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Tips On Becoming A Landlord

Becoming a landlord can be a great way for investors to make a lot of money, or just as easily lose their shirt. Here are some of the things I learned from my experience as a landlord.

With interest rates low, the economy still sluggish, and many homeowners that need to sell but are underwater on their mortgage, investors are looking for way to earn returns in the market, or at least not be forced to give up their home.

Becoming a landlord can be a great way for investors to make a lot of money, or just as easily lose their shirt. I bought my first investment property at 23 years old, and fortunately it was a successful endeavor. Direct real estate investing certainly isn’t for everyone. Here are some of the things I learned from my experience as a landlord:

It takes a lot of time
Being a landlord is a very time consuming job, and it isn’t a 9-5. Have you ever had a pipe burst at a convenient time? Be prepared to spend a lot of time managing your investment. Maintenance such as lawn care and snow removal, getting rent payments, and advertising for new tenants are examples of the major time-sucks landlords’ experience. And don’t think you can just hire someone to do all these things for you. Although you can, it will eat through any spare cash flow the property produces.

Be able to carry the mortgage without a renter
Be prepared for a worst case scenario. If you can’t pay the mortgage without a renter in your property, don’t even think about becoming a landlord. You obviously don’t want to own a rental property without renters in it, but you also don’t want to be financially dependent on having them.

Be realistic about income
Ideally, your principal, interest, and insurance payments (PMI) will represent about 50% of your rental income. The remainder needs to be set aside for maintenance, emergencies, and such. This also means you need to be pricing your rent high enough to double your PMI. If your property can’t demand that level of rent, I would reconsider the decision to purchase the property.

When projecting income, plan on receiving 11 months of rent each year. This will allow for the time it takes to get old renters out and new renters into your unit, as well as the possibility of a deadbeat renter that won’t pay their bills.

Be picky about your renters
I’m not recommending that you illegally discriminate, but I do recommend you be smart about who you rent to. The best way to avoid the hassles of eviction is having quality tenants in the first place. Call their references, verify their income is at least 4 times the rent, and require 1 months’ rent for security deposit and first month’s rent at the time they sign the lease.

Do not allow pets… ever…
As an animal lover and owner, that was the hardest thing for me to enforce. If you allow pets, you will have to replace the carpet every time the tenants move out (assuming you have a quality property and not a dump). You would be amazed at how quickly a dog or cat can eat through a security deposits worth of baseboards and carpet. What about outside pets? When it starts to snow, you really think they are going to leave their dog in the cold? I don’t think so.

Becoming a landlord can provide a great source of passive investment income, but it shouldn’t be taken lightly. I have seen a lot of investors lose money rather quickly because they didn’t know what they were getting themselves into. If you want to be a landlord but don’t have any experience, try to hook up with an experienced real estate investor to help walk you through the process. If you want to invest in real estate but don’t have the stomach for being a landlord, REIT mutual funds are certainly an option.

So what do you think? Have you ever considered becoming a landlord? If you are, or have even been, a landlord feel free to share some additional tips!

Alan Moore is a fee-only financial planner and founder of Serenity Financial Consulting in Shorewood WI. Follow him on Twitter @R_Alan_Moore. You can contact him at alan@serenityfc.com, 414-455-5313, or visit his website at www.SerenityFC.com. Want more education? Download your free guide to the “10 Easy Steps To Securing Your Financial Future Today.”

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Jay Sykes November 02, 2012 at 06:48 PM
It can, at times, be a challenge to verify income;some no longer get a 'check stub' with their direct deposit and many employers only confirm 'employment', not the wages. One might consider running a CCAP and/or credit check.
David Tatarowicz November 02, 2012 at 07:44 PM
I have both owned rental properties and managed properties (the largest was 64 units) -- I learned not to give a lease unless they were on Section 8, in which case you have to, but they are generally much better tenants than those who are not getting assistance, as they know that if they screw up they can loose their assistance. For regular tenants a lease is more often than not to the tenant's advantage --- a rental agreement with a 30 day notice is the Landlord's protection in being able to terminate a tenancy without all the legal hassle. As for pets, I never had a problem with small dogs or cats --- and it can make your property more attractive to potential renters --- actually there were a lot of animals I would have kept as tenants if I could have gotten rid of their owners :-)
The Donny Show November 02, 2012 at 07:48 PM
David will be here all week. Make sure you tip your waitress. Try the veal.
Avenging Angel November 02, 2012 at 08:07 PM
A major motivator for me to succeed was the crappy landlords I had. I bought my first house at a young age and vowed never to give a lanlord another dime of my money. My sister and brother in law were landlords for years and had nothing but trouble. They thoroughly checked one tenant. After he moved in, he moved in 6 or 7 of his deadbeat friends. It took months to get rid of them. One of the happiest days for my sister was selling that house.
Anne November 03, 2012 at 01:43 PM
If you are lucky enough to get a really good tenant, treat him/her well. Pay attention to the tenant's needs. Make repairs promptly. Consider keeping the rent stable. It's more important to keep a good tenant than to raise the rent every year.
Harry November 03, 2012 at 02:20 PM
As a landlord myself, I would Vote for Romney for a better future......
Steve ® November 03, 2012 at 02:37 PM
I think most are on a power trip just to have the title of lord.
Jaime Lannister November 04, 2012 at 04:10 PM
One thing I learned a long time ago-- Never rent from a private landlord unless you absolutely have to. You will always be better off renting from a big company that has policies and procedures and enough to do that they won't be overly focused on you. I made the mistake again with my business though and have rented office space from a one man operation, so I've had to deal with this guy following me around the property nit picking on every little thing and trying to save money by closing all the heat vents in the shared office space, etc.
Joe Todor November 04, 2012 at 04:17 PM
Pacific Heights http://www.imdb.com/title/tt0100318/ http://movies.netflix.com/WiMovie/Pacific_Heights/838117
Richard Head November 05, 2012 at 03:40 PM
IF you can find tenants, and you can handle the ghetto scenes, and you can handle difficult renters - Racine has opportunities for picking up slum properties cheap. Don't see a Realtor - see a Banker - Foreclosures are happening at the rate of more than one per day in Racine. Houses sell for $50,000 and under - many are under $20,000. A recent duplex at 1840 Center St. sold for $300. THREE HUNDRED DOLLARS. Racine Property Sales can be viewed here: Nov. 4 Report: http://racine.craigslist.org/rnr/3386609921.html Oct. 28 Report: http://racineinruins.wordpress.com/2012/10/29/wolfman-reports-102812/ Oct. 23 Report: http://racineinruins.wordpress.com/2012/10/23/wolfman-reports-10-23-12-2/ Bond Collateral and Racine Properties: http://racine.craigslist.org/rnr/3386815593.html

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