Tax deductions. Landlords can benefit from multiple deductions that substantially lower their federal and state taxes.
- Use of the property. If you have to move but you don’t want to give up your current property, renting it out allows you to continue owning it while giving you the option to return at any time.
- Be able to sell at the right time. If you’re thinking of selling your property but the market isn’t the best, you can rent it out and sell it at a later date, ideally when the market is more favorable. You’ll still be able to cover the costs to maintain it, such as insurance and utilities, with the rental income.
How do you become a landlord?
When you want to become a landlord, you can decide to either be entirely hands-off by hiring a property management firm, or be hands-on by learning property management. Let’s take a closer look at how you can get started:
#1 Gain a general understanding of property management
You should start with a solid understanding of how the market works. Even if you decide to hire a third-party contractor, you should still take the time to learn the ins and outs of investment property management. This includes knowing how to identify investment-worthy markets, how to communicate with tenants, and the like. As with any investment, you should never go into it blind – you should at least be able to understand basic concepts.
#2 Determine what you want to invest in
Narrow down the type of properties that you want to invest in. Do you want to invest in residential or retail real estate? Where do you want to invest? Is there a certain city or county that you’re interested in? How many tenants do you want to rent to?
Another criteria to consider is its potential to generate good cash flow. This entails contemplating its return on investment (ROI), whether or not you can afford it, and whether or not it needs repairs. If you find out that you’re more likely to be at a loss with a given investment, then you should set your sights elsewhere.
A property management company can help you conduct a real estate market analysis to know whether or not a prospective investment is worth it. They’ll look into multiple factors, such as the crime rate, population, employment, and more.
#3 Buy an investment property
If you don’t already own a property, you need to buy one as soon as possible. However, be sure to give your investment a lot of thought, as the type of property that you purchase can make or break your rental business.
Once you’ve narrowed down the type of properties you want to invest in (as seen in #2), you can look for prospective properties on websites like Realtor.com and Zillow. Alternatively, you could enlist the services of a property management company that has access to platforms that only real estate professionals can access.
#4 Know the rental laws
This is extremely important. As a real estate investor, you need to understand the landlord-tenant rules on a federal, state, and local level. You also need to be familiar with the building code, especially if you’re planning on conducting upgrades to your rental property.
One of the laws that you need to be aware of is the Fair Housing Act (FHA), which protects potential tenants against discriminatory acts. For instance, if a potential tenant were to apply to rent your property, but you denied their application due to their color, there’s a chance that you’ll find yourself in court. The same goes for advertising your investment property to a specific demographic, such as saying, “four-bedroom home for families,” or “one-story house for seniors”.
Need a helping hand to get you started?
Those four are only the top things you need to do before you become a landlord. Keep in mind that being a real estate investor takes a lot of work – more than the four mentioned earlier. If you’re keen on self-managing your property, you’ll likely learn as you go and make mistakes along the way.
If you don’t want any room for error, let Luxury Property Care lend you a helping hand as you get started on rental property management. Plus, if you want to be an entirely hands-off landlord, you can count on us to make sure your property is well taken care of.