How to Get Started in the Rental Business

Do you want to increase your income by owning rental properties? Do you have the spirit of an entrepreneur? Follow these practical steps and you will not only get into property management and make money. You will also avoid many of the common mistakes others have made.

Things You'll Need

• A commitment to succeed.
• A passion to learn.
• A reason to keep going when it gets hard.
• A computer for research.

Instructions

1. 

   Establish and maintain a budget and separate your budget from property management.

   There are two reasons for this. 1. You have to be able to carefully manage your own finances before you can add rentals to the mix. 2. You need a stash of cash to be able to intelligently invest and guard against the unexpected. This budget should include: mortgage payments, groceries, entertainment, utilities, clothes, home insurance, car insurance, tithe, savings, gifts, taxes, unexpected repairs, and a miscellaneous category. Excel can be a powerful tool for tracking and controlling your money. See daveramsey.com if you want to learn more about making a budget.

2. 

   Establish a target neighborhood.

   Ideally this neighborhood should fit several requirements: 1. It is close to your own home (you don't have to go far to work on a rental.) 2. It has a reason to have strong rental demand. Colleges, universities, factories, downtown areas, dense population areas, and areas with plenty of shopping usually have strong demand.

3. 

   Become an expert on your neighborhood.

   Exercise in your neighborhood with open eyes. Walk through it looking at houses. Pick up flyers on homes for sale whenever you see them. Learn the boundary lines between differing property values. Call numbers posted on "for Rent" signs to see how much a house is going for in the neighborhood.

4. Establish a property management team.

   Most rental books will advise you to find a lawyer, a tax accountant, a real estate agent, a home inspector, and a relatively cheap but reliable handyman. Don't go it alone or you will either burn out, or get sued. Don't be afraid to call a few candidates for each position, and interview them for the job. Ask other landlords for referrals.

5. 

   Start property management with a single family home.

   These are the most maintenance free, easy to fill, and easy to sell when you want out. Find one that you think is a good deal (30-60 percent off of fair value). You can often research the assessed value and yearly taxes of the home on the county assessor's web page. It may be a foreclosure, a distressed sale, or someone who doesn't understand pricing in the neighborhood. Make an offer below the asking price through a real estate agent.

6. 

   Do your due diligence.

   If the offer is accepted make sure you have an inspector do a careful and complete inspection. Go with the inspector if you can to become more familiar with the home. Some things must be addressed by the owner for you to take over the home: termite damage, wood damaging mold, poor wiring, faulty plumbing, leaky roof, failure to meet code, or inadequate heat. Be happy if you walk away from a home offer. You may lose 300 on the inspection. But you will save years of headache and money loss.

7. 

   Establish a legal and personalized lease for successful property management

   There are websites where you can download legally viable leases. Consider running them by a lawyer to make sure they will hold up in court. Make sure it covers length of lease, amount of deposit, amount of rent, who covers utilities, when rent is due, late charges for late rent, and the date you will file for eviction if they are tardy in payment.

8. 

   Clean it up and rent it out.

   Renters will pay more for a clean home. Screen would be renters with a careful application including previous landlords, credit check, and personal references. A good renter goes a long way, so take your time. Welcome to the world of rental properties.

Tips & Warnings

• 2-3 bedroom homes often make the best rentals and sell well when you want out.

• It takes determination and perseverance to be in rentals. Brace for it.

• Be familiar with the local laws and regulations to avoid pitfalls.

• Don't listen to the stories renters give for late rent. Late rent is late rent. Let them know you have a mortgage to pay, and file for eviction as soon as they are late in payment.

• Too many landlords buy a first property that is a money pit. Do your due diligence well. Walk away if you are unsure.

• Don't get into rental properties without significant savings to cover any periods of vacancies or unexpected repairs.

Resources

• More Resources on Investing
• Best Tenant Screening Resource
• When to Refinance Rule of Thumb