Rental property ownership can be a secure and profitable investments for building a retirement portfolio. Buying when the market is low and keeping a handle on costs can generate great monthly cash flow, the home itself should appreciate in value over time. The tax advantages are also better than those available to a stock market investor.
Given the rise in rental markets, there is a lot of current interest in rental investing, and many investors are looking to move money from the stock market to rental properties. Newbies to real estate buy one or two homes and self-manage to avoid the cost of professional management, However, be aware of landlord-tenant relationships and pitfalls.
Know the law
Rental property owners must follow the law for: applications, lease agreements, deposit money handling and eviction actions. Use applications and lease forms that have been examined by an attorney for legality in your state, make sure they protect your interests. Include plenty of detail on your forms. Should a dispute arise, it’s harder to support your case if a lease agreement or other document lacks specific information about your requirements.
Most rental relationships are relatively problem-free, some tenants can be difficult such as; They might find the smallest things to complain about — all the time. If you have a problem with renter phone calls during the dinner hour, perhaps the roll of landlord isn’t for you. A clear set of renter instructions and rules can help in this regard — it’s your responsibility to set expectations. This is where attention to detail in your rental agreement fits in, it’s OK to tell your renters that they should not call you to complain about a missed garbage pickup if you informed them of the day and time prior to move-in.
Budget for repairs
Most renters will not demonstrate the same level of concern for taking care of your property as you would. You should anticipate repair issues to be more frequent compared to an owner-occupied home. At move-in: Conduct a thorough inspection using a detailed checklist to note the condition of everything in the home. Use the same form at the end of the lease to compare conditions. Using your smartphone to record a video of the walk-through is a great way to avoid disputes at move-out. In the lease: Include a detailed explanation of what constitutes “normal wear and tear” versus damage that must be paid out of the renter’s deposit.
Expect a few late payments
Tough economy as you know and late payment of rent is more common than you think. You’ll be sending late notices, attempting to collect late fees and making payment calls if you want to keep your cash flow on track. Make sure your lease spells out when rent is due, how it must be paid, what the deadlines and penalties are for late payment, and how you’ll handle notices and eviction. The rules must be legal in your state, and you must follow them as well as the renter.
If you are considering rental property as an investment asset, you should know about more than just the numbers. If you’re not willing to take on a few landlord headaches, consider using professional management. It costs you a percentage of the rent, usually 8 to 10 percent, but it would be worth it to you in the long run.
Now lets say you use professional management from the start, you can negotiate your property purchases and rents to cover the added cost, it will be a deductible expense and a good management company will market your property, screen prospective renters, collect rents and handle late payment issues. They will have legal leases and proven procedures should problems arise.
Once you’ve decided you have the time and patience to take on the responsibilities of a landlord…the profits will follow.