Before You Turn Your Current Residence Into A Rental Property, Make Sure You’re Willing To Do These Things.
So, you want to turn your home into a rental property? Great move! Owning investment properties is an important part of any solid retirement plan. However, here are a few things you may want to consider before jumping into being a landlord.
After being in the business of managing rental property for over 30 years, we have seen our share of good intentioned landlords quickly find that owning rental property is not what they envisioned. I mean how hard can it be? Am I right? Our home is perfect, everyone will want it so it will rent quick, I think it’s way better then the house down the street so it will rent for way more then that did, the tenants will take as good a care for our home as I did, we will be great friends, nothing will break, and we will sit back and rake it in. Although it may seem like an exaggeration, chances are you have probably thought one or more of these things yourself. The harsh reality is that being a landlord is tough. If it were easy, everyone would do it.
Prior to making the decision to turn your current home into an investment, or even to buy your first rental property, you should first assess your willingness to do the following things we have seen first-time real estate investors have a hard time with.
Share your home with others
It may seem like a small thing but many first-time landlords, especially those who are turning their current residence into a rental, can never get past the thought that someone is living in “their” home. The unfortunate truth is that very few tenants will ever treat a rental property like you did. The biggest two reasons why is 1.) They are not you, and 2.) They don’t own it like you did. When I was a teenager, it wasn’t until I had to start working and buying my own things, that I finally began respecting the things that I had. Many tenants choose to rent because they simply do not want the responsibilities that come with home ownership. Where you had a vested interest in making sure preventative maintenance items were done regularly, because the tenant has no ownership, they are much less likely to invest their time and money.
Devote time and hard work to manage your business
When it gets right down to it, this is a business. As with any business, it takes time and hard work in order to be successful. Many first-time landlords grossly underestimate the amount of time and effort it takes to own a rental property. Be sure you either have the time to devote to your rental property, or do what most successful businesses do and hire someone to run the day to day aspects of the business, in this case a property manager.
Provide good services to your tenants
Any business that wants to stay in business must take care of their customer. As with any other business you also have a customer. Your customer is the tenant. Businesses who don’t take care of their customer will find that their customers don’t come back. Your number one expense as a real estate investor is tenant turnover. In order for you to be successful, you must do all you can to reduce that expense. Landlords, who take care of their customers, will find that they continue to come back when it’s lease renewal time.
Make repairs and maintain your property
Just as every business has customers, they also have a product. The product you are selling is your property. When apple released the iPhone in June of 2007, it revolutionized the business and communication world. Customers flocked to their stores and waited in line hours, and in some cases days to get one. Apple continues to have a colt-like following of customers who will do anything to get their hands on the most recently released iPhone. But imagine that, in Apple’s success, they decided not to make any improvements or updates to their amazing product. If they had failed to do that, the iPhone would be about as relevant as a typewriter. Like in the example of Apple, you must be willing to continue to commit to updating, and improving your product if it is to maintain its value and relevance in the marketplace.
Deal with difﬁcult tenants
Just because the tenant is your customer, doesn’t mean there are not problems. I often say that we should probably not refer to ourselves as property managers, but should be called tenant managers instead. After all, it’s not the property who fails to pay rent, causes damage, or gets into an argument with a neighbor. Many landlords drastically underestimate the time, energy, and patience it takes to manage the relationship with the tenant.
Become familiar with state, local, and federal laws and regulations regarding landlord and tenant relationships
This is one way first –time landlords open themselves up to tremendous liability. Laws and regulations are always evolving and changing. As with any business or profession, be sure to commit time to first, learning all you can about federal, state and local tenant landlord laws and second, staying up to date with changes in those laws that effect you.
Consult and hire proven professionals, such as real estate agents, attorneys, tax preparers and property managers
What ever you do, don’t go at it alone. Be sure to rely on the professional advice of experts in the industry. Remember, just because someone has a license, that doesn’t make them an expert. Just because someone knows how to file taxes, doesn’t make them the best CPA for a real estate investor. Seek out, interview, and get help from industry experts.
Investing in real estate can be a great experience, be very profitable, and put you on the road to great financial success and independence when done the right way. Make sure to go in with both eyes wide open, and with a business mindset and I am confident you will be on your way.