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Although the real estate market is still full of cheap property and over half a million new homes are being built this year, you still may see more renters than buyers.
And those renters are paying higher rates, CNN said recently: More than 10 million are spending more than half their income on what traditionally costs around 30 percent.
Does that make it a good idea to invest in rental property right now? Maybe, but it’s not exactly easy money.
Money Talks News owner Stacy Johnson owned rentals for more than 20 years, and he emphasizes one point above all else: Screen your renters.
“It’s better to get less rent from a good tenant than more rent from a bad one,” Stacy says. “Like a spouse, finding a renter is the easy part. It’s getting rid of the bad ones that will cost you a ton of money and aggravation.”
To hear more advice from Stacy, as well as longtime landlord Kenny Hale, watch the video below. Then read on for more…
While there’s no video or single article that’s going to tell you everything you need to know about buying rental property and learning the landlord ropes, here’s a quick primer with a few basics.
Buying and pricing the property
- Look for properties with simple, solid construction. Fancy or specialized construction might mean higher rent, but it also means higher maintenance.
- Safety is more important than in your own home, since you won’t sue yourself for an accident.
- Know state and local laws on rental property. Rules differ from state to state. For example, make sure what you call a bedroom legally counts as one in terms of size, that you provide adequate parking, and that the property is properly zoned and up to code.
- Property prices may be lower in bad neighborhoods, but problems may be higher. Try to find a good, solid working-class neighborhood that has other rental properties.
- Buy close to where you live – no farther than you would drive to work. You want to be available when something goes wrong.
- Join a local landlord association and build a support network. Things will go wrong, and knowing others in the same boat for advice and referrals will be worth its weight in gold.
- Use online resources like Mr. Landlord and Landlord Protection Agency for advice and forms.
- When it comes to pricing, check Craigslist and other local prices to see the going rates. And visit competing properties.
- Make sure your rents will cover all your costs, not just the obvious ones, like the mortgage and utilities. Make an allowance for repairs, maintenance, vacancies, and uncollected rents. Like any business, don’t go into this one without a healthy amount of emergency cash.
- When possible, let the tenant handle utilities. The fewer expenses you have to deal with, the better.
Finding and dealing with tenants
As mentioned earlier, a good background check is essential – one bad renter will not only bust your budget, they’ll make your life extremely stressful. Here’s what to do:
- Check credit. If one of your criteria is to rent only to tenants with good credit – something Stacy strongly recommends – mention early and often that you do credit checks. Say it in any ad you run and repeat it when people call.
- Check ID. Before you actually run a credit or criminal background check, make sure applicants aren’t putting down somebody else’s information. (One popular screening service is the National Tenant Network.)
- Consider holding an open house. This can be a good way to screen several candidates at once, face to face. You can ask questions about pets, smoking, relationships with previous landlords, or whatever else you think is relevant – but remember that attitude is just as important as the answers. Look for direct, mature responses that show the applicant came prepared.
- Don’t skip references. If you ask for references and the applicant doesn’t provide them, or they “get the number wrong,” don’t let it slide – especially if everything else seems too good to be true.
- Wait until the check clears. Don’t hand over the keys until the tenant’s check clears. Sure, if the check bounces, you’ll know that you have not only a bad tenant but a stupid one. But you’ll also have to go through the hassle of getting them off your property.