Monthly Archives: December 2011
In order to be successful in the rental property business, you really do need to be prepared. Putting good systems and processes in place will give you the confidence to get started and also keep things running smoothly as you acquire and manage more properties. This business like mindset is the key to success for a new landlord. On that note, here are a few things you should have in place before you start looking for tenants:
- Rental property forms. Your basic collection of forms would include an application form, a lease, a walk through checklist and a landlord checklist. Store a few copies of each in a labeled binder and you’re good to go.
- A prepared ad to attract quality tenants. I advertise exclusively online so I keep a copy of my ad with pictures in a folder so it’s easy to cut and paste on various sites. Later, if a tenant gives me notice, I can have an ad placed immediately to start looking for someone new.
- A property information binder ready to go. There are a few items that you can personalize later when you find tenants but the bulk of the information can be prepared ahead of time. Once the information is stored on your computer, it’s easy to modify to create new binders for additional properties.
- A filing system. This will already have some items in it such as mortgage documents, legal documents and insurance information. You can add more sections as you go to include tenant information and other paperwork you receive relating to your rental. This is also easy to replicate as you buy more properties.
As I continued to manage my first property, I added a few more organizational items to keep things in order:
- A good accounting system. This is easy to set up, just a simple ledger to monitor what is going in and out of the bank account every month and a place to write in all of your rental related expenses. Don’t forget to keep track of all those receipts.
- A list of reputable people or companies that can fix things. This list takes time to develop as you encounter certain problems that go beyond your own abilities. It’s a great list to have though and will become more valuable as you acquire more and more properties.
If you are just considering buying a rental property, I hope this list will help build your confidence to move forward. They’re fairly small steps to take, they’re easy to do and they set the stage for your future rental property empire.
If you live in a city with high real estate prices like I do, it can be very difficult to find and buy a good rental property. If you can’t charge enough rent to cover all of your expenses, the property soon becomes a drain on your bank account. One of the easiest ways I’ve found to acquire your first property is to move and rent out the house you’re in. Here are the benefits:
- Banks generally want to see a 25% down payment to purchase a rental property. Since you are now buying your principal residence, the down payment can be significantly less (generally 5%-10%).
- You know exactly what the mortgage payments will be on the rental and they will likely be very manageable if you’ve been in the house a while.
- You’ll know exactly what you need to charge in rent every month to cover expenses.
- No need for a house inspection as you already know everything about the place. You now just need to clean and get ready for tenants.
- You probably have a nice place so you’ll be able to charge higher rent and attract better tenants.
This plan worked well for us to get started in our rental property business but it might not appeal to everyone. Here are some disadvantages that might have come to mind (followed by my good reasons to just do it anyways):
- You have to move! Yes, this is the big one – to leave your house and move to another. This might be bothersome for many reasons…you love your house and are too nostalgic to leave…it would take you completely out of your comfort zone to do something so drastic…it’s a very big job and more than you’d like to take on etc. etc. (Yes, all true but in the end it just depends what you really want. If your goal is to substantially increase your net worth with a rental property and financially it looks like the better alternative to buying a property to rent out – just keep the idea in your mind for a while. It may start to take root:))
- Moving is expensive. (True but also a relatively minor expense in the grand scheme of things.)
- If you’re putting 5% down on your next place, you will need to take out mortgage insurance which is costly. (I list this as a disadvantage but it is the reality for most people and really the reason for this whole plan. You can usually add the insurance on to your mortgage and it still makes a huge difference when compared with making a 25% down payment.)
We stayed in our next house for 2 years and then followed this plan again to get our second rental property. If you’re just starting out in the rental property business, I hope this plan will work well for you too.
Christmas is a great time to make your tenants feel appreciated. Little gifts go a long way towards a happy, long term relationship. In December, our city has the “Our Best to You” craft event and I always head there with my tenants in mind. Homemade fudge, amazing soaps, original prints, personalized ornaments – there is no end to the fun. I put a few items together in a gift basket with some homemade turtles and knitted dishcloths (thanks mom) and voila. Your tenants feel your appreciation for taking care of your property and in turn become greater tenants because they enjoy living there. Celebrate the season and share the love. And if you don’t love them – make that your New Year’s resolution!