How to Rent Out Your House – A Guide for Landlording
Want to your maximize wealth and income potential through rental property investing but are not sure how to landlord or how to rent out your house?
Income property investing remains the top tool available to individuals for preserving and building wealth, generating great investment returns, and creating more surplus income. Of course, bridging the gap between where you are now, and the potential landlording has to offer is all in the execution. So, where are the opportunities on the current landscape? What best practices can help investors see the best results?
LANDLORDING: LEVERAGING THE NEW ECONOMY FOR HOUSE RENTAL SUCCESS
The American real estate market and economy has been growing significantly. How can landlords successful navigate the new landscape for optimal results?
Rental property investing is still incredibly popular, with good reason. The dynamics of the game may have changed dramatically over the last couple of decades. It has both become easier and more challenging in different ways.
There has never been more need for rental housing, and rents are at epic highs. Technology has helped improve accuracy and efficiency in investing and property management. Yet, the importance of real estate investing and great profits to be made have also driven up demand and competition. So, what are the keys to profitable landlording now?
Invest by the Numbers
While the world is bullish on US real estate, and property may be the safest investment to be made today, investors cannot let their emotions get the better of them in this market. You’ve got to know the numbers, and invest by the numbers. At least if you want to make smart and profitable moves. This means researching the real data for yourself, finding comps from reliable sources, and knowing how to add up your real holding and maintenance costs. You can’t use rough math like on those ‘reality’ TV shows, or you are likely to be in the hole, every month.
Finding Deals On Homes to Rent
With many sellers overpricing their properties, and bidding wars commonplace in some parts of the country, some buy and hold investors are finding it more challenging to find deals. This is especially true for those who have only begun to invest after 2008, and have been spoiled by mountains of cut-priced inventory for a decade. While the MLS, Craigslist, and the local newspaper may still list homes for sale, they can require a lot of work, with very few needles to be found among very large hay stacks. Those who want to buy smart, profitable rental units need to look to alternative databases, software and sources of motivated sellers. You need to get better at marketing and sourcing deals from wholesale channels and direct from owners, as well as being open to investing wherever the deals are. If you search hard, have the right tools, and make the right contacts you can find deals in any market in the US. Yet, to benefit from the advantages of diversification and to maximize returns, it is wise to keep an open mind and open map and be willing to embrace new locations.
Financing the Deals
No matter how much cash you have, there can be big benefits of leverage.
Conventional banks and lenders still don’t seem to have become great at delivering great service for mortgage borrowers or real estate investors. Yet, many alternative lending platforms are popping up, and they are aggressively using direct mail, email and other advertising to target borrowers. This may include crowdfunding portals, hard money lenders, and new conduits funneling hedge fund money into the market. In fact, it has become incredibly easy to fund fix and flip and rental property deals today. Lenders still want to see cash skin in the game, but they are loosening up in many other ways. Still, many rental property investors are likely to find that private lenders can offer the best overall deals, and provide the opportunity to help others directly, versus fueling the big banks with more profits.
Other investors may choose to leverage through partnerships with friends and family, or their peers.
You may finance rentals from the acquisition stage, round up extra funds for improvements, or refinance at optimal moments to lower debt service burdens and expand portfolios.
Finding the Renters to Rent Your Home Out To
The rental space has seen some of the most dramatic changes of all during the past few years. It’s a totally different landscape for renters now. An enormous slice of American housing has been converted to rental units. Rents have been rising far faster than wages. New landlords, agents, and property management firms have become so stringent on screening tenants that it is now harder to qualify to rent a small apartment than to buy a million-dollar home and get a mortgage from a main street bank. There are many individuals and families who have sworn to keep renting versus buying homes, even though they could. Yet, that may only last as long as the experience is appealing and the math works in favor of leasing. For landlords looking to fill vacant properties the key may not just be reach and visibility, but optimizing the experience and getting the math right.
Around 40% of American households rent today. 2017 saw the amount of rent collected by landlords set a new record at over $458B. While some could buy, many are being held back by access to credit and other rising living costs. In some cities it can take over 20 years to save a 20% down payment today.
Top places to look for renters today may include:
- Millennials and Generation Z who are looking to lease their first places
- Students in higher education
- Sellers looking to cash out equity and downsize during retirement
- Existing renters with pending lease renewals and rent hikes
Finding the Buyers
US home values are also at incredible highs. While the Fed’s Janet Yellen has just said she expects no new financial crisis in our lifetimes, aging properties, peaking markets, and new areas of growth may call for some investors to restructure their portfolios. It could make sense to exit older assets, and refuel with new ones that offer more growth and sustainability.
While Realtors can still help, and lower cost areas may benefit from low down payment FHA, VA, USDA and conventional loans, those in higher cost areas may need to seek out cash buyers to sell their properties too.
- Find local cash buyers using REWW’s SMART Suite
- Cultivate a buyers list by networking with other investors
- Consider offering seller financing for some cash now and ongoing passive income
5 KEYS FOR PROFITABLY INVESTING IN RENTAL PROPERTY
Investment in rental properties can be a terrific source of steady cash flow income, but that sweet deal can quickly go sour without due diligence and understanding of these factors.
1, DO YOUR FINANCIAL FORECASTING
Rental property cash flow forecasting helps you avoid costly mistakes or oversights, and stressful, or even devastating, cash flow issues. Financial forecasting means making a thorough investigation and analysis of the following items:
- Real rental comps
- Interest rates and finance charges
- Structural depreciation
- Land value appreciation
- Insurance costs
- Tax exposure and minimization strategies
- Repair and management costs
- Vacancy rates
- Marketing needs
2. REMEMBER THE OLD ADAGE, “PATIENCE IS A VIRTUE”
Warren Buffet says, “Wealth is the transfer of money from the impatient to the patient.”
Opportunities are found when you serve the impatient. Those who are motivated to sell or who need to rent now, or lend their money quickly.
Rental property investing is a long game. You don’t have to get rich overnight. Make investments you are happy holding on to for the long term, with numbers that will allow you to. Don’t flinch and sell when you should hold.
As of 2018, most cities are now seeing property values well above where they were in 2006 and 2008. Those who lost were those who sold out in the dip, instead of holding on. Over the long term real estate keeps going up in value.
Start with one, build on that success. Be willing to work hard, work diligently, and have patience.
3. BUILD A TEAM
Regardless of how many systems you have in place, or how much education you’ve got under your belt, you can’t go it alone. Not if you really want to be able to generate truly passive income and to be able to retire and enjoy the time benefits and freedom rental property investing offers.
You may have learned a lot about real estate investing. You may have even been doing it with some success for a while. Still, no matter what, you will need a team around you as your business grows. There are a lot of roles to cover. Accounting, property management, skip tracing, legal council, marketing, rehabbing, inspections and more.
Trying to go it alone is a recipe for failure. Hire or contract the best people you can find and outsource what you can. Invest your time where it will yield maximum value.
4. KEEP AN EYE ON YOUR ASSETS
Property may be a long-term investment. Yet, don’t be caught off guard by not regularly reviewing your portfolio.
What kinds of properties do you own and where? Are they the kind that will enable you to take advantage of the next property cycle?
Over time, some investments will outperform others. If you own real estate in markets that are not likely to benefit from strong capital growth, it might be time to flip and replace those properties with those that will help you develop long term financial security.
Periodically check to make sure that you are getting the maximum rents that your properties are able to command in the current market. Restructure finance when it could give you more leverage to make new investments or improve your cash flow.
Make sure you are keeping an eye on your contractors and property managers. What isn’t watched and measured doesn’t get improved.
5. BE PROACTIVE IN AVOIDING VACANCIES
As a landlord, vacancies are your worst enemy. They can kill your cash flow, returns and asset value.
Lease cycles have a tendency of creeping up on landlords if they are not careful. If you have a number of rental properties, having a system in place to stay on top of these things can save you tremendous losses by helping you to avoid vacancies.
Give yourself a maximum of two to three months in order to find new tenants. More than 90 days will likely be unproductive and even more than 60 still leaves you coming out of pocket for holding costs.
Assuming that you are happy with your current tenants, you should always begin with them. Take the initiative to reach out and remind them that their lease is coming to a close in the next few months and offer them the option to renew. Draw the line at 60 days prior to the end of their contract. If they aren’t renewing, make sure your contracts stipulate that you can show the property upon notification to intent to vacate.
THE INS AND OUTS OF BEING A LANDLORD & RENTING
Renting out investment properties can be fantastic. First and foremost, this gives you the ability to have someone else pay your mortgage and build wealth in equity for you. If you price the rent properly you even create some passive income. Renting also allows you to hold on to a great property in an up-and-coming neighborhood while you wait to cash in on the equity. In other cases fixing up and proving performance on an income property can unlock and add create value to be cashed in on through flipping and development.
Thousands upon thousands of landlord rent to tenants each year with minimal problems. Odds are, if you are a fair landlord, you address problems promptly, you have all of your ducks in a row before your tenant moves in, you are skilled at managing minor conflicts, and you investigate prospective tenants thoroughly, you will have many more positive experiences than negative ones.
Of course, life has no guarantees. A tenant who seemed perfectly good on paper can turn out to be a problem tenant, with issues ranging from failure to pay rent, to property destruction, to refusal to comply with the lease rules. Dealing with problem tenants is a risk of the real estate investing industry, and you can chalk it up to being a “part of the job.”
While you should prepare and expect the unexpected, there are many ways you can mitigate problems with tenants, and keep small issues from turning into big ones:
Make sure the property is in good condition before the move-in. Appliances, fixtures, flooring and trim don’t have to be top of the line, but should be of good quality, clean and in good working condition.
Thoroughly photograph the entire property, and document any issues before your tenant moves in. Use video and checklists too.
Never let a tenant move their items in until you’ve got their security deposit and first month’s rent.
Dictate the terms of the lease and the property rules very clearly in writing. You cannot hold a tenant to any rules that are not on the signed lease, so be as specific as possible to avoid giving your tenants loopholes.
Be responsive when your tenants have issues, and document every complaint in writing, as well as what you did to resolve the issue (include receipts).
Be as flexible as possible when rent payment issues arise. This can actually help you boost your income and profits. Don’t encourage a pattern of late or missing rent. If you do offer your tenants a payment plan, get it in writing with their signature. Be firm about the terms and the dates, and hold them accountable. You must follow through with any threats you make, so don’t make any you aren’t prepared to back up.
Always be courteous, thoughtful, and ready to talk things out calmly. Often problems escalate because a landlord jumps to conclusions or can’t manage his or her frustration. You may feel that you’re defending your property, but being personable, friendly, and open to discussion will earn you the respect and appreciation of your tenants, and help you maintain a good rapport. Don’t buy every story told to you. This is a business. Yet, keep the big picture in mind, and be wary of throwing away great tenants for one genuine slip up.
Eviction threats should be a last resort. Never give up your rights to evict, or let them think you won’t do it. Yet, give them a chance to catch up if they can. Try turning them on to other resources to help with other bills so they can stay on top of rent.
THE IMPORTANCE OF PROFESSIONAL PROPERTY MANAGEMENT: 8 REASONS WHY YOU CAN’T AFFORD TO SKIMP ON IT
You got into real estate investment for a reason: to make money. Being an income property owner can be incredibly rewarding. It can also quickly turn into an expensive money pit if not managed properly. Time, money and energy are three key ingredients to making your real estate investment profitable. Hiring a good property management company will ensure that you are free to grow your business, stay safe, and maximize profit potential.
Here is just a short list of the kinds of things your property management company can handle for you.
1. MARKETING AND ADVERTISING:
Let’s face it; if your rental properties are empty, they are not going to make you any money. A professional property management company has the experience and the resources to market your property to the right audience and place strategic advertising so that you limit vacancies. In fact, they ought to have a waiting pool of renters ready and qualified to sign leases.
Setting competitive yet profitable rental rates is imperative. Landlords often aren’t experts in this area. A good company will have access to quality rental comps, know smart pricing strategies, and will add value to potential rental rates with their brand.
3. COLLECTING RENTS:
Maintaining your cash flow is crucial to your real estate investment business. Property management companies have good systems and software in place so that rental payments are collected and deposited on time each month, your bills are paid, and you have records to back you up in court if you ever end up in disputes with tenants.
4. SCREENING TENANTS:
Finding good renters can be challenging, and bad tenants are costly, time consuming and can be a huge detriment. Your management team should take the appropriate measures to ensure that your properties are filled with people who can, and will, pay their rents on time, treasure your property and not trash it and abide by the rules of your contract. This is also a big area of litigation today. Your manager is a great buffer from lawsuits, and they should be constantly on top of evolving tenant-landlord laws when you are busy on other things.
5. MANAGING TENANT RELATIONSHIPS:
Routine and emergency maintenance, conflict resolution, inspections and notifications are just a few aspects of the landlord and tenant relationship. Letting the professionals handle it saves you time and energy, all the while considering the legalities of each interaction with the property or tenant.
6. HANDLING VENDORS:
Maintaining a rental property requires the services of landscapers, plumbers, a handyman, contractors, utility companies, suppliers and more. Professional companies will schedule routine and emergency maintenance, handle billing and payments, get the best pricing based on their total volume and have multiple vendor relationships with more power to get them moving fast, so that nothing ever gets left unattended.
The importance of compliance with local, state and federal housing regulations, property laws and renter’s rights can never be stressed enough. One litigious tenant can easily land you in an expensive lawyer’s office, and quite possibly cost you everything if your real estate investment is not handled as it should be.
8. MAXIMIZE PROFITS:
Most property management companies charge a percentage of your lease. Typically 6- 10%, depending on how many properties you own and manage with them. While that might seem expensive at first glance, you’ll find that the expense more than pays for itself when you sit down and add up the costs, including your time, opportunities for growing your business, lost rental income due to bad tenants or vacancies, and paying higher than market rates to vendors.
Rental property investing is a smart way to make money, increase income and grow and protect wealth. Today’s market is full of opportunities. This guide should help you find more of the good opportunities, stay clear of bad ones and bad tenants, and fully maximize your property potential with smart management practices.