People become “accidental landlords” for a variety of reasons. Often, it’s related to a move. When work or family requires an out-of-state move, you’re faced with two options: sell or lease the house.
When people are called for active military duty, they face a similar housing dilemma. Should they sell quickly or lease their home until they return?
Others inherit homes. If they choose to live elsewhere, what should they do with the property?
In some situations, selling just isn’t an option. Either there’s not enough time to sell the house or they’re upside-down on the mortgage. Still, other people just don’t want to sell their home in case they move back later. In any of these dilemmas, leasing may be the solution.
Just because you became a landlord by accident, doesn’t mean you can’t be successful. No matter the reason you’re leasing your house, follow these tips to maximize the benefits.
Tips For Succeeding As An Accidental Landlord
1. Cashflow Is King
Start with the math. Estimate how much it will cost to get the property ready to rent. Then look at rental rates in your area. Do the numbers work? How long will it take you to recoup your initial investment?
Some clients start by fixing up a house, then find market value is much lower than they need for the investment to make sense. So, before you move forward as a landlord, crunch the numbers and make sure the cash flow is worth keeping the house.
2. Don’t Over-Improve Your Property
It’s tempting to make great upgrades right before you put a property on the rental market. But make sure those improvements bring a valuable return. Even something as simple as adding granite countertops may not be worth the money.
One accidental landlord I know of spent $3,500 on granite countertops and another $5,000 on wood floors. Although the upgrades looked great, they only brought $50 more per month in rent. At this rate, it will take 14 years to get back the initial investment.
Instead, start by knowing rental rates for your area. Then gauge acceptable rental condition for the neighborhood. Instead of thinking, What upgrades do I want in a house? consider, What condition do future tenants expect? Often, tenants care more about the cleanliness of the house and fresh paint than new countertops. So give the house a deep clean and follow these steps to make sure your house is rent-ready, even if it’s not fully upgraded.
3. Look at Finances Like an Investor
If you have a mortgage on the house, think about yearly profit (not monthly rent). Often, lowering your rental price just $50-100 makes the difference in filling a property immediately rather than it sitting on the market. So consider the big picture: the longer a house stays on the market, the more it costs you. Each mortgage you pay significantly eats into your yearly profit.
So think like an investor. Don’t focus so much on the monthly rent. Sure, rental rate is important, but it’s often more profitable to lease your property quickly than to get top dollar.
4. Get Insurance and Permits
You (and your tenants) need insurance. You also need to apply for a city rental permit. Cities are becoming increasingly more strict about rental permits. Without a permit, expect delays with utilities, extra inspections, and fines. But if you follow the rules and apply at the beginning, it’s inexpensive and easy.
5. Qualify Your Tenants
The most important part of landlording (besides calculating the cash flow) is choosing the right tenant. Almost every problem with rental properties stems from tenants. Vetting tenants can prevent property damage, unauthorized tenants, unauthorized pets, and non-payment of rent.
Often, choosing a bad tenant begins when you list your property too high. When a landlord asks too much in rent, the people most likely to pay are those who aren’t allowed to rent elsewhere. Sure, unqualified tenants will tell you what you need to hear so they can get into the property. But if they quit paying after a few months, you’re stuck with no rent plus the eviction and court costs. Accidental landlords get into trouble when they settle for a tenant with bruises on their credit for the sake of a little more monthly rent.
At LEAP Property Management, we don’t compromise when we choose tenants for your house. In fact, that’s probably what our clients appreciate most about us. We only select qualified people to rent your property. There are too many people looking for places to live to make exceptions.
If you don’t want to deal with the ins-and-outs of rental property yourself, consider a property rental company. They’ll help you evaluate your cash flow to see if leasing your property makes sense. If it does, they’ll take care of the rest!