How to Set Rent as a First Time Landlord
While you’d love to get as much for your income property as possible, you must be smart about how you set the rent as a first time landlord. Don’t get carried away with overly optimistic assumptions. Setting the rent too high and ending up with an empty unit for months chips away at the overall profit quickly.
Start with the average rent for the neighborhood and work from there. Consider, honestly, whether your place is worth a bit more or a bit less, and why. Is your property furnished? Be sure to consider that. What amenities does your building or unit have as compared to the units in the area? You don’t want to leave money on the table, but you also need your property rented.
To figure out if the rent number works for you as an investor, you must know what it will actually cost you. Subtract your expected monthly mortgage payment, property taxes divided by 12 months, insurance costs divided by 12, and a generous allowance for maintenance and repairs.
Don’t Underestimate the Cost of Maintenance and Repairs
Building in a buffer for maintenance and repairs protects you from a painful month in case of a surprise. Keeping a slush fund will protect your profits in the event a water heater dies, the refrigerator needs repair, or the chimney needs tuckpointing.
The costs will depend on the age of the property and how much you plan to do yourself. A newer building probably will require less work and money than an older one. The type of renter will also impact the repairs needed –– renting to a young professional will require different maintenance than a group of college co-eds.
Don’t Invest in Renovations that Won’t Produce Higher Rent
While you might love crown molding and marble countertops, unless the neighborhood and building your income property is in is garnering top dollar, there is simply no need for these renovations. You’re spending your money foolishly, and you will not make a return on that investment.
Instead, invest in what makes sense for your renters and will allow you to charge more for your property. If you own a single-family home that’s appealing to young families, does installing a fence make your property more attractive and allow you to charge more? Perhaps. If you’re renting to seniors, possibly installing a handle and seat in the shower makes sense. Wherever you spend your money, be sure it will allow you to charge more rent, otherwise, it’s likely not worth it.
Finding Tenants Online as a First Time Landlord
The majority of tenants search online for their next apartment or home, which means the most effective way to find tenants is to create an online rental listing. Promote your listing on sites like Trulia, Zillow, and RedFin.
The most effective way to do this is to create a rental listing that tells the tenants what they’ll want to know about your property and showcase it with quality, well-lit pictures. A rule of thumb: the more informative the listing, and the better quality pictures, the better. Portray your listing in its best light to attract the highest quality tenants who will pay rent on time and take care of your property.
Create and Follow a Tenant Screening Process
The goal of using a tenant screening process is to find quality tenants who will pay rent on time and take care of your property as if it were their own. In order to select responsible tenants, you must filter through them.
As a first time landlord look for a tenant who can pay in full each month, who doesn’t have a criminal history, and has an excellent rental and credit background. ezLandlordForms can help you with this process.
Require a Rental Application
A strong rental application will give you quick information about your prospective tenant, including their name, address, the reason for the move, employer information, income, and landlord references. It’s crucial to ask the right questions so you have all the information to make a smart decision about who you’ll rent to.
Have a Clear, Written Lease
As a first time landlord a strong, written lease is the best way to communicate expectations, rules and regulations, and mitigate against potential problems. By spelling everything out very clearly and specifically, your tenants understand precisely what is expected of them and what the repercussions are for not following the rules. It delineates responsibility for repairs, utility payments, and more. Your lease must also adhere to state-specific laws.
Read more on why you need a strong lease.
Enforce the Lease
A strong lease means nothing if you don’t follow through on what you outlined in it. If you, as the landlord, are required to respond to a repair request within 24 hours, make sure you do so. This way, your tenants know that you’re also abiding by your contract, and they, in turn, will be more likely to follow the rules.
Arguably the most important rule to enforce from the tenants is actually to charge your late rent fee. You can allow a grace period, but after that, you should be sure to collect the rent plus the late fee agreed upon in the lease. Not only will this show your tenant that you do enforce the rules, meaning they won’t take advantage of your leniency, but also it will help your bottom line.
Consider Collecting Rent Online
Online payments are more convenient for everyone –– your tenant is likely already paying the majority of their bills online, which means they’re more likely actually to pay your rent. Tenants can set up scheduled, automatic payments which will benefit everyone. It may take a little extra time up front to set up the process, but you’ll benefit from getting your rent on time each month and the time saved by not hounding or chasing down a tenant for their rent check.
Treat Your Income Property Like a Business, Not like a First Time Landlord
That means keeping detailed records of all transactions, communications, and repairs. That also means protecting your investment –– from being smart about where and when you spend your dollars, to enforcing your lease (even if it feels uncomfortable), to ultimately retaining your good tenants. As with all businesses, it’s more expensive to attract a new customer (in this case, tenant) than it is to maintain a good relationship with your current customer.