Most professional investors consider dozens of properties before acquiring one. Without the proper research, the property you choose may not be profitable.
Find & Buy a Property
Find a Realtor with the heart of a teacher and the bite of a pitbull. If you need financing, use a mortgage broker who is able to select from dozens of lenders. Among banks, credit unions often have the best rates.
- Use a Realtor to view and buy a property
- Create a business entity, if desired
- Obtain a landlord homeowner insurance policy
- Schedule contractors for renovations
Business License/Register Property
Depending on your situation, incorporating the property and/or business as a Limited Liability Company (LLC) may be wise. A tax attorney and your local county business office will be able to guide you through the license and permit process.
- Obtain an Employer Identification Number (EIN) from the IRS and incorporate a business entity, if desired
- Apply for state and/or county business and/or rental licenses
- Apply for occupancy & housing permits
- Register the property with the local tax office
Renovate & Decorate
A well-decorated but functional unit will always rent for top dollar. Consider renovating for and targeting roommates, as group houses will always rent for more money than what a family would be willing to pay.
- Target your ideal tenant but still appeal to the masses
- Paint with neutral colors and furnish if necessary
- Use high-end appliances to attract high-end tenants
- Create extra bedrooms for groups houses/roommates
List, Advertise & Show
A well constructed rental ad, and professional-looking photos of the unit, will bring you plenty of applicants.
Collect Applications/Screen Tenants
The best way to deal with bad tenants is to make sure they never move in! Try to accept the most-qualified applicant who is also the best fit for your property, but be careful not to discriminate.
- Collect information via online rental applications
- Ensure total income of all tenants is 2-3x monthly rent
- Ask their two former landlords, “Would you rent to them again?”
- Run a credit check to determine total debt and late payment history
Sign a Lease/Collect Deposit
The best way to secure a tenant is to sign a lease and collect an earnest money deposit. If they back out of the lease before moving in, they will lose their deposit.
A lease should be incredibly detailed and equally fair to both parties. Reject applicants who can’t afford to pay a deposit.
- Find and use a rock-solid lease designed specifically for your state
- Ensure every adult resident signs the lease with joint and several liability
- Collect any prorated rent and a minimum one-month security deposit
- Review the entire lease with your new tenant before signing
Deliver Keys & Tenants Move-In
Move-in day is usually the most exciting (and exhausting) day for tenants. A quality landlord will go the extra mile to ensure a smooth transition to their new home.
- Provide keys on day one of the lease (no earlier)
- Ask tenants to perform a move-in inspection and document their findings
- Give tenants a list of utility & emergency phone numbers
- Give tenants a copy of the lease
Manage Lease & Collect Rent
Rental income is the most important short-term asset of any rental property. Make it automatic.
- Collect rent online to prevent the hassles of checks
- Mandate tenants set up automatic rather than one-time rent payments
- Charge hefty late fees to encourage on-time payments
- Sit back, relax and let the money roll in
Repair & Maintain
The way you handle maintenance and repairs will make or break your landlord-tenant relationship. If you are slow to respond, or only “patch” the problem, your tenants will resent you and may try to withhold rent.
Choose your contractors wisely because in addition to being skilled, they also must be respectful to your tenants.
- Acknowledge a tenant’s maintenance request within a few hours
- Try to fix all issues within three days
- Fix issues correctly the first time – don’t settle for temporary fixes
- Build a list of reputable contractors that you can call anytime
Renew or Relist
If you have great tenants, you’ll want them to stay as long as possible. As incentive, I offer to keep the rent the same, or even offer a small discount, if they sign another lease.
- Ask tenants if they want to renew or vacate at 60 days prior to lease end
- If tenants want to renew, sign a renewal immediately, before they change their mind
- If tenants want to vacate, post new vacancy ads and hold showings immediately
- Ask current tenants to clean prior to showings (75% success rate)
Move-Out, Repair & Clean
Communication is the key for a successful move-out. The tenants want their full deposit back, and the landlord wants to clean and repair the unit for the next tenant.
Take your time doing a move-out inspection, and document everything with photos and/or videos. My move-out inspections usually take about two hours.
- Provide tenants with a cleaning list
- Perform a final inspection and document damages
- Make repairs
- Clean again, because tenants rarely do an adequate job
Most states give a landlord 15-60 days to itemize receipts and return the deposit, minus damages.
A landlord cannot charge a tenant for normal wear-and-tear, and many states force the landlord to give back 2x-3x deposit amount if it is wrongfully or maliciously withheld.
Pay Annual Dues & Taxes
“…but in this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
Typically, you’ll need to file a tax return in every state that you have a rental property. If you track expenses throughout the year, tax time will be much easier.
- Pay local license fees
- File a IRS Schedule E Form 1040 on federal Form 1040
- Pay annual insurance premiums and property taxes
- Track income vs. expenses throughout the year
Repeat Process & Grow Portfolio
The landlord lifecycle repeats itself every time you buy a new property. Through a home equity loan or line of credit, you can leverage the equity in your existing properties to purchase more.
- Start the lifecycle and rental process over again
- Leverage equity to buy another rental property
- Continue to hone your landlording skills, courtesy of Landlordology
- Eventually, sell everything and buy a condo on Capri
Remember that even a small portfolio of properties, over 20-30 years, will pay for your retirement and leave a financial legacy for your children.