3 Simple Rules to Succeed as a Landlord
Being a successful landlord takes work, especially if you are in it for the long run. If you are trying to be a landlord because you think it is easy work, you may want to reconsider. Once you have systems in place, yes, it does become easier, but you have to put in the work at the beginning and continue to manage your business. Here are three tips to achieve success as a landlord.
Know Your Finances
Knowing how much money is coming in each month and how much money is going out is one of the most important parts of being a landlord.
You need to know your fixed expenses, the expenses that will vary on a monthly basis and your monthly income.
Examples of Expenses:
- Utility Bills: Gas, Electric, Water and Sewer
- Insurance on the Property
- Property Taxes
- Maintenance: Cutting the grass. Fixing plumbing leaks.
- Vacancy Costs: Advertising costs. Utility costs the tenant would have been responsible for.
- Apartment Turnover Costs: Repairs. Repainting. Cleaning.
- Capital Expenses: Such as roof, furnace, window and appliance replacement. Kitchen and bath updates. Smart landlords take a portion of the rent collected and allocate it to a capital expense account for when these big ticket items happen.
Example of Income:
- Monthly Rent Collected
Net Operating Income, NOI:
- This is calculated by subtracting your expenses from your income.
- The cash flow for a landlord is the net operating income, NOI, minus any mortgage payment you may have. The mortgage payment includes the principle payment and the interest. The cash flow is the true profit of a landlord.
Know the Law
If you do not know your state and local laws, you can get in serious trouble. You can face lawsuits and huge penalties. Each state has its own set of landlord-tenant laws which explain the obligations and responsibilities a landlord has.
A landlord must treat every prospective tenant and tenant equally.
The Federal Fair Housing Act explains the actions that could be considered discrimination in housing. It also lists seven specific classes of people that it protects. For example, even if you have a no pet’s policy, you must allow a disabled tenant to have a service animal because it is medically necessary for their disability.
Many states also have their own Fair Housing laws, which protect additional classes of people. You can do a quick internet search using the name of your state and fair housing laws to see if additional laws may apply to you.
This is a binding contract between you and your tenant. The more extensive the lease is, as long as it contains legal and accurate information, the better protected you are.
Your state may require certain clauses to be included in your lease, such as the security deposit amount and where the security deposit is being stored. You may also need to include the procedures for rent increases, the procedures for tenant move out, as well as a lead paint disclosure form if your unit was constructed before 1978.
Landlords have certain maintenance responsibilities to their property. This can include keeping all common areas clean, having the proper trash receptacles, making sure all tenants have access to running water and making sure the property meets all health and safety standards.
Each state has specific rules for how much can be collected and when it must be returned. Make sure you know the security deposit laws inside and out because this is often a point of conflict between landlords and tenants.
You must know the procedure for evicting tenants in your state. This includes the reasons you can file for an eviction, when and how often you must send the tenant a required notice to quit the behavior and actually filing for the eviction in court.
Keep Tenants Happy
Once you place good tenants in your property, you do not want them to leave. Two keys to keeping tenants happy are keeping up with property maintenance and placing good tenants around them. Tenants will quickly move if they are not happy with their neighbors or if they feel like the apartment or the property in general is falling apart.
Addressing tenants repair requests quickly will help keep tenants happy. Small updates to the property exterior or interior will help tenants feel like you care about the property. Something as simple as planting a couple of shrubs, adding a new handrail or replacing an old bulletin board will help keep the property feeling fresh.
Screening all prospective tenants to make sure they meet your qualifying standards can help you keep good tenants in your property. Screening questions, credit checks and referrals can all help you weed out the good tenants from the bad.
You should also always be aware of the rental market around you. If rental prices in your area have fallen significantly since you signed the lease with your tenant, your tenant may want to move to pay less rent. To avoid a vacancy, you may want to consider a reduction in rent to get them to stay.