Before you decide your other residential property can become a rental property and garner you a nice profit each month, there are a few things you need to keep in mind before you take this plunge.
1.Your Rental Income is Taxable
If you think you will laugh all the way to the bank each month after your tenant pays, think again. You have to issue a receipt to your tenant for the rent amount that your tenant will use for his tax deduction. Even if he doesn’t claim a deduction with your receipt, as a landlord, you have to declare the rental income and pay taxes on it.
2.The Rent Amount will be Used for Expenses
Your property will require periodic maintenance, repair, and upkeep. This expense will come out of the rent. As a rule of thumb, you should set aside about two months of rent every year for maintenance and upkeep. Remember, you will have to paint, get the property cleaned and repair appliances after your tenants vacate. This expense too will come out of the rent amount.
3.You may not get the Kind of Tenants You Want
Depending on where your property is located and the amenities around it, you will attract a certain type of tenant. Well, whether you like it or not, you may not always pick up a tenant you like. At times, you may be forced to give your property to a tenant even if you don’t like him because it is better to rent out your property than let it remain vacant.
4.Tenants can be Hard to Evict
If you decide you don’t want a tenant any longer, you may find it really tough to evict him. Many tenants are well-versed with the laws governing them and you should know your rights as a landlord. So if you don’t have a valid reason for eviction, you are stuck with the tenant until the lease period expires.
5.Tenants can Leave Before the Lease Expires
Tenants can leave before the rental agreement comes to an end. This can be expensive, as you will have to once again get the property cleaned, repair appliances, and manage those minor repairs. Then your search for a new tenant begins. During this period, you will not generate any income from your property.
Since being a landlord can be tough, especially if you have to handle everything, most landlords tend to use property management companies. These companies make sure you get the kind of tenant you desire and will handle every aspect of your rental property, right from minor repairs and general upkeep to collecting rent and conducting a background and credit check on prospective tenants. A property management company offers you peace of mind and lets you enjoy the real benefits of being a landlord.
If you are contemplating selling your residential property, think again. Keeping the property and renting it out could end up being extremely beneficial. And, with reliable and reputable property management firms, you never have to worry about a thing. If you are wondering why you should turn into a landlord, here are some convincing reasons.
Have a New Source of Income
Your residential property can generate income for you. When you rent it out to a tenant, the tenant will pay you rent. After paying for upkeep and other expenses, the amount remaining would be your income.
It is important to fix the rent for your property appropriately. So check in the area for residential properties that are similar to yours and find out the rent they are charging. Your rent should be around the same.
Bear in mind, the income may not be there for all 12 months of the year. If your tenant vacates and depending on the state of the property and the time you get a new tenant, you will not have income. Nonetheless, once a new tenant moves in, the income you were receiving will resume.
Enjoy Tax Benefits
As a landlord, you will profit from many tax benefits when you rent out your residential property. You can easily deduct the interest amount of your mortgage from your tax. Some of the other tax deductions that you can avail include:
Home Office: As a landlord if you maintain a home office, you can deduct the expenses for operating the office as long as you meet certain requirements.
Travel Expenses: If you travel because of your responsibilities as a landlord, you can deduct that amount from your taxes. However, keep meticulous records, since the IRS may ask for them.
Repair Expenses: When you undertake repairs of your property, the amount is completely deductible for that particular tax year.
Depreciation: Over a period of 27.5 years, you can deduct the purchase price of the property from your taxes.
No Boss to Answer To
If you enjoy being a landlord, you can start with one residential property and keep adding to your portfolio. Before you know it, you will turn into a real estate investor with several rental properties to your name. And, with a suitable and reliable property management company handling every aspect of your property, you can enjoy a fantastic life with no boss to answer to. You turn into your own boss – a boss of your own free time.
With so many wonderful benefits, being a landlord is more attractive than selling the property. The long-term benefits are immense.
The benefits of renting out your property may be many, but managing it can be difficult. This is especially true if it isn’t your full time job. But that doesn’t mean you have to give up being a landlord. You can still benefit from renting out the property you own even if you don’t have the time or resources to manage it. All you need is an experienced and reliable property manager.
But which property manager will suit your needs best?
To know that, you need to think about a couple of things before selecting your ideal property manager.
Check out a reputable firm
Getting the help of a professional means you need to find one. To do that you need to make sure the property manager you are checking out has a property management license. This will let you know that they are serious about their job and will take all the necessary steps to ensure you secure effective and sound management.
Ask about the management fees
What will be their cut from the rent earned? The management fees usually vary from state to state. However, you should expect it to fall within the bracket of 8 to 10% of the rent acquired every month.
How often will the property be assessed?
Find out when the property manager plans on inspecting the property and how often. Regular checks can help keep your property in tip-top shape. If you have long-term tenants, the property needs to be scrutinized on the inside and the outside for any problem or damage that may not have been reported.
Request for references and a representative sample
To know if you are getting the best, you need to see it for yourself. So ask the property manager to offer you some references you could call, as well as some representative samples of the properties he has managed. What do other people have to say about their management services? Also, once you see the samples, do you feel like living there? If the answer is a yes, you can go ahead and pick that manager. If no, move on amicably.
Question about maintenance and repairs
Will you be billed for maintenance and repairs or will the manager keep a reserve from your funds to deal with these expenses? Ask them if you can control the limit of the funds usage if they provide the latter option. With a limit, you will be able to control their spending of your money. Also, ask to be informed before any expenses are covered.
Finally, at the end of it all make sure you have a written agreement with a termination clause that is suitable to you. Make sure the agreement highlights all the responsibilities that the property management firm will undertake on your behalf.
Using your property as a source of income is a salient way to make money. It can help with maintenance and offer you a neat little cushion of money to fall back on in case of a crisis or an ongoing recession that is occurring now. Many people like to think they can do it on their own, without professional help.
But that’s where the trouble starts. If you don’t know the market and how the whole landlord situation works, jumping in blind can do more harm than good. So before you venture into the business of being a landlord, consider the following situations and how a property management company can help.
Situation 1 – You don’t want to deal with the stress of management
Property management involves more than just having property. You need to find good tenants too. If not you will not be able to make any profits. Next, you need to ensure the property is attractive and inviting. If you have no idea where to begin, it’s best to call in a professional. This way you don’t have to deal with the advertising, the hunt for tenants or much of the planning and organizing. You can simply get in touch with a property management company to deal with the daily affairs of property management.
Situation 2 – Your rental property is too far away
If you don’t live within the vicinity of the property you want to rent out, it can be difficult to manage things yourself. By hiring a property management company you will ensure that there is someone there to take care of things whenever necessary, without you having to rush over, throwing everything else aside.
Situation 3 – You don’t want to be an employer
Property management will require some assistance now and then and if you have a large property, you’ll need regular assistance. As a result, you will need to hire employees to help with your property. You will have to put them on a payroll, provide them with employee benefits, and pay for expenses as well. However, with a property management company, you don’t need to focus on the task of being an employer.
Property management firms have their own employees who report to them and are highly skilled in their jobs. So that means less work for you.
Situations 4 – You don’t have the time to manage your rental property
With a daytime job, it’s hard to manage something on the side like renting out your property. So, developing your business and taking things further will always be a distant dream. On the other hand, if you have a property management team on your side you can get the best of both worlds. Your property will be handled and so will your finances. You can have strategic plans developed and build your business like you always planned.
With a professional property management company, you can have a concrete and profitable business as a landlord.
When you hold a lot of property and don’t know how to make the most of it, the best option is to hire a property management company to take over. These companies don’t come cheap, but they are a huge asset to your business.
When is hiring a property management company a decent idea?
Hiring a property management company to deal with your business usually is needed when:
You don’t have what it takes – Not everyone is interested in hands-on management. Some people are just not cut out for the challenge of finding tremendous tenants and maintaining a safe and attractive property. But since it is an investment and you need to make sure its day-to-day maintenance is being taken care of, hiring a property management company would solve the problem.
You have lots of property or rental units under your control – The more rental properties you own the greater hassles you will have to face. So in order to prevent this, call in the experts.
If your property is part of an affordable housing program – If you are part of affordable housing programs, the arrangements that need to be made can become complicated. Since you have a lot at stake, it’s best to hire a professional management company to deal with these housing programs and help you make the most of your property.
If your rental properties are away from your residence – If the rental property is located far away from your residence, dealing with it yourself can be troublesome. The constant commuting and overseeing of things will take up a lot of time thus hiring a property management company can be invaluable in such cases.
If you have limited time – If you do not have much time to devote to this part of the business and would rather spend looking for new properties, arranging financing for renovations and performing other tasks, a management company may be the right people to entrust this care to.
How do Property Management Companies Help?
By putting a management company in charge of your affairs, your tenants, prospects, marketing, collection of rent, and other such issues will be taken care of thereby saving you time and worry. They will bring their expertise to the job so you can be sure your investment is in stable hands. The best part is you won’t have to oversee their proceedings as they function on their own.
However, when looking for a functional property management company, soak up recommendations from others, search the Internet or interview companies to make sure you are entrusting your property in the hands of a capable company. Once you choose a remarkable company, you can then relax and enjoy the benefits.
What better way to earn a living than by owning assets that produce income rather than generate expenses? When you have places to lease or rent out, you generate income from the property and have a positive cash flow at the end of the day.
Landlords have been found to thrive in financial markets. However, it isn’t all that easy to succeed at this task. You need certain skills and desires to profit from this. There is a lot of pressure involved, but if you have what it takes then being a landlord is a suitable way to earn a living.
What it takes to be a landlord?
§You should know the right people – You need to expand your property portfolio quickly if you want to earn a living. You can’t handle all the work yourself. Having concrete personal relationships with contractors and other people will help you to negotiate discounts and enable you to increase your profit margin. These trustworthy relationships take time to build therefore if you already have stellar relations with all the necessary people, you are ready to start. Better connections will give you better access to potential tenants, thereby reducing your advertising costs.
§You should be capable of performing tasks yourself – While starting out as a landlord it is too expensive to get hold of professional contractors. So if you wish to turn your income into profits, being able to do work yourself like doing yard work, light plumbing, construction will help you save money.
§Be capable of handling responsibilities – Hiring a management company to take over the job is a prudent choice, but will make a dent in your profits. So prepare yourself to answer the phone at any hour of the day to tackle various household problems.
§You should enjoy dealing with people – Some tenants can be difficult to manage so you need to choose your potential residents well and be capable of dealing with the untoward incidences that some may cause. Dealing with strangers is not easy and even nice people won’t always care for your home the way you would.
§Make sure your rent covers your expenses – If you have mortgagee expenses on your property, you will certainly not have the pricing flexibility your competitors have. Your rent should be high enough to cover your expenses and absorb a profit.
§Be ready to work like crazy - As you add additional properties, the work you put in will start to pay off. So, if you are willing to put in the necessary labor and long hours, you will succeed.
The Bottom Line
If you fulfill these criteria then there is nothing stopping you from becoming a golden landlord and earning your living in style. However, make sure you hire a reputable and honorable property management company to manage and take care of your rental properties.
There is nothing worse than having the misfortune of getting a bad tenant. So, as a landlord, it is necessary, you screen tenants properly. This will prevent you from ending up in a court to try and evict the tenant. While you can still go wrong, the chances of ending up with a bad tenant is reduce substantially if you have a sound and true screening process in place.
Here are the five most important questions you should ask a prospective tenant if you want to enjoy a stress-free experience as a landlord.
Question 1: Why are you looking to move to another house or another location?
It may sound nosy to ask this question, but it can give you insight into the tenant. If a tenant is being evicted or has a bad relationship with his landlord, you may want to avoid such a tenant. Tenants who complain about their current homes are a big no-no. On the other hand, if a tenant says the change is due to job change or a bigger place for the family, you may want to proceed to the next question.
Question 2: When do you intend to move in?
Anyone who says next week or day is not good at planning. House changing takes time, as most landlords demand a 30-day notice. So, a tenant who states 30 days is the one you should go with. The last thing you need is a tenant who leaves without giving you any notice. You should also avoid tenants who give long-drawn dates for moving in. These are people who haven’t made up their minds and there is no guarantee they will rent your property.
Question 3: May I know your monthly income?
You are asking this because a tenant should make around 3 times the rent of the property to be able to afford the rent and other bills. Of course, the tenant may have other debts and obligations, but you can easily verify that with a credit check. The financial health of a tenant is critical if you don’t want hassles related to the rent later on. So go ahead and find out about the prospective tenants monthly income without feeling embarrassed.
You should ask the tenant to let you know if their income drops drastically for whatever reason. You may want to use this information to see if they can pay the rent if their income is no longer the same. For instance, if they are laid off which is not uncommon at all during this ongoing and never ending recession.
Question 4: Can you furnish your former landlords as references?
If a tenant cannot give you references, it should raise red flags. You want the contact details of landlords so that you can find out whether the tenant is responsible and don’t come with issues. Find out from the former landlords whether the person paid rent on time and treated the property nicely. You may also want to find out the reason for the tenant moving out.
Question 5: Will you fill out a formal rental application and agree to a credit and background check?
Any one person who refuses to fill out the application or doesn’t consent to a check should be refused. It basically means the person has something to hide and usually this is a poor credit history. Make sure you let prospective tenants know the requirement, so that you are not accused later on of being unfair and discriminatory.
If you have properties around the area that you wish to rent out, hiring a property management service is the best option. A professional property manager will offer a combination of real estate knowledge and management skills, all at a reasonable fee.
They will help you attain the most benefit from your properties and will guide you through the process. If you are afraid that hiring a professional property manager may cost a lot, here is a list of 7 ways where a professional can help you save money.
1.Quick Results – A property manager will know how to advertise property to a diverse pool of potential renters. Tenants looking for places are likely to call a property manager to find out about available spaces. They know the market and know how to deal with people, thus they will find you a tenant without too much of a delay or any at all.
2.Capitalizing on Rent – Property managers are aware of renting rates as well as what tenants are willing to pay. Excelling at advertising and marketing, they will portray your property in a manner that increases your chances of receiving a decent rate to a renter.
3.Finding Quality Renters – Professional managers will make sure you receive a decent tenant thereby keeping the eviction rate low and not having to worry about any nefarious activity taking place on your property. No one wants a Breaking Bad type situation from occurring. They check the person’s background, credit card history, employment history, and are trained to look for tenants that will not be troublesome.
4.Completed Paperwork – You can depend on your property manager to negotiate the deal and handle the collection of rent and other expenses. You can leave all the paperwork and entrust them with the accounting and book keeping work as well to save you time.
5.Covers Repair and Maintenance – By hiring a property manager, your property will be looked after. They conduct regular maintenance and deal with pressing issues. They have all the required connections, thus possibly being able to service the place for a discount. This will help prevent you from paying any unnecessary expenses. They will also check up on the tenants and make sure your property is well kept.
6.Manage Time and People – A personal effort to rent out your property will take time, money, and effort from you. By leaving them to deal with workers, vendors, and others involved you can focus on your own responsibilities.
7.Advertising – A professional manager is well connected with some newspapers, perhaps a magazine, and on certain salient websites. Hence, they will not only advertise your property sufficiently, but will also show off your property to interested people.
By hiring a property manager, you can enjoy the benefits without having to endure the hassles. A property management service is not only more effective and efficient but will also enable you to focus on your own life, career, and family. There is nothing wrong with having that separation between you and the renter.