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So You Want to be a Landlord?
The residual income from owning rental properties may bring
more money into your life than the fast flip in the long term. If
nothing else, the stress is reduced because a well-chosen
investment will pay for itself until you the market is ready for
you to sell. In order to make this idea work, you must plan
carefully. Choose your property, choose your management approach,
and choose your tenants carefully to make the most of your
investment.
Choose your property.
Not every house is going to bring in the money you need each
month. Some considerations:
Will you be financing? How much you finance is going to have
to be factored in to how much you need to cover the monthly
expenses. Up to four units is considered a residential loan by
most banks; beyond that is commercial, which means that the
lender may factor in the rent more easily as income, but other,
more stringent requirements must be fulfilled to secure a loan.
The more equity you have now, the more able you are to weather
periods of vacancy.
How many units? Not only is the number of units a factor in
lending, it's also very important for income. More units means
less drain when you have a vacancy (a two-family house loses half
the income when one tenant leaves!), it's also just plain easier
to get enough rent to at least cover your expenses.
What rents can you charge? Find out how much the rents for the
current tenants are, if any. If you don't know the rental market
well enough, consult with your real estate broker or a
professional property manager to determine what fair market rent
for each apartment is. The monthly rent should be at least one
percent of the value of the building for it to be a profitable
investment.
Will major work be needed? If you're getting a place cheap,
you probably are expecting to do some renovations. This has to be
budgeted in, because you're spending money and not getting rent
for that period of time. Contractors often break both deadlines
and budgets, because hidden problems become apparent as you dig
in to the project. Make sure you have a cushion to cover your
mortgage, insurance, taxes and other expenses.
Choose your management approach.
Once you've found a winner of a property, it's possible to
just sit back and let the money roll in . . . or you could make a
part- or full-time job out of being a landlord.
If you're handy, enjoy paperwork, like working with people,
and don't mind being available pretty much all the time, you
should be a landlord. Many people have left their old jobs behind
to manage their own rental properties full-time.
If you envisioned real estate as a more passive investment,
consider professional management. Many real estate brokers manage
properties as a side business, or you could contact a
professional association such as the National Association of Residential
Property Managers to find a dedicated property manager in
your area.
Property managers handle all the tasks of being a landlord on
your behalf for a portion of rents, usually around ten percent;
this does not include costs of advertising and maintaining the
building. They often also charge a placement fee of a month's
rent when the sign a tenant, although whether this fee is the
responsibility of the tenant or owner is negotiable. Their job is
to keep the property occupied by reliable tenants and in good
repair. Minor maintenance is done automatically, while bigger
items (like a new roof) are addressed in consultation with the
owner.
Choose your tenants.
If you are using a manager, once you pick a reputable one, you
don't need to worry about this. If you're going it alone, here
are some tips: Advertise. Put your place in papers, on bulletin
boards, and online. The more visibility you get the more calls
you'll get.
Background. Take an application from any prospective tenant
which includes their current address, phone, social security
number, landlord, employer, and personal references. You want to
check references, and run credit and criminal checks; this will
cost money so don't be shy charging an application fee.
Personal. Take a look at the condition of the prospective's
car, inside and out. Make it a point to visit them where they
live now, to see how they keep it. Meet every person (and animal,
if you choose to allow pets) that will be living in your
building.
Income. You cannot discriminate against someone because of the
source of their income. With any applicant you turn down, it's a
good idea to send a letter stating the reason for not renting,
even if it's as simple as the background check came back faster
on someone else.
Don't rush. The best way to pick a bad tenant is to rush into
it because you're scared of a vacancy. If you choose poorly, you
will likely have far worse than a vacancy on your hands.
If you don't have the iron constitution for buying properties
and flipping them, but agree that real estate is the best
investment around, rental properties are likely the way to
go.
© 2005 Terence P Ward, all rights reserved. Terence P
Ward is the President of Landlord for Hirehttp://www.landlordforhire.com,
a residential property management service of Green and Clean
Corporationhttp://www.Green-n-Clean.biz,
based in the Mid-Hudson Valley of New York State. You may find
contact information for him on either of his company's web
pages.
MORE RESOURCES:
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News Briefs - 11/10Daily Record (subscription), MD - Nov 11, 2008She “will be responsible for administering leases, leasing space to new retailers, supervising and directing personnel, and preparing the annual budget for ... |
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US expands geothermal energy planHouston Chronicle, United States - Oct 25, 2008By H. JOSEF HEBERT AP Susan Walsh AP "Geothermal energy is replenished, is a renewable resource that generates electricity with minimal carbon emissions . ... |
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