How to be a landlord in 7 steps

Many consider real estate investing to be a route to building wealth. While the idea of generating “passive income” with a rental, the job of a landlord can be quite complex. Landlord responsibilities go much further than collecting rent and depositing checks every month. Keep in mind these challenges:

  • You are responsible for managing a significant asset that presents administrative and financial challenges. 

  • You must abide by local housing codes non-discrimination laws. 

  • You must be on call to handle maintenance issues with your property (think: late-night calls about an emergency repair).

If this sounds daunting, hiring a property manager can make real estate a less arduous venture. If you prefer to DIY, here’s how to set yourself up for success.

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Table of contents

1. Find the right property2. Know the law3. Find good tenants4. Draft a lease agreement5. Schedule a walkthrough6. Keep organized financial records7. Maintain the property and your tenant relationships

1. Find the right property

When you start your search for an investment property, keep in mind that this is first and foremost a financial decision with long term consequences. That means you’ll need to keep your emotions out of a buying decision, and focus instead on the property’s potential return on investment (ROI). Here are a few financial measures to consider: 

  • Capitalization rate: Capitalization rate is used to show the expected rate of return on an investment property. It is expressed as a percentage of the initial purchase price and indicates its net gain or loss over a one-year time frame. To calculate, divide the net operating income (NOI) of the property by its current market value or purchase price. 

  • Maintenance and improvement expenses: A rental property will likely require work to make it not just habitable, but appealing to prospective tenants. You also need to be prepared to spend money on upkeep and the repairs that may be needed over the years.

  • Taxes, insurance, and depreciation: There will also be tax implications and the potential for a variety of write-offs on interest, expenses, insurance costs, and loans to purchase or repair the property. Consult with an accountant or tax specialist to ensure you aren’t missing any opportunities to save money on your investment.

2. Know the law

A range of federal, state, and local landlord-tenant laws will apply to your property. 

  • Federal laws: On the level of federal law, statutes cover issues from required disclosures about lead paint to prohibitions against discriminating against prospective tenants based on race, gender, religion, and other protected classes. 

  • State and local rent control laws: In some states, few regulations apply to landlords, while in others—such as California and Oregon—there may be complex systems of rent control or stabilization that cap annual rent increases. 

  • Local laws: Similarly, some cities and counties are relatively silent on housing laws beyond a general requirement that units be habitable. In others, however, you may find codes that require off-street parking or in detail the number of square feet of natural light that must be provided in each room.

  • Building association laws: Finally, there may also be co-op, condo, or homeowner association limitations on properties. Before you commit to a purchase, you should be aware of the legal limitations on what you can do with the property.

3. Find good tenants

This is another area where you may want to bring in some expert help in the form of a real estate agent to list and show the property. The downside of that, of course, is that it may be an additional expense. 

The long-term relationship you will embark upon with a new tenant may last for years. Carefully reviewing rental applications and checking references and credit scores before you sign a lease is essential. If you decide to secure tenants on your own, expect however to spend some time and money doing the following:

  • Listing the property online

  • Marketing and showing the property

  • Tenant screening 

  • Running tenant background checks

4. Draft a lease agreement

Standard lease and rent agreements that cover generic rental situations are easy to find online and are often free, but you should customize the lease to address the specifics of the particular unit being leased.

These standard leases are more than sufficient for common situations, but if you need to add your particular clauses to cover particular aspects of this rental, you may want to consult with a housing attorney.

Woman holds a set of keys out in front of a clipboard and miniature house figurine.

5. Schedule a walkthrough

After you have selected tenants and they have agreed to lease your unit, do a walkthrough with them before signing a lease and handing them the keys. This also offers them an opportunity to ask you any questions they have about the unit. 

Before the walkthrough, make sure all outlets and appliances are functioning, the apartment is clean, and any damage to countertops, walls, or other surfaces has been repaired. A walkthrough checklist is recommended, in which the items in each room are listed and any pre-existing damage is noted. Both the owner and tenants should take photographs as needed.

6. Keep organized financial records

Have a system in place for records of all financial transactions before the bills and checks start rolling in. 

The first check you will receive from the tenants is their security deposit and this is another situation where being aware of the laws in your jurisdiction is essential. Whether this money has to be held in escrow, in an interest-bearing account, or in some other fashion varies from city to city and state to state. 

On the outgoing side of your ledger, you’ll want to keep receipts of every expense related to the maintenance of the property—utility bills, repairs, and fees—as well as the bigger outlays such as landlord insurance, property taxes, and mortgage payments.

7. Maintain the property and your tenant relationships

It is important not only to maintain the property but to manage your tenants as well. Check in with your tenants about any issues. As a general rule, you must have the permission of tenants to enter the unit. You can still, however, make sure that common areas are being properly maintained.

Make sure that they know how to reach you in case of emergency, the day by which rent is expected and the best way to pay it, and be clear about expectations when it comes to noise, trash, and address any issues promptly. While many owners want to have a friendly and cordial relationship with tenants, those are generally built on both parties showing each other respect. 

Bungalow offers tenant placement and property management services that keep your property fully occupied and well managed—helping you earn more rental income from your investment property. With Bungalow, homeowners earn up to 20% more rental income. Learn more about Bungalow.

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