Let me start out by stating a few facts: I don’t own any rental properties, in fact, I have personally lived in seven rented properties in the last five years. I do know some people who own rental properties, most specifically my cousins (who took over the family business when my dear uncle passed.) I also do know about many of the challenges of being a renter, not to mention due to my studious nature, a few things about being a renting land owner.
All the being said, I’m barely qualified to share the following list of tips if you wish to go into property management for rentals. But I’ve read a lot of books, done a bit of research, and if all else fails, I really love making lists.
1) Buy the property with cash. This may seem either like a no-brainer to you or something that seems absolutely preposterous, but hear me out. Would you rather turn over 95% of your monthly income to the bank because you bought it with a mortgage, and then shell out around 1% of your yearly income (before paying the bank) for upkeep and other home owning expenses? Then another 1-5% of that yearly income for licensing and keeping your renters happy?
I’m just saying, there’s a good possibility that after 5 years, you’ve only paid off 1/3 or less of your mortgage and only made an income equaling roughly 4% of what you paid for the home. It would never be able to support you if you needed it to. Buying a property with cash saves you thousands because you’re not going to pay interest (which typically leads to paying for a home almost twice over before you pay it off!) and every single cent of what your tenant pays you goes into your bank account.
2) Buy one property at a time when you’re new. Don’t over exert yourself with buying six fourplexes all across town, you’ll end up with 24 families that will each need to contact you for some thing or other (maintenance) at least once during the month, which leaves you, best case scenario, 7 days each month to yourself for head-ache free days. Work yourself up to more, you’ll be able to manage it easier.
3) Buy a duplex or fourplex, this is just a small chunk of some advice my uncle gave me. His idea was to live in one and and charge for one unit the cost of the monthly mortgage. Now I wouldn’t advocate getting a mortgage (see #1) but you would likely end up charging what would be the monthly mortgage fee if you had gotten one. Then you are living “rent-free.” If you’re in a fourplex, the income wouldn’t necessarily be a lot greater, as each unit cost would likely be less, but there is potential for greater income.
4) Screen your tenants, but don’t scare them away. I personally know I had a lot of trouble getting into my 6th place (out of those seven) because in the 5th place I was in financially strained situation that caused me to leave in the middle of a lease. This hurt my leasing history and made it nearly impossible to find a new home to live in. Many places I checked wouldn’t allow me to even apply if my credit was lower than 675, even if I had a cosigner with a score over 700. I had a great job that paid my bills, a good driving record, and multiple personal references.
However, you do need to make sure you’re renting to someone reliable, which is why I would recommend Tenantify. Their service verifies employment and income and helps you save time. And it costs nothing for you, your tenant pays a fee of $10-15, which is actually less than most background and credit checks. This is definitely a tool that comes in really handy for any landlord, whether you have one property or two-hundred.
5) Don’t quit your day job, yet! It’s important to realize there are many variables and until your properties can consistently provide you the income to survive off, don’t quit your “day job.” In fact, many real estate investors don’t ever quit their day job and their properties are just part of their investment portfolio, making them money that they just reinvest into more properties.
If you plan to live off your rental property income, make sure it’s consistently providing you income to live from and that you have a lot of savings set aside, because there is always going to be a time where you have a tenant move out and a new one doesn’t move in for a few months. (Which is why, again with #1, you shouldn’t be trying to pay the bank every month.)
Are you a landlord? Do you just know a lot about rental properties and real estate investments? Please feel free to weigh in!