Linda Trevor contributed to the following article in Raleigh Magazine…..8 Things You Should Know Before You Become a Landlord, written by Cameron Walker
1. Buy close to home
“Purchase something close by; you want to be able to keep an eye on it,” says Linda Trevor, RE/MAX United broker and past president of the Raleigh Regional Association of Realtors.
Being able to drive by occasionally and to get there quickly in case of emergency is important. And knowing the area is key to purchasing property that will make you a profit. For example, factors like nearby employers, schools and transportation will determine the vacancy rate and the amount of rent you can charge.
2. Don’t go it alone
Use a knowledgeable Realtor, preferably one with real estate investing experience.
“Many new investors I talk to complete their real estate investment education through HGTV and Google,” says Jim Ellis, instructor at Go School of Real Estate. “An experienced, investment-minded real estate agent is undeniably a valuable asset. A good one can help you with cash on cash analysis, gross rent multipliers and cap rate analysis, among other things.”
Trevor adds: “Consult a local Realtor who can advise with the purchase, provide local rental rates and a history of appreciation,” says Trevor. She also recommends using a local mortgage broker who works with investors and landlords, since financing an investment property can differ from traditional financing.
Should you sell your current home or rent it out? A Realtor can help you decide.
“I can work with a homeowner to evaluate their property as to whether it would make a good income property or would be better to sell it,” says Molly Bonis, broker at Fathom Realty.
3. Vet potential tenants
“The downside to being a landlord falls on the performance of the tenant. We’ve all heard the horror stories and, yes, they exist. If you own property long enough, you will encounter the nightmare tenant,” says Ellis. However, he adds, most investors have more positive experiences than not.
Conduct credit and background checks on potential tenants.
“Owning investment properties is a business and it’s critical to know who you are renting to and to be sure they can pay the rent,” says Trevor.
4. Consider hiring a property manager
Property managers can help with everything from advertising vacancies to changing the locks between tenants, but they can also eat into your profit.
“There is a lot of freedom in having a property manager to oversee most aspects of the screening, lease and repairs, and I see it as a cost of doing business,” says Trevor.
5. Know the law
“Use up-to-date, state-approved leasing documents and read up on fair-housing rules,” says Trevor. “Consult a local attorney for advice. When tenants get behind, and they will, don’t hesitate to start the eviction process.”
Many laws governing leases favor the tenant, so learn the rules before entering into your first contract.
6. Mind your money
“Keep detailed records of all expenses and income from day one,” says Trevor. “Set up a separate banking account and consider forming an LLC.”
Consult with an accountant regarding taxes on your investment property, and set aside monetary reserves for remodeling, repairs, missed lease payments and vacancies.
7. Be patient
“This is not about getting rich quick,” says Ellis. “Owning rental properties has always been and will always be a long term, slow growth investment vehicle.”
A property’s rental income will likely increase over time, as will the value of the property. Ellis says the average rate of appreciation is in the range of 3.5 percent to 5.5 percent.
“Rental properties are not about instant cash flow but the ability to have someone else paying down the mortgage while seeing appreciation over the years,” says Trevor.
8. Avoid this common mistake
If you make the decision to move and rent out your home, make sure you let your insurance company know.
According to State Farm insurance agent Carmen Ritz, if the insurance company is not informed of the household change, they may not extend coverage. The risk for loss increases with a rental property, so landlords should consult with their agent to ensure they have enough coverage.
Advise your tenants to carry their own renters insurance, as their personal property is not included in your policy.