How to get started as a land­lord

Lesotho Times - - Property -

BE­ING a land­lord isn’t for ev­ery­body, but if it’s right for you, own­ing and man­ag­ing rental prop­erty can be a smart way to grow your wealth.

Even though ris­ing house prices make shop­ping for prop­er­ties trick­ier these days, the over­all pic­ture re­mains favourable for in­vest­ing in rental real es­tate.

It should not, how­ever, be mis­taken for a way to get rich quick. This is a long-term in­vest­ment that needs to be ap­proached care­fully.

But if you’re still itch­ing to tap your in­ner Don­ald Trump, here are seven smart moves to help you get started.

Smart move 1. Rec­og­nize that be­ing a land­lord is a busi­ness. Be­ing a land­lord is dif­fer­ent than be­ing a pri­vate home­owner. It’s a busi­ness and you need to treat it like one.

“Where I see a lot of peo­ple make mis­takes is, they don’t have a good busi­ness plan,” Roberts says. “This type of in­vest­ment is not hand­soff. It’s not just a pas­sive rev­enue stream. It re­quires in­volve­ment. It re­quires your time. It re­quires cer­tain skills.”

Any prop­erty you buy has to make sense from a busi­ness per­spec­tive, not be­cause it’s a house you’d like to live in.

That means it should be a prac­ti­cal, rea­son­ably priced home likely to ap­peal to the kind of ten­ants you’re look­ing for.

You’ll also need to be able to qual­ify for a loan.

Lend­ing re­quire­ments for per­sonal mort­gages have re­laxed in re­cent years, but Jim Mer­rill of Axel Mort­gage Inc. in Phoenix says the re­quire­ments for rental prop­erty largely have re­mained the same.

If you’re bor­row­ing money for your first rental house, you’re go­ing to need at least a 20 per­cent down pay­ment.

And if it’s your first rental prop­erty, your cur­rent in­come is go­ing to have to be enough to han­dle the mort­gages for both your res­i­dence and your new prop­erty.

How­ever, Mer­rill says, “Once we can show that some­one has two years of suc­cess­fully man­ag­ing rental prop­erty, we can use that to off­set the (in­come) re­quire­ment.”

Smart move 2. Start small. Roberts sug­gests start­ing with a sin­gle house or smaller mul­ti­pled­welling unit, per­haps with a part- ner, to see if the busi­ness re­ally suits you.

“Sin­gle-fam­ily res­i­dences are the eas­i­est prop­er­ties to buy when you’re look­ing for in­vest­ment prop­erty,” Mer­rill says.

Con­do­mini­ums usu­ally re­quire a larger down pay­ment and monthly as­so­ci­a­tion fees.start­ing with a sin­gle home will al­low you to get a feel for the main­te­nance, book­keep­ing and other work re­quired.

Roberts and Mer­rill both rec­om­mend choos­ing an ini­tial prop­erty with­out high-main­te­nance fea­tures such as elab­o­rate land­scap­ing.

Smart move 3. Don’t in­vest some­where you don’t know. An old joke is that the three keys to a suc­cess­ful busi­ness are “lo­ca­tion, lo­ca­tion, lo­ca­tion.”

That’s es­pe­cially true for rental prop­erty.

A home that seems to be a steal might be priced lower be­cause it’s in a neigh­bor­hood most peo­ple wouldn’t ac­tu­ally want to live in — with higher crime or poor schools, for ex­am­ple.

For that rea­son, in­vest­ing in outof-state prop­erty is a gam­ble. Buy­ing in neigh­bor­hoods you know well or have care­fully re­searched is the

smart move.

Fig­ure out the

Smart move 4. right rent. Rents dif­fer widely around the United States. Craigslist and lo­cal real es­tate agents can give you an idea what they are where you’re buy­ing. Then you need to de­ter­mine if that rent will be enough to cover your costs.

Too of­ten, peo­ple take a look at their loan and think if they cover that, they’re do­ing fine. But you’ll need to pay prop­erty taxes and in­sur­ance. Roberts also as­signs 5 per­cent of gross rental in­come to reg­u­lar main­te­nance and another 5 per­cent to pay for the down­time and re­pairs that come with va­can­cies.

Not bud­get­ing enough for main­te­nance is a com­mon mis­take.

“Things break,” says Buzz Far­low, owner of Pi­o­neer Prop­er­ties, a prop­erty man­age­ment com­pany in Tuc­son. “You’re go­ing to need some money in the bank to deal with un­ex­pected ex­penses.”

Pro­fes­sional or­ga­ni­za­tions such as the In­sti­tute of Real Es­tate Man­age­ment have more in­for­ma­tion on the in­come and ex­penses that come with dif­fer­ent kinds of prop­erty.

You’ll also want to know the rate of re­turn you’re get­ting on your in­vest­ment. There are for­mu­las, such as the “cap­i­tal­iza­tion rate,” to help with this, but you might want to turn to a pro­fes­sional. A good ac­coun­tant can make sure the pur­chase makes sense. Smart move 5. Be ready to get your hands dirty. If start­ing with a sin­gle home, you’ll find it to your fi­nan­cial ad­van­tage if you can man­age the prop­erty your­self.

That re­quires those skills” Roberts men­tioned.

The bet­ter you are with tools, the eas­ier it is to main­tain a rental prop­erty with­out hav­ing to call in costly plum­bers or elec­tri­cians ev­ery time some­thing breaks.

If you’re the kind of per­son who has put off fix­ing your own leaky faucet for a month, this prob­a­bly isn’t the busi­ness for you.

Like­wise, if you’re un­com­fort­able at the thought of call­ing ten­ants to ask where their rent check is, you need to look else­where or hire a prop­erty man­age­ment com­pany, which will add to your ex­penses.

“cer­tain

Smart move 6. Get pro­fes­sional help when you need it. If you de­cide to man­age your prop- erty, you’ll prob­a­bly want to con­sult a real es­tate lawyer to get a solid lease and learn the rights of ten­ants. You may want an ac­coun­tant, and you’ll need to know some good plum­bers, elec­tri­cians and other trades­peo­ple.

Turn­ing to a prop­erty man­age­ment com­pany is another ap­proach, although it will take a bite out of your earn­ings.

“Once I had more than two or three ad­dresses, it made sense for me to hire a prop­erty man­ager, just be­cause my wife and I also have ca­reers,” Roberts says. “It’s worth it for us to pay 7 per­cent to 10 per­cent of our rental in­come to a man­ager.”

Far­low be­lieves vet­ting and then deal­ing with ten­ants is one of the more valu­able ser­vices a good man­age­ment com­pany pro­vides.

“It’s a very dif­fer­ent dy­namic when a ten­ant is deal­ing di­rectly with the owner,” Far­low says. “There’s a ten­dency for the ten­ant to think they’re your friend, and that can com­pli­cate things. With a man­ager, it’s clear it’s a busi­ness.”

It’s im­por­tant to get ref­er­ences and check prop­er­ties when choos­ing a man­age­ment com­pany. But even with a good firm, Roberts notes, the fi­nal re­spon­si­bil­ity for tak­ing care of a rental is the owner’s.

“You’re go­ing to want to in­spect the prop­erty regularly, he says. “You want the prop­erty man­ager to take those late-night calls, but you want to keep a good eye on things.”

Smart move 7. Keep your ten­ants happy. “Of all the costs as­so­ci­ated with be­ing a land­lord, the big­gest one is va­cancy,” Roberts says. “Ev­ery time a ten­ant moves out, you’re go­ing to spend money, prob­a­bly quite a bit of it.”

That means find­ing and keep­ing good ten­ants is the heart of suc­cess­fully in­vest­ing long-term in real es­tate.

Lex­isnexis, Ussearch and sim­i­lar com­pa­nies will run back­ground checks on prospec­tive ten­ants to help you find renters you can trust and will want to keep.

“Happy ten­ants are crit­i­cally im­por­tant. They’re your cus­tomers,” Robert says. “And the way you keep them happy is by keep­ing the prop­erty in good shape and treat­ing them with re­spect.”

Do that, and you’ll be build­ing wealth with an in­vest­ment you can feel good about. — In­ter­est

The bet­ter you are with tools, the eas­ier it is to main­tain a rental prop­erty with­out hav­ing to call in costly plum­bers or elec­tri­cians.

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