For the majority of investors, real estate investment is a long-term program. Landlord investors buy a property, rent it, collect a monthly rent, and wait for the value of the property to rise enough that it makes sense to sell it. This may take two years, five years or 20 years, depending on the market and the investor’s financial requirements.
Sounds simple, right? To some degree, it is. If the tenant pays the rent, the landlord investor either has good cash flow (if the property is owned outright), or the rent, hopefully, is at least covering the mortgage, insurance, and tax payments. There may even be some good tax advantages (consult your tax advisor).
Landlord Advice: Be Patient
Landlording, though, can be a time-consuming process, and the return is usually slow in coming—years instead of months. This is why a number of investors opt to flip houses for profit, rather than wait for appreciation to take its natural course.
At the very least, you will need to become familiar with the tools and tricks related to finding tenants, choosing them, and keeping tenants if you want to be successful (and profitable).
Landlord Advice: There Will Be Problems to Deal With
In addition, just some of the problems you may—or probably will—have to deal with:
- Late night or frequent phone calls for repairs or problems
- People who won’t maintain the property—or worse, damage it
- General whiners
- Slow payers
Still, if you are prepared, the long-term prospects for landlord investors look good. If you decide that it is the right course for you, get your hands on an excellent manual (a recommended selection is at the bottom of this page) and follow the suggestions as closely as possible. Learn from the successes—and mistakes—of others!
Landlord Advice: Leases
Legally, you will need some sort of rental agreement with your tenants, whether it is for a short term (month to month) or a longer term (one or more years). Leases are important because, if properly written, they spell out exactly what the terms are, what you expect from the tenants, and what they should expect from you.
Be specific! You don’t need page after page of legalese that no one understands, but you do need to clearly state the terms of the lease. It is far preferable to have it spelled out in advance rather than getting into an argument with tenants when they expect something that you never intended.
Components of a standard lease agreement include:
- Who: Specifically who the tenants are and who the landlords are.
- When: The exact dates of the rental period. Policies regarding lease renewals.
- How much: The amount of rent, stated in a total amount for the entire lease term, and how it is to be paid, for example $XXX per month, payable on the first of the month.
- Security deposit: How much, how it is held, how it gets returned.
- How: How rents are to be paid, to whom, and where.
- What: What is included in the rental and what is not included in the rental. Be specific when it comes to utilities—which maintenance and repair items are your responsibilities and which are the tenants’.
- Rules: Any special rules regarding the rental.
- Pets: What your policy is. Spell it out clearly to avoid surprises.
It is important for you to have a custom lease that is specific to the laws of your city and state. To get you started, Smart Agreements offers its Real Estate Bundle. This is a complete set of agreements that is necessary for any real estate investor.
The Bundle contains:
- Commercial lease
- Landlord’s rules and regulations
- Residential house agreement
- Landlord demand letter
- Tenant’s assignment of lease
- Landlord’s consent to assignment
- Termination of lease
- Landlord’s notice term. tenancy
- Tenant’s notice term. tenancy
- Much more…
More Landlord Advice
Although there are numerous books on real estate investment as it relates to rental property, if you only get one, it should be Landlording: A Handy Manual for Scrupulous Landlords and Landladies Who Do It Themselves. It is probably the most extensive handbook available and covers virtually every aspect of landlording.
Continue reading through this section for more expert advice on real estate investing and landlording: