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Originally Posted On: The Ultimate Guide of How to Become a Landlord | Steadily

 

Becoming a landlord can be an exciting and profitable opportunity. There are many benefits to owning rental properties that include extra income, potential tax deductions, long-term security, or funding for your retirement. But before you get started, there are some things you must know and do to become a successful landlord.

Our guide was created with homeowners in mind who want guidance and advice about the role of a landlord and are curious about its benefits and disadvantages.

The guide covers everything needed to take the leap to be a landlord. It provides step-by-step guidance starting from the basics, such as the definition of a landlord and what being a landlord is like to more complex information such as the landlord-tenant checklist and what it should contain.

What is a Landlord? 

Simply stated, a landlord is a person who owns a property and rents it to someone else to earn rental income.

While some landlords are private individuals who own only one or a few properties, others are large organizations that have hundreds or thousands of properties in their portfolios.

Land lording has become a profession in the U.S. because of overcrowding. The first landlords were those who bought property to rent out to people in need of shelter.

Starting in the early 1800s, people began to see that they could make money by renting out houses or apartments to people who needed somewhere to live.

There were some laws during that time that helped landlords get started easily. For example, they weren’t responsible for providing any heat or water, which meant tenants had to spend more of their own money.

🗒 Take Note: Heating and cooling costs were the most crucial amenity prices of the houses for sale this year, with 83% of home buyers finding these at least somewhat important.

Today, landlords are primarily responsible for the upkeep and maintenance of their rented properties. Consequently, they have specific responsibilities that come with renting property to tenants (which can vary from one state to another).

They must ensure their tenants are provided with livable spaces that are safe and clean, in good repair, and free from dangerous or unhealthy conditions.

Being a Landlord 

Perhaps the most sought-after benefit of being a landlord is the steady flow of income. Being a landlord requires you to adopt a new role. Becoming a landlord is not overly challenging, but it does require some understanding of the process and capital.

➤ First, consider what it is you are investing in. Is it an apartment building? A house? Are you just renting out your property? What kind of investment are you looking for – and how much are you willing to put in to get that investment? These are all questions that need an answer before transitioning into the role of being a landlord.

➤ Next, think about the contractual terms. In the U.S., landlords typically provide the tenant with either a lease or a month-to-month rental agreement.

A lease is a contract that both the tenant and the landlord sign for a set period, and it specifies all the rules and obligations for both parties. Month-to-month rental agreements run for one month at a time without any long-term commitment, and they don’t have to be signed in advance.

➤ Last, keep in mind that being a landlord requires your constant involvement. The position of landlord is a full-time commitment. If you have decided to become a landlord, you will have to regularly communicate with your tenants and ensure that your property is maintained.

Is Being a Landlord Worth it? 

In the aftermath of the health crisis, many people lost their jobs and struggled to make ends meet. For those in that situation, becoming a landlord was an attractive option because of the high demand for housing.

With fewer people available to work, prices for goods (especially lumber prices) and services have increased. It makes renting a property much more advantageous than selling it because it allowed people to charge more for rent than they would get if they sold their properties under the current economic conditions.

But is it worth it in the long run? This depends on your expectations and how much you are willing to get involved in the process.

The truth is that land lording is a complex business, and it is not a “get rich quick” scheme. Whether to be a landlord should depend on your financial situation, the state of the economy, and how much time you are willing to put into it.

Additionally, the cost of being a landlord can be high and includes property taxes, insurance, maintenance costs, utility bills, repairs, and renovations.

You will also have to hire professionals for appraisals and inspections because you, as the landlord, are typically liable for damages in your building. Remember that most mortgages require you to have flood insurance if the property is in flood-prone areas or identified as a significant risk during local or national floods.

If you can find responsible tenants who pay their rent on time, don’t abuse the property, and don’t require you to engage in costly and timely eviction processes by terminating their lease, you will certainly not regret the decision. In most cases, the investment in becoming a landlord is well worth the time and money.

Pros and Cons of Being a Landlord

If there were only good parts to land-lording, a lot more people would choose to do it. Naturally, being a landlord comes with both advantages and disadvantages.

Whether you are a current landlord or someone who may want to become one in the future, it is essential to know both the pros and cons of the position.

Pros:

  • Generate monthly passive income.
  • Increased rent from additional units.
  • Protection against inflation and deflation.
  • Tax deductions.
  • No credit rating is necessary or required.
  • Ability to live anywhere in the world.
  • Potential to use the investment as collateral for a loan.
  • Building equity by holding onto the property over time.

Cons:

Sometimes, it requires you to invest thousands into the rental properties before they become profitable (there is no guarantee that you will recover the investment or break even on the return on investment).

Renters may not honor the contract and skip out on paying rent, or they might cause damage to the property, which could lead to costs incurred by the landlord. These costs could lead to an expensive eviction process or even bankruptcy if damages are extensive enough.

🧠 Keep in Mind: A landlord incurs costs of up to $10,000 for evicting a tenant.

The rental market is competitive, with many landlords competing for tenants.

Tips for New Landlords

More and more people are choosing to become landlords. With the number of renters increasing, demand for rental properties is rising (and so are the prices). And the effects were not long in coming — there has been a boom of new property investors who have taken on the challenge.

However, many are often uncertain about what to do or where to start when they want to become landlords. Some feel the process is too technical or complicated and consider that the responsibility is too difficult to bear.

Given these points, first-time landlords should be aware of managing all aspects of a property to get the best results and be successful.

Below are tips for new landlords to ensure success:

  • Do your research on what kind of property you want and size it according to your needs and goals. Do you want to have vacation rentals, AirBnB properties, or just traditional rentals.
  • Work with a real estate professional who will ensure that your investment is profitable.
  • Price your property correctly. You should never list your property for less than what it would cost someone else to purchase it on their own.
  • Market your rental property. Do not skip the marketing part because it is mandatory, especially for those renting for the first time.
  • Know what kind of tenant you want – business or residential – and screen them thoroughly before entering a contract.
  • Have a basic understanding of landlord-tenant law. This way, you can protect your rights, maintain good relationships with your tenants, and get the most out of your rental properties.

How to be a good landlord? 

For any landlord, knowing how to be a good one is imperative. It will often make the difference between a healthy investment or a money pit.

Some landlords are well-equipped for this role due to previous experience or are naturally organized and detail-oriented. Others may need to take a few steps to prepare for the challenges associated with being a landlord.

If you want to be successful in your job as a landlord, here are some essential key points that you should keep in mind:

In the beginning, involve yourself in the process before off-loading some of the tasks to your team or outside contractors. This hands-on experience will give you a holistic view of the entirety of operating rental properties.

  • Be approachable and responsive to tenant needs.
  • Always remember that quality is better than quantity.
  • Do regular maintenance checks without violating privacy.
  • Consider your rental property as a business.
  • Screen your potential tenants well because evictions are costly, and they bring no benefit to both parties.

Another vital thing to remember for being a good landlord is always providing high-quality service through regular property maintenance. Ensure that your tenants are happy with how you manage the property, help with any emergency repairs, and provide them with what they need for their living in your rental.

The best landlords work hard to understand their tenants’ needs when it comes to housing. They should not discriminate against prospective renters based on race, religion, gender identity, familial status, or disability.

A good landlord goes above and beyond the call of duty, respects the people in their property, and treats them with a high level of care.

What does it take to become a successful landlord?

There are approximately 10 million small and medium-sized landlords in the U.S., but certainly, not everyone has managed to reach the pinnacle of property rental success yet.

To be a successful landlord, you need to have the necessary skills and knowledge to take care of the property and do your best to satisfy your tenants.

Landlords must be proactive to make sure they know what they’re doing and handle any situation that may arise with their tenants.

Another vital thing to remember for being a good landlord is always providing high-quality service through regular property maintenance. Ensure that your tenants are happy with how you manage the property, help with any emergency repairs, and provide them with what they need for their living in your rental.

The best landlords work hard to understand their tenants’ needs when it comes to housing. They should not discriminate against prospective renters based on race, religion, gender identity, familial status, or disability.

A good landlord goes above and beyond the call of duty, respects the people in their property, and treats them with a high level of care.

What is a Section 8 Landlord?

You’ve probably heard of Section 8 Landlords before and the process to become a section 8 landlord is a bit different than traditionally renting out properties. Many people are interested in becoming a Section 8 Landlord because there are certain benefits beyond being a typical rental property owner.

Section 8 landlords own a rental property that accepts the Housing Choice Voucher Program (aka Section 8), which provides rent assistance to low-income families and individuals.

✨ Related fact: People who use these vouchers have incomes below 50% of the median income for an area, and they pay at least 30% of their income towards housing costs. Section 8 landlords must agree to accept these vouchers from qualified tenants to participate in this federally funded program. 

One of the main reasons people choose to get involved in this program is that Section 8 landlords establish a niche for their business by providing housing and rent assistance for these people who need help in this type of situation.

It’s a win-win situation for both the landlord and the tenant as they get to live comfortably without worrying about money or the lack of it.

One thing to note about Section 8 landlords is that they cannot refuse applicants based on race, religion, sex, disability, or age as mandated by law.  But this is not the only criterion.

To qualify for becoming a Section 8 Landlord, you will need proof that you meet all eligibility requirements. 

✓ You must first meet the criteria set by the Housing Authority. One of the main ones would be your age – You must be at least 18 years old and have a high school diploma or GED.

✓ You must provide a copy of your lease agreement or rental agreement, as well as proof that the property meets specific standards (such as proof that your property has passed inspection, which is also a mandatory step).

✓ You also need to provide your criminal records report (if you have one), a rental history report (if applicable), and pay the application fee. The application process can take anywhere from one day to several weeks, depending on how long it takes for your documents to get processed.

✓ You must follow the Housing Quality Standards (HQS), which include repairs, habitability, and safety standards in accordance with HUD’s minimum housing quality standards.

All these requirements help protect the health and safety of tenants as well as maintain a decent home environment for all residents. For this reason, if you ever decide to become a Section 8 Landlord, these cannot be overlooked.

What is a HUD Landlord?

To better understand what a HUD Landlord is and what is involved with the position, you must first understand the difference between HUD and Section 8.

HUD housing is owned by the federal government and provides public housing. Section 8 is also a housing assistance program provided by HUD (The U.S. Department of Housing and Urban Development) in partnership with local government agencies called Housing Authorities.

The difference is that while HUD is a federal program that provides public housing, Section 8 is a national program that only assists with the cost of renting homes and apartments, allowing participants to rent private residences by giving them vouchers to subsidize the cost of the rent.

🔎 Did You Know? HUD stands for “Housing and Urban Development.” It was created by President Lyndon B. Johnson’s “Great Society” in 1965 as part of his War on Poverty initiative. It provides rental assistance to low-income households with income below 50%.

This could be an individual or company that rents out homes, apartments, or commercial properties on behalf of the government’s Department of Housing and Urban Development (HUD). Therefore, a HUD Landlord is someone who owns and manages property for other people. It can also refer to those who work in the public sector as well as private landlords.

As with regular landlords, HUD Landlords are responsible for everything from finding tenants to ensuring their rent payments are made on time and collecting security deposits at move-out.

Is it Possible to Become a Landlord with Little to No Money?

The answer is a resounding yes. If you’re looking to become a landlord with little to no money, there are ways to finance your first property purchase without having any cash on hand. The key is finding the right financing option for you and your situation.

Many homeowners are considering becoming landlords to make extra cash, and a good portion of them have little or no money. Investing in property is one of the most tried and true methods of building wealth, with the average person needing a minimum of $20,000 upfront for a property valued at $100,000.

That said, even with such a substantial sum of money in hand, there are still challenges and risks involved that need careful consideration before taking the plunge.

There are three main ways to become a landlord with no money.

➤ Getting a mortgage for the property is the most common way to start investing in real estate. This method has some risks, but it also has lots of advantages that make it worth considering.

You may want to consider consulting your bank about a loan. They might be able to provide you with an unsecured personal loan or a home equity line of credit. Other online resources will help you get financing for your rental property.

If you don’t have money for a down payment for a loan, then you may be able to get a government-backed loan.

➤ The other primary way to invest in property without money is through partnerships with other people who have the funds. You can also work with an investor who will purchase the property with you, as well as a lender that is willing to provide financing for both the buyer and seller in this type of transaction.

➤ The third option is to buy a home with ‘no money down’ and then rent it out, but make sure you check local laws and zoning regulations first before proceeding with this option. The easiest way to do that is to borrow some money from a relative or close friend.

The idea of becoming a landlord without the necessary funds or credit to get started can be daunting, but that doesn’t make it less achievable. With enough determination, you can become a landlord with little to no money.

The Steps to Become a Landlord

The process of becoming a landlord is more complex than it might seem. Here are the steps to becoming a landlord:

  1. Find a Suitable Property

You will need to have the proper paperwork and credit history to get approved for financing. You also need to be knowledgeable about the local housing laws to make an informed decision.

  1. Acquire Financing

This will depend on your credit score, financial situation, and what kind of property you want to buy. Once you have obtained financing, you will need to create a business plan for the operation of the property as well as document the renovation plans, projected expenses, and sources of income for your investment.

  1. Inspect the Property 

Once you have found a property, inspect it to ensure no significant damages or issues. The most important thing to remember about this process is that it requires plenty of research to prevent costly mistakes in the future. Unless you are an expert, we recommend hiring a property inspector.

💁‍♂ You don’t have to go this route alone. Working with a real estate agent will make it easier for you throughout the entire rental process. On average, the commission charged by a real estate agent is somewhere around 5% -6% of the home’s sale price.

  1. Find Tenants

After the inspection, the fourth step is finding tenants that meet your criteria and screening them carefully. Having a real estate agent with you will make this much easier because they have the necessary experience in screening tenants and identifying suitable ones.

  1. Finalize the Deal

The final step is finalizing the deal with your tenant and signing all the necessary paperwork. After completing these steps, you are officially a landlord.

  1. Purchase Landlord Insurance

It’s hard work to become a landlord, and making sure that a landlord policy protects your investment can reduce a ton of unwanted risk.

Landlord insurance helps cover any unforeseen events that come along with owning a rental property. Think of it this way, you wouldn’t want to drive your car without car insurance, and you don’t want to rent your investment property without landlord insurance.

🔥 Expert-Tip: Being a successful landlord involves taking on calculated risks that you have a level of control over. An unforeseeable event such as an injured tenant filing a lawsuit is a risk that you don’t have any control over. Make your investment less risky and get a free landlord insurance quote in just a few minutes.

Landlord-Tenant Checklist

The move-in and move-out property checklists are essential tools for tenants and landlords, protecting the tenant’s rental property and the landlord’s investments.

These should be prepared in advance and followed for a smooth transition. Having guidelines will benefit both parties by bringing formality and fairness.

Tenants generally use a tenant move-in checklist to ensure that they have everything they need for the moving-in process and collecting the necessary documents

Landlords can also benefit from a tenant move-in checklist by providing a list of what they need to provide for the tenant to move in successfully. An excellent landlord-tenant move-in checklist will help the landlord give an excellent first impression to the tenant by enabling the landlord to deliver a good start to the tenant’s customer journey.

A landlord or property manager usually creates a move-out checklist. It lists all items that need to be accounted for before signing off on a tenant’s occupancy of a unit. A move-out property checklist should have a step-by-step list of everything that needs to be checked, as well as items that should be left for the next tenant.

Items on this checklist vary but may include disconnecting all major appliances, turning off the water, gas, and electricity, cleaning or repairing any damages to the house, emptying refrigerators or freezers, checking for any leakages or damage to gas lines, and more.

💡 Tip: It is essential to communicate with the tenant what is considered a fixture. A fixture is essentially an item that is a part of a property. Fixtures generally are nailed, glued, or ‘fixed’ to the property. Tenants may remove fixtures unknowingly when they move out.

All things considered

Becoming a landlord is not an easy task, but it can be very rewarding. If you’re interested in the prospect of owning rental properties, then make sure to do your research and consult with legal professionals before taking any steps. You must have all your bases covered so you can enjoy the benefits and avoid potential pitfalls along the way.

We hope this guide has helped you become more aware of what it takes to be a landlord and give you some ideas on getting started.

Infographic Explaining How To Become A Landlord