10 Questions to take before becoming a landlord
You have entered into the landlord business to make some quick cash and become rich in few years. You think it as another get quick rich scheme that will make you a millionaire in few years. Stop immediately because you are going to end terribly. You will waste your coming years and precious time by becoming a landlord. To be a successful landlord, you need the right mindset.
Becoming a landlord is rewarding but it will take time and consume a lot of your energy to become successful. If you have decided to start today and become successful, then you need to have the right mindset. Preparing your mind and knowing the right skills is what makes you a pro landlord. Take this questionnaire to get insight and prepare you with right mindset.
#Question 1: Are you ready to take up landlord responsibilities?
Becoming a landlord is much more than earning a fortune. Are you here to just earn money and spend that money on buying costly things? Are you here to trade your time for just money? If it something in your mind then you must know that it is hard being a landlord.
Becoming a landlord comes with a lot of responsibilities and duties that you need to fulfill every day. You need to look after your property, keep it free from all damages.You are required to provide a habitable place for tenants, keep them happy and away from all kind of harms.
The job of landlord doesn`t ends here. You are a landlord who is running a business. You are getting cash flow every month which needs to be managed every time. A landlord is accompanied by lots of documents and has to keep records of mostly all the things that happens in his rental property. So are you ready to wear the hat of landlord by accepting all the responsibilities and duties?
#Question 2: Is the money you make will worth your time?
Most people enter into landlord business with the temptation of becoming a millionaire. This is clearly not the case with landlords. You are going to spend a lot of time taking care of your property, your tenants and learning to invest in more income producing assets.
There is a high possibility that you initially make very less money out of your cash flowing property especially if you own a single family home. Chances are you earn even less than $1000 a month after deducting the expenses and other charges. The art of making money with real estate rentals will take time for you to understand. You will first learn and then implement those strategies to create a big rental estate empire for you.
Sure, you can get rich and become millionaire but that is going to cost you time and patience. Not everybody has so much patience and time to invest. So, think whether you can invest your time for such a small remuneration or maybe you have a better plan than this?
#Question 3: Isn`t becoming a Landlord just your new hobby?
Are you going to run your landlord business like a hobby or a full blown business? Let us suppose, you decide to pursue it as a hobby. So, you inspect it; maintain it; got tenants to live here. You did it for some months. You are also earning good money. But then, your mind switches to a new hobby and you start to spend your free time pursuing that new hobby.
Not having a maintained place, your tenants will left your rental property and switch to a better place. Slowly, you will end up losing up your business and your asset. Your passive income starts to decline and you end up with a debt to pay. To become successful in landlord business, you need to treat it as a business and not just a new hobby.
You have to dedicate your time and efforts to keep growing this business. Running it as full blown business will further require a lot more planning, operations and innovations to make it successful. So, do you see yourself doing this business for many years to come or is it just a new hobby?
#Question 4: Is your property location right to put it on rent?
When you start the landlord business, it is very important you have a rental property at the right location. Having the right location and a good neighborhood can work wonders in your landlord business. You should question yourself the scope of putting your property on rent. Whether the location and the neighborhood is right to stand a profitable business?
It is important that you access the scope and compare your neighborhood to while you are looking to start a rental business. Get into the landlord business only if you are able to figure out the profits from renting your property. Otherwise, your investment will go in vain and you end up losing your hard earned money. It better to survey the scope initially than regretting it later.
#Question 5: What should be the right rent?
Figuring out the right rent of your property is by far the most important parameter. You don’t want to market your property with the wrong rent. You can`t put up a high rent as it can lead to low tenancy rates. You can even end up having no tenants at all. Also, charging low rents can also be a problem. You have to cut your profits and there is a chance that you will not able to make your business profitable.
So before becoming a landlord, you should question yourself about the rent which will be both profitable and is justified. You can survey the rates in your neighborhood to get an idea of the trending rates of similar properties. However if you have better infrastructure and amenities on offer, you can charge somewhat more premium rates. But this is something you have to figure out as it can cost you additional time to find the right tenants.
#Question 6: How will you market your property?
There should be a way to let your tenants know that your property exists and is available for rent. So how will you do this? How will you make your property approachable for the prospects? Also, when you market your rental property, it should stand out and attract the potential customers. There are various platforms available today to list your property which are available both online and offline.
You are living in a digital age and it has become very easy nowadays to market your property. There are various online websites and social groups running today which lists your property in their portfolio. They increase the reach of your rental property and you can market it the right way. If you are not a tech savvy person, you can always go the traditional way. The traditional way requires you to list your rental property with a broker or in a local newspaper. Listing it with broker costs you some fees but they surely return with a right tenant for your property.
#Question 7: Are there any legal implications before becoming landlord?
There can be legal implications while running your rental business. If you are starting as a landlord, you must know the legal laws to avoid hassles. Becoming a landlord requires you to operate in a certain way following all the laws of your state and the country. You must know the different operational laws, tax laws and other applicable laws if any in your rental business.
It is important that you understand such laws and check them before becoming a landlord. It is easy to get into trouble and encounter complications with law if you don`t operate according to these laws. Landlords who don’t have a good landlord tenant relationship are also prone to legal hassles. So, it is always better to consult a legal adviser or a landlord association to get right insight on the laws.
#Question 8: How will you manage your property?
You have marketed your property right and got tenants to live here. The big question now arises is how will you manage the place or your property? Will you manage it on your own or outsource some help? Certainly, you have to handle a lot of day to day tasks like inspection, carrying out maintenance and taking tenant requests. Are you going to manage all this by your own? Do you have enough time to do so?
The pro landlords always suggest you to go with the property management company. But, if your profit margins are limited, you can also consider hiring a property manager. It then becomes a little easy for you to take care of your property and the tenants if you have an efficient manager. But, you should always first calculate the cost of outsourcing the help.
Having someone to manage your property is great if you have a multifamily home. The cash flow from multifamily homes is generally enough to cover the cost of having a property manager. But if you are starting with a single family home then it is better to manage it on your own. In such cases, better to invest on upgrading yourself and your knowledge.
#Question 9: Is your rental business going to be profitable?
You are going to become a landlord but is your landlord business going to be profitable? You are investing your hard earned money to create a business. But will that business going to give you the ROI you are expecting? What if you invest your money and didn’t get the returns you expected? How are you going to know that your business is generating profits?
Before becoming a landlord, profits are something that you should be worried for. Your rental business will be profitable if you calculate the ROI before investing your money. You should estimate your monthly cash flow, maintenance costs, vacancy costs, taxes, mortgage payments and insurance before investing in this business.
The actual annual profits will come out only after deducting all the expenses from the income you are making. Do not invest in any property where you can`t rent it for a minimum of 1% of the value of your property. Also, you must get at least 6%-8% on your investment annually to make it profitable.
#Question 10: How are you going to manage every month`s cash flow?
You are going to get a huge cash flow every month from your rental property. But do you have any idea how to manage that cash flow? Where will you be spending all your cash at? Are you going to buy new assets or end up that money buying new liabilities? Does the money you make every month will completely be your income or you have to pay it to someone else?
You should better understand that the money you make every month is not your actual income. You have to deduct the amount for expenses, and keep money for future maintenance, taxes and insurance. Also, to create a rental empire and earn fortune, you have to invest the remaining amount. Invest a minimum of 40% of your money you saved after deductions to keep growing in your business.
The Bottom Line
Have you ever imagined that there are so many elements to consider before becoming a landlord? If no, then think again before you enter in the landlord business. This business is not for the weak heartened. It requires a lot of time, patience and information to get successful and become what you see yourself in the dreams.