Becoming a Landlord

Why Become a Landlord?

Some are born to be landlords, others have it thrust upon them. For some, becoming a landlord is one of the best, most profitable decisions they'll ever make in their life, while others find it to be an unavoidable reality of a down real estate market. If done correctly, the reasons for becoming a landlord are quite understandable: generating cash flow and building equity in a piece of real estate for free without giving up ownership is an excellent proposition. But if the value of a property has declined and the owner has negative equity, renting out some or all of a property can be the only way to make ends meet. And, of course, there's always the responsibility to maintain the property and the risk of damage by the tenants. Becoming a landlord is serious business.

Cost Benefit Analysis

The first step to becoming a landlord is to own property. As an owner, assuming you're not living there, you have two options with a home, apartment or condo: sell it or rent it. Ultimately, the numbers should make that decision for you. An experienced realtor or property appraiser should be able to provide a good idea of what the property could sell for in the current market. If this amount is not enough to cover your expenses or make a sufficient profit, then becoming a landlord is a serious consideration. Start by finding the going rental rate for comparable property in the vicinity (your realtor or appraiser can help with that info). Then add up the cost of owning the property for one year, including mortgage, property taxes, insurance, homeowner's association fees and anything else. To be safe and to cover unforeseen maintenance, add 10 percent. Divide this total amount by 12, and if this quotient is less than the going rental rate, then renting the property should be a profitable endeavor.

Finding Tenants

If you're going to live in the property and rent out a room or some other part, then finding the best possible tenants is very important. But even if the property will be rented out entirely, the tenants are a big variable in the profitability equation that should be controlled as much as possible. For starters, place ads in locations that will draw the kind of tenant you're seeking, ideally an educated, employed individual with good credit. Screen tenants carefully and in person to get the best read on who you will trust with your valuable investment. While you're at it, read up on the local and state tenancy laws, and find a rental agreement form that covers all aspects of the lease. Make sure your insurance on the property is up to date, and that the insurer knows the property is being rented. Finally, if you're not particularly handy yourself, start making contacts in the community with reliable repairmen that can step in when work is needed, hopefully ones that will work for cheap or accept barter or service exchanges.

Resources

• Advice on Becoming a Landlord
• Alternatives to Selling: Benefits to Becoming a Landlord
• Read This Before Becoming a Landlord