Are you looking to add an alternate income stream?
Renting out your property can be a great way to do just that. But it's not a set-it-and-forget-it kind of investment. Make sure you arm yourself with knowledge beforehand. Here's a quick and dirty list of things you should consider:
1. How to choose tenants
I have owned many rentals so I can offer experienced advice. Here's how I find quality tenants:
- I run a credit and criminal check
- I call the past landlord for a reference,
- I check their employment status and pay stubs. (The paycheck should be 3X the rent)
- Then I consult with my client who may be the best tenant amongst the applications.
Why this process is crucial: In my early years of being a landlord, I watched a tenant move out in the middle of the night, just a few hours before the sheriff was going to evict him. He had not paid rent for a couple of months and trashed the property. This is all after credit, income and reference checks. He had lost his job and didn't want to face the fact that he could not afford the place any longer.
Another unfortunate case was at the beginning of the pandemic, where a clients tenant lost his job, panicked and moved him and his pregnant wife back to the UK. and only told the landlord once he had moved out. The landlord used the damage deposit to cover a month of rent while we found him another tenant. If credit is lower than ideal, or there is not a long rental history etc, it's wise to get additional damage deposit funds that can be used in case the tenant defaults.
2. Unexpected costs to be aware of
HOA special assessments
: An HOA special assessment
is the opposite of a special occasion for homeowners in HOA-governed communities. Special assessments are additional to the regular payments you make- an unexpected expense tacked on without your agreement being necessary. It may have nothing to do with your specific unit- but now, it's your financial responsibility.
Periods without tenants: This is the time do some of the repairs/renovations that you've been waiting to do. And if that isn't already a big job, this is also when an agent can take the stress of finding good tenants in a matter of days. You can quickly secure a renter by finding a qualified agent to list on HAR/MLS and market your property to clients, the public, and other realtors.
Unruly tenants: Sometimes everything checks out. Good credit, references and stable job. Then something unexpected happens, such as a job loss or Covid and things go sideways. The first avenue is to work with the tenant to see if the issue can be resolved. If it can't -then make sure that you have a good relationship with a real estate attorney in case you need to evict. If the tenant is not paying rent then run, don't walk to the eviction lawyer and send a notice of eviction asap, as court proceedings can take weeks to months. Most people are good, kind and trustworthy, but there are some scam artists and bad apples that make promises that they don't intend to keep and the lease is only as good as how far you are willing to enforce it .
3. Tax benefits
Leasing your property has a few benefits beyond being a source of passive income. Your mortgage interest is tax deductible as well as depreciation on the property and expenses. When you sell, you'll capture the appreciation all the while someone else has been paying the mortgage for you. This can be less risky than stocks, and great for asset diversification and eventually retirement.
4. Why a realtor benefits your endgame
One mistake new investors make is choosing a property that won't appreciate. A realtor can guide you to specific areas where your investment will increase, and help choose a suitable property based on whether you are looking for cash flow, appreciation, or both. They can help you choose a suitable tenant, run numbers to make sure that you will have positive cash flow each month, and direct you to a property that is in good condition.
You should look for someone who has experience renting out properties (I have owned and rented out numerous), screening tenants, running background and credit checks and calling past / current landlords and verifying income. An experienced agent can also point out some pitfalls and offer advice on what to do when issues come up with a tenant- whether it's maintenance related, late rent payments, tenant destroying property etc.
Are you thinking about investing in real estate?
Let my experience be your guide. I'm never too busy for your call.