Nelson at the now sadly defunct Financial Uproar recently had a great post called Don’t Rent From An Amateur Landlord. The basic idea was that if you’re renting from someone who is new to real estate, they will be a pain as a landlord. They’ll be so nervous about having the bulk of their investment capital tied up in one place (the property) that they’re turning over to a stranger that they’ll be anxious and will do crazy things, both legal and illegal.
In this post, I hope to outline some of the things first-time landlords should and shouldn’t do.
Things To NOT Do
Don’t Rent By Your Gut Feeling
I’ve talked to many people who have been accidental landlords in the past and had a bad experience. Usually, this was due to moving, where they decided to rent out their old house instead of selling. The story would climax with the tenant destroying the place and leaving in the middle of the night with the accidental landlord vowing never to rent out property again.
Without fail, when I asked them about tenant screening, these people would say “he seemed like a good guy, so I rented to him without doing any of that“. Google where your property is located and “tenant screening” and screen as thoroughly as local laws allow.
Don’t Assume You Can Do Whatever You Want
Some new landlords take the view “I own it, I can do anything I want and if they don’t like it they can leave!” Residential tenancy is MASSIVELY regulated, and this view is almost certainly wrong. If you decide to be a landlord, you need to start reading about and understanding local laws.
Don’t Pay Large Amounts Of Money For Training Or Help
John T. Reed says “Real estate investment advice is the only field I know where the worst material available is also the most expensive.” He’s right. Be VERY careful any time someone wants to charge you hundreds or thousands of dollars for training. There’s a massive amount of inexpensive information from books on Amazon or at your local library. For specific problems, you may want to hire a real estate lawyer or paralegal.
Things To Do
Do Make Decisions By The Numbers
If you get into real estate, you need to be comfortable making decisions based on numbers. Everyone involved, from real estate agents to tenants to contractors will want you to make emotional decisions. The numbers don’t lie. The cute garden doesn’t matter. The fact that the potential tenant is pregnant and desperately needs a nice place to live doesn’t matter. The fact that your agent tells you you’re getting a killer deal doesn’t matter.
Determine the metric you’re using, apply it consistently, and make decisions based on it.
Do Find Someone With More Experience
While you’d never want to hire a mentor – even talking about “mentors” is a bit creepy – you do want to meet people more knowledgeable than yourself. This is usually easy to do. When I bought our first duplex, the property owner from the apartment building across the street came to introduce himself when I was mowing the lawn and gave me his card offering to help me any way he could.
People who are into real estate usually like talking about real estate. Find out if anyone in your social circle has investment properties or knows someone who does. Try to get introduced to them and chat with them about what you’re up to.
The best possible situation is to have someone who is very experienced who will let you make short phone calls or quickly respond to e-mails with advice on how to handle things you haven’t encountered before.
If you get talking to someone like this, and they begin enthusiastically talking about doing a deal with you, selling you help, or selling you one of their properties, politely disengage and find someone else. They aren’t trying to help you, they’re selling to you.
Things To Accept
You’ll eventually get a bad tenant
If you get into real estate in a big way or do it long enough, eventually you’ll get burned with a bad tenant. These may be professional tenants who exploit local laws or just someone who is a difficult person. Part of the returns from real estate is for dealing with people like this. Do what it takes to get them out of your property and try to adjust your screening procedure to ensure you will avoid people like that in the future.
Keep in mind your goal – to get them out and to return your property to profitability as quickly and cheaply as possible. Don’t get into a fight for the sake of the fight.
You Aren’t Living There
Both from a positive and negative perspective the unit is no longer your living space once it has been rented to the tenant. If you’re bothered that your tenants are unmarried, it’s none of your business. Similarly, you don’t need to install spice racks and a towel warmer – these won’t increase the rent you can charge.
I released a book on Amazon about “Getting Started As A Small Scale Landlord”. It treats this as a part-time job you can give yourself, rather than a get-rich-quick scheme. If you enjoyed this post, I think you’d dig it.
For readers who have rented out a property, what did you discover were the most important things to do or not do? What did you eventually accept as part of being a landlord?