In today’s renter economy, becoming a landlord can be a lucrative side hustle. By leasing a rental property, you can earn a supplemental income that may be used to pay off your existing mortgage or purchase another home.
However, if being a landlord were easy, everyone would do it. The business comes with its own set of drawbacks, including everything between 3 a.m. phone calls for unexpected emergencies and reckless tenants damaging your property. If you don’t carefully manage your rental, you could rack up more costs than revenue—resulting in not only a massive headache, but also a huge drain on your bank account.
For those considering the profession, be sure to first read through these tips on how to be a successful landlord.
You can’t just clean out a spare room and offer it to someone you find online for the price of monthly rent. What happens if you suddenly decide you that you want the renter to move out, or they paint the walls without your permission? Without a formal lease agreement in place, you won’t be able to do much about either circumstance. There are many laws in place that protect both landlords’ and tenants’ rights, so it’s imperative that you document lease terms that your renter must abide by. Otherwise, you might find yourself in a “he said, she said” situation should something go wrong.
While it may be possible to create an official lease without becoming a business entity, it’s in your interest to do so. By forming an LLC, you can protect your personal liability from business financial obligations and may open the door to a number of tax incentives. Remember to open a business bank account to keep your money separate from withdrawals and deposits associated with the rental property.
The single best move a landlord can make to protect the fate of their business is leasing to the greatest tenants they can find—ones who are respectful and pay rent on time. Of course, there’s no cut-and-dry science that can ensure the trustworthiness of a rental applicant, but there are steps you can take to feel more confident about your decision:
In order to run a background check, you’ll need to receive your applicant’s express, written permission—otherwise, you may violate FCRA laws and land yourself in an expensive lawsuit. Store this document, in addition to rental agreements, invoices, security deposit slips, and any other important information for safe keeping should you need to provide supporting proof later on down the road.
Bookkeeping is important, but tedious. Landlords are very busy people, so look into cloud-based storage that can quickly scan and save documents on your behalf. There are many different software platforms that can increase office productivity, so you spend less time on paperwork and more time on property management.
Lastly, if you want to maximize profits, you’ll need to minimize costs. Can you downsize your office? Tackle repairs yourself? A penny saved is a penny earned, so be judicious about how you allocate your spending.
One facet of business that’s worthy of your investment is tenant retention. The cost of tenant turnover can cost thousands of dollars due to vacancy, marketing, maintenance, and so forth, so it’s worth your while to convince the good tenants you have in place to stick around for a while.
Everything from property upgrades to online rent collection can make your unit more attractive, so do some research to see what you can afford in your business budget. By keeping these tips in mind, you’ll be set with a steady stream of rental income for years to come.