According to recent IRS figures, around 10.6 million Americans declared rental income when filing their taxes. With an average annual income of $68,920 each, American landlords collectively manage some 17.7 million rental properties.
The gig also comes with some decent perks, not the least of which is that you have the ability to deduct up to 20% of your business income. But managing a rental property also comes with significant responsibilities. If you are a first-time landlord, we’ve put together a list of tips – ranging from a rental application sample to communication guidelines — to help get you started on the right foot.
Follow These Tips If You’re A First-Time Landlord
1. Prepare Your Building For Tenants
Before you place that first ad or give that first tour of the property, make sure everything is in top condition for your tenants. Here is a checklist:
Comply with local ordinances. Make sure your dwelling meets or exceeds all building codes and zoning laws. Your rental property must be habitable, meaning it must be a safe, healthy environment free of mold, pests, and rot, and all mechanicals must be in good working order.
Inspect all public spaces. Walkways, stairways, handrails, and hallways must be in good condition and well lit. Have a plan for snow and ice removal and keeping landscaping and parking areas tidy.
Accommodate the needs of the disabled. Familiarize yourself with the Americans with Disabilities Act so that your property is safe and accessible for tenants of all abilities.
2. Determine The Right Rent
Becoming a first-time landlord is a business venture, and the price you charge for rent is a significant business decision. Think carefully about what you will include in your fee (such as utilities and parking) and for what you might require a security deposit (such as pets and smoking). Conduct a thorough online search to find out what comparable rentals near you charge their tenants.
3. Build A Team
As a first-time landlord, even if you are starting out slowly and handling most of the duties yourself, you may want to consider contracting with a management company, bookkeeper, or landlord-tenant attorney for some aspects of your new job.
4. Organize Your Paperwork.
A thorough residential rental application can help you in the tenant screening process. Review application templates online and learns what questions you can and cannot ask under the federal Fair Housing Act.
Questions involving the following topics are off-limits:
- National origin
- Gender identity and sexual orientation
- Familial Status
5. Conduct Credit Checks And Contact References.
Ask prospective tenants for their permission to run a credit check. Investigate your state and local laws to find out how much you can charge to run these reports.
Red flags include poor credit scores, late payments, and bankruptcies. In some cases – especially with someone who has little to no credit history or is in the process of turning a bad credit history around — asking the tenant to have a guarantor on the lease agreement can give you the peace of mind that you will be paid each month.
6. Sign The Lease Agreement.
Once again, you can find templates online for this important document. Here are some of the topics you’ll want the lease agreement to cover.
- Description of the property
- Names of all tenants and occupants
- Term of the tenancy
- Rental price and details of how and when it is due, late fees, and grace periods
- Security deposits, including what they cover and how and when they will be refunded
- Repair and maintenance policies
- Landlord’s right to enter the property (check your state laws)
- Rules, policies, and prohibitions for the property
- Contact information
- Landlord disclosures (check with federal, state, and local laws)
7. Conduct A Walk-Through.
After you have accepted a new tenant, it’s not enough to have them sign the lease agreement and hand them the keys. Establish good communication right from the start by walking them through the residence.
Take the time to test appliances and note the condition of things like window coverings and carpet so that all parties know everything is in good working order. Taking photos while the tenant will help provide documentation in the event of a later dispute.
8. Provide A Detailed Welcome Letter.
This letter serves as a friendly way to review rules and regulations and give contact information for you or your managing agent. Discuss the rent payment process, including details for setting up online payments (if applicable).
9. Create A Plan For Keeping Track Of Rent And Expenses.
An organized bookkeeping system will save you time and headaches in the long run. A variety of software programs can help you keep track of rent payments and expenses. Or, as your business grows, you may want to hire a bookkeeper. Some states require you to issue rent receipts, so be sure to investigate your state and local laws.
10. Perform Regular Inspections And Updates.
Inspect your property at least twice a year to make sure everything is in order and working correctly. Ask your tenants if they have any concerns and look to see if any repairs or maintenance need to be done. Don’t wait until a tenant complains about something to make updates, such as new carpeting.
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