Congratulations, you're a landlord! Now what?
Real estate is one of the ultimate opportunities to gain wealth and create a passive income. Real estate has been a tried and true investment method for centuries when you look back in history. So it's not surprising that it's an appealing investment opportunity for new up-and-coming investors!
After going years of saving, months of research, and weeks of closing on a property, you have finally become a landlord. Now what?
Purchasing your first investment property is simultaneously exhilarating and terrifying.
On the one hand, you have taken the first step towards your financial freedom and dipped your toes in the realm of real estate. On the other, you have now become solely responsible for maintaining multiple families' homes and making sure your investment is profitable. No pressure.
Now, if real estate were impossible, no one would do it! So fear not, many have come before you and had to learn the ropes of being a landlord and maintaining investment properties.
There are many real estate investors online and in your local community who would be happy to share their knowledge with you.
You also have local experts like our team at Admiral Property! We are happy to share our knowledge with you and work together to help create a profitable investment for your future.
So what are the first things new landlords should know?
Maintain a Business Mindset
It can be hard to find the balance between helping people and having a business. At the end of the day, your investment properties are a business. What do you do with a business? You strive to make it grow and become profitable
There are two sides to a business, the person providing something of value and the person receiving that. When you have a rental property, tenants are like your clients.
In a good working business relationship, one person provides something in exchange for something of value.
It is critical that you maintain this business mindset because this is your lively hood. All too often new landlords get taken advantage of because they do not know how to be strict.
As a business owner, my goal is to create income and stability for myself and my loved ones. But as a human being, I do strongly believe in generosity and taking care of my community. However, generosity should not be done at the cost of putting your business on the line.
Separating emotion from business is something every business owner will have to do at some point in their career. It's not fun, it's not enjoyable, it's not easy, but sometimes you do need to evict a tenant in order to maintain your investment.
There is a fine line to be walked when you are trying to find who is a good tenant who is down on their luck and who is trying to take advantage of you.
It can be incredibly challenging to learn how to do this as a new landlord, and evictions never get easier. Property management companies can help with this problem.
Having a property manager take care of your property means that you will have an expert who is overlooking your investment. An excellent property manager will know how to differentiate between someone who is honestly down on their luck and a tenant that is unwilling to uphold their end of the lease.
If you decide to hire a property manager to handle your rent collection and evictions, you want someone strict. However, you do want someone who has compassion for your tenants and doesn't treat them like numbers.
It is essential to have a heart and have compassion for humanity. It is okay for you to help good tenants when they need help. However, you need to remember to take care of your growing business and your lively hood first.
At Admiral Property, we are compassionate with tenants. But we do understand that your investment properties need to be profitable for you. So we work to ensure that your tenants understand what is expected and that there are strict rules for breaches of their lease.
Keep Good Tenants
Good tenants, they make your life easy. It's not hard to imagine what a perfect tenant looks like. They are someone who takes care of their home, reports maintenance issues promptly, and pays their rent on time.
Those are the people who make your business profitable, and it is crucial to recognize them as such. But how do you attract those people? More importantly, how do you make them stay?
Not many people talk about incentivizing good tenants to stay at your building, but it can be incredibly effective. This method will not only make your current tenants happy but if you a reputation as an incredible landlord and attract more good people.
So how is this done?
The answer is simple, you take care of that tenant and their home. A great way to keep tenants is by offering something that improves their home.
This could be something like or new appliance for the apartment. Another option would be to ask the tenant what they would like to upgrade their unit. Maybe they need a fresh coat of paint, or perhaps they would love to see more landscaping.
Remember, keeping a good tenant is essential for your property to be profitable. Offering an incentive along with a rent increase will make your tenants more likely to stay after the rent increases.
Another hugely important thing to remember is that if you offer an incentive or gift that is a fixture in the apartment or benefit to the whole building, it will increase your rental value and keep your tenants happy.
Increase Your Rent Annually
A big mistake that new real estate investors make is not keeping up with the market trends.
The real estate market is ever-changing and complex. If you fail to follow the trends, you miss out on profit.
Research is fundamental to this process. You need to be watching local rents, and you should be raising your rents annually accordingly.
Many people think that having absolutely no turnover means you're doing everything right, but that's not the whole story. Yes, having a low turnover rate is very important to your investment. You can achieve this by maintaining good tenant relations and keeping up to date on maintenance.
Did you ever consider that the cause for your low turnover rate is because of below-market value rents?
The majority of rental properties will have some percentage of vacancy yearly or monthly. That does not mean that the property owner is doing something wrong. It just means they are keeping up with market trends.
According to Marshvisor, multi-families between 2-5 units typically have a vacancy rate of 5.5%.
If your vacancy rate is always zero, you may be undervaluing your rental property. It is crucial to keep up with these market trends every year.
One of the benefits of a property management company is that they take the guesswork out of the local vacancy rates. They have a vast pool of properties that can be cross-referenced. That way, they can more accurately determine how much your rent should go up each year.
Have a Lease That Protects You
Did you know that in the state of New Hampshire, if you do not clearly state in your lease that a tenant cannot sublet, they can sublet your property to whomever they want without your consent?
That is just one example of how a good lease can protect you, your building, and other occupants. If someone finds a loophole in your lease, this can cause a massive headache and trouble to try and get those difficult tenants out.
Take cars that are junk for example. Do you have something in your lease that requires tenants to inspect their vehicles every year? If not, your tenants will be able to leave those cars on your property.
Having a lease that protects you and your investment is critical. Writing up a lease is not something that should be taken lightly. It is essential to consult either your attorney or local property manager on what you should include in your lease to protect your property.
At Admiral Property, we have a thorough lease and cover a multitude of issues. Some of these include problems that a new landlord might not even consider. Even if you are not ready to enter into a full-service property management agreement, you can still hire Admiral to handle your apartment fills and draft your leases.
Have a Thorough Screening Process
One of the most critical parts of making sure your investment is profitable is your potential tenant screening process.
Your tenants are what makes your rental property profitable. So while selecting the property, scheduling the maintenance, and building your portfolio is incredibly important, ultimately, your investment is not worthwhile without your tenants.
Making sure you're putting the right people in your apartments is by far the most crucial part to ensure profitability.
Some obvious things come to mind when screening a tenant. These things include a good credit score, no prior evictions, a background check, and other things of that nature.
But does your process go deeper than that? Being a good judge of character is incredibly important and a big part of that is knowing the right questions to ask references.
While a background and credit check is important, the majority of your information on potential tenants will come from references. Do you know the right questions to ask?
For example, a good question to ask previous landlords is "Have you ever received complaints about (insert names) from their neighbors or maintenance people?" A question like that can help avoid tenants that will create a toxic environment for other residents and also maintenance staff.
Congratulations, you are officially a landlord. Being a landlord can be one of the most wonderful things and it is no easy task to accomplish.
While we went over a multitude of situations to watch out for and things to remember, you will definitely still make mistakes. The most important thing to remember is to ask for help.
There are people in your local community who have been landlords or are experts like property managers. Even if you aren't looking to hire anyone, reach out and make connections.
If you are ever in a pinch or need help, lean on your community for answers. Ultimately being a landlord is a learned skill. If you pretend that you know everything, you will never improve.
We are always here for help and to give advice the best we can. If you are in a situation that you don't know how to get out of or you are confused about the daunting state laws, please always know that our door is open!