Buying a House To Rent Out? Consider These 5 Things As A Landlord

Going from being a homeowner to also becoming a landlord can be an intimidating process. From inviting a stranger into your home that you own, to collecting rent each month and ensuring the home is in working order can be overwhelming. But know that you aren’t the only one in this boat. According to the U.S. Department of Housing and Urban Development (HUD), there are somewhere between 10 and 11 million individual investors that have one to two properties under their belt.

So if you’re considering purchasing a house to rent out, know that there are ample resources available to get started as a landlord. From online communities like Bigger Pockets, to template lease agreements and software to automate much of the landlord tasks — it can make the landlording journey much easier.

Here are five things you should do before collecting your first rent check.

Do an analysis of the property and area

Before you purchase a home you think you can make money on by renting, consider more than just the spread between the mortgage payment and the rental income.

Consider these few points as you’re researching properties:

• Do you plan on holding the property for at least 7-10 years?
• What are similar properties in the immediate area renting for?
• What is the home best suited for based on the surrounding areas? (i.e. Students, workers, families, etc.)
• Is there a glut or lack of rental properties in your area?
• Is there reasonable evidence that your property value increases in the future?
• Does the home need improvements prior to renting? If so, how much are you willing to spend?
  

This is only the top of the iceberg, but these questions can help you begin guiding your decisions towards purchasing the right investment property for you. It’s also worthwhile to consider doing a rental analysis (like this one here) to see if the entire financial picture makes sense.

Get legitimate pictures taken

While searching across Zillow and other real estate website listings, you’ve probably seen a few homes and thought to yourself, “who thought these pictures were good?!” It’s typically someone not being detailed-oriented or not wanting to spend the money on quality photography.

In fact, several studies show that homes that have professional photography are likely to be rented or purchased faster than non-professional photos. So it may be worth hiring a professional to market your home to get the highest price possible.

Personal note: I’m about to list my first home as a rental, and actively looking for a photographer. I’m using websites like Thumbtack and Yelp to find the best price. Generally, you shouldn’t have to spend more than $500 to get great pictures.

Screen tenants carefully

Picking the right tenants can make or break your experience as a landlord, so it’s vitally important to screen intensively to ensure you get a quality tenant.

You can use platforms like RentSpree or RentPrep to process tenant applications, which includes background and credit report checks as well.

After that, be sure to check for qualifying income. The typical rule of thumb is that the occupants should make a total of three times the monthly rent. So if renting your home costs $2,000 per month, the tenant(s) should make at least $6,000 per month in gross income.

After this, consider getting letters of recommendation from their previous landlords and/or current employers. This could be a large difference maker for you as the landlord.

Lastly, it’s advised to do a direct tenant screening. This is similar to a job interview, but of course, doesn’t need to be as formal. This is where you can begin deciding if the tenant is a good fit to live in your home. Here are a few examples of questions to ask:

1. Do you currently rent, and if so, where?
2. How long have you lived in your current home?
3. Why are you looking for a new place to live?
4. What date would you want to move in?
5. How many people would be living with you?
6. How many people living with you smoke?
7. How many parking spaces would you require if you rent here?
8. How many pets do you have?
9. Have you ever had an eviction?
10. Are there any issues I should know about before I run a background screening for all the adults in the household?
11. Have you ever filed for bankruptcy or have been arrested?
12. Would you be able to pay the security deposit at the lease signing?
13. Are you willing to sign a 1-year lease agreement?
14. Do you have any questions for me about the process?

Select a tenant payments and communications system

Once you have selected the best tenant and agreed upon a price, the next step is to set up payment and communications between the tenant and yourself. So similar to the screening process, it’s best to have this done through an app like Buildium where you can manage your tenants payments and work orders as needed.

This isn’t extremely needed, but it will make for a much easier process than mailing checks and exchanging text messages where things can become disorganized.

And once your tenant is ready to move in, you can have them download the app you choose that is best to put their security deposit and initial rent — and begin collecting some valuable rental income.