For those not in the know, being a landlord seems like an easy job — all you have to do is to find a tenant and cash in. However, those who have been living this lifestyle know that it’s a job like any other. You need to handle the finances, do maintenance, and go through a lengthy process of screening toxic tenants among other things.
If you’re thinking of buying a rental unit or struggling with finding good tenants for a property you already own, read this guide to find out how to lease your rental the smart way.
Learn the legal side of things
The very first thing you need to do if you want to get into this like of work is to figure out the legal side of renting. If you don’t, you risk getting into big financial or legal trouble down the road.
First, learn about the taxes. In most states, the tax code is quite lenient to landlords, provided you learn the finer details. You need to pay capital gains tax on the rental income after deducting all the expenses. If you pay the mortgage on the rental property, you can count that as an expense, the same goes for utilities and maintenance bills. You can also deduct the annual depreciation cost from the income. In most states, that’s 3.6% for 27.5 years, for the combined cost of the land and the property. Deduct all of those expenses from the yearly rental income, and pay taxes on that income.
The other thing you need to learn about is the landlord and tenant rights and obligations. These depend on the state your property is in. Generally, landlords are responsible for maintaining the house in habitable conditions and pay for repairs out of pocket. You can enter the property for repairs and maintenance with a notice of 24 to 72 hours. Trying to enter the property at will for inspections is begging for a court case unless you have enough reasons to suspect the tenant is engaging in illegal activity. You also cannot try to evict tenants by changing locks, that can only be done through a court procedure.
One of the most important legal things to keep in mind is a lease agreement. If you draft and sign a good lease agreement that outlines all the do’s and don’t’s of the lease, you’ll have a lot less trouble should something go awry. You can find free templates for lease agreements by FormsPal for your state, customize them to your liking, and use them to sign an agreement with a tenant.
Settle on a price
Once you know the legal details of this business, it’s time to settle on a price you’re willing to rent out your unit for. The first thing to do here is to check the market prices in your area. Focus on similar homes in terms of square feet and the quality of the house itself. Be sure to take into account any additional amenities you may have and proximity to important infrastructures like schools and shopping malls.
Your yearly income heavily relies on how many months per year the property is rented out, so you may want to settle on a smaller price or provide a discount for the initial couple of months to ensure your annual income goals are met.
Pretty up your humble abode
Before you set up a photoshoot of your rental property, it’s wise to pretty it up. Sure, some people would prefer to keep it down to earth, but let’s face it, marketing matters. If your house looks great in the pictures, it has much better odds of selling fast.
Do it yourself or pay the cleaning team, but make sure to cover every part of your rental unit from interior to exterior. The tenants are going to be very picky unless your price is significantly lower than the market average, and you want them to see a clean and functional property. If you have small maintenance jobs to do, it’s the perfect time to take care of them.
Decide on the marketing
The next step is deciding how you’re going to market your rental. The two options you have are doing it yourself or trusting a real estate firm to handle it for you. Here, it depends on how much time do you have on your hands. If you’re busy with other things in your life like work or business, it’s best to outsource the marketing to a real estate company, even though you’ll end up paying them a significant percentage.
However, if you have time to dedicate to talking to potential clients, you can save quite a lot of money on the agency fees. In this case, you’ll have to post an ad either on a paid or a free website that specifies in rental properties. Make sure you post the best pictures of the house you have and emphasize the benefits of renting your house or apartment.
This may be the hardest step of the entire process. During the screening, you’ll have to make a lot of tough decisions because the demand in the housing market tends to be higher than supply. When you’re considering who to accept as your tenant, you need to consider two major factors: the income to rent ratio and your personal opinion of the tenant. If you like the person who’s going to be renting out your property and their income is at least three times the sum of the rent, you’re in the safe territory.
Of course, you need to check the prospective tenant’s criminal record, credit score, and eviction record. However, good people may have had trouble with the law or toxic landlords in the past, so the final decision is always up to you. If you wish to give a former felon or a person with a bad credit score a chance, make sure to check their current income diligently, and increase the safety deposit amount.
Make that lease agreement tight
If you have certain red lines when it comes to the use of your property or pet ownership, make sure to set them straight both in negotiations and in the lease agreement. If it comes to the worse and you have to sue to evict a tenant, your lease agreement needs to reflect the exact reasons for eviction to help the court case be as brief as possible.
Leasing your property efficiently and profitably is easy once you know all the right components. If you figure out the legal details of the deal beforehand and create a lease agreement that satisfies both you and the tenant, you have the hardest parts of the process handled. Then, it’s just the matter of finding a tenant who can be trusted to make timely payments, and it’s a wrap.