If you’re thinking about becoming a landlord in Houston, Texas, you’re probably wondering if it’s worth the hard work and financial risk. Being a landlord is a huge responsibility and requires a bit of cash to maintain even the simplest property. When done correctly, real estate investment returns can be high, but you need a strategy or it will take over your life.
Finding the right property: your first challenge
Finding the right property is a challenge for first-time investors. If you buy a property that’s too expensive, you’ll never turn a profit. If you get a good deal on a fixer-upper, you’ll need to invest the time and money into making it habitable and desirable to tenants.
The right property is one that you can prepare without too much of an investment, and one you can rent for an amount that will turn a profit in the long-term.
Once you find the right property or properties, you need to find tenants.
Finding tenants: your second challenge
Although many landlords post ads on Craigslist, that’s probably not the best place to source tenants. Ideally, you want to go through a real estate agent who can screen potential tenants over the phone, again in person, and through a professionally processed application.
It’s possible to run a credit check and a background check on potential clients yourself, but it’s easier to have someone else do it for you. The best tenant-screening system is one that screens tenants, runs background and credit checks, interviews, and rejects or accepts applications without having to involve you. That’s exactly what property management companies do – and more.
Collecting rent: your third challenge
If you’ve never been a landlord before, you might find it difficult to be firm about when rent is due. Some tenants will take advantage of new landlords if they don’t enforce late fees or warn them of a breach of contract for paying rent late.
Experienced landlords have learned from experience that it’s never a good idea to cut a tenant slack with late rent. When rent is late, charge the full amount of late fees allowed by law according to your lease. It’s okay to let a tenant make a couple of payments, but don’t let them off the hook for their agreement. It will only lead to being taken advantage of again in a few months when they have another excuse for being late with the rent.
Maintenance and repairs: an ongoing expense and hassle
Maintenance and repairs never end for landlords. Once you fix the refrigerator, you’ll need to come back to check out a leak in the ceiling. A few months later you’ll get a call about a leaky toilet or a missing window screen. It doesn’t matter how simple the repairs are – they will intrude on your life and cost you money. While some repairs can wait, others require immediate attention.
A good portion of the money you collect from rent will need to go back into your Houston properties. Your expenses will include property taxes, mortgage payments, insurance, utilities, and plenty of repairs. Not budgeting for maintenance and repairs is a mistake many novice landlords make.
The best way to meet your obligations as a landlord, live your life, and make a profit, is to hire a property management company. A property management company can handle all your repairs and routine maintenance for you. It’s better to hire a professional property management company in Houston rather than individual contractors for several reasons:
- Contractors get busy with other clients and might back out unexpectedly. That’s risky when your property requires regular maintenance you’ve agreed to do. For example, say your property sources its water from a well and you’ve agreed to supply the tenant with regular filter changes and brine tank maintenance to prevent damage to the water softener system. If your contractor quits, you’ll be responsible for those tasks.
Say three months later the person you’ve contracted to fill vacancies quits, too. Now you’ve got even more work on your plate. With a property management company, if one of their contractors quits, they’ll get a replacement immediately and you won’t even need to be involved.
- Property management companies have on-site maintenance available 24/7. If you don’t want calls at 3 am, you need a property management company.
- With a property management company, you only pay one company instead of having to deal with paying multiple contractors.
Section 8: it’s tempting, but is it worth accepting?
One decision you’ll be faced with as a new landlord in Houston is if you should accept Section 8 housing vouchers. Section 8 is a program that subsidizes the cost of rent and utilities to qualified households. The subsidy amount the household qualifies for is paid directly to the property owner or landlord. If the rent is higher than the voucher, the household must pay the difference.
Section 8 seems simple on the outside, but there are some complexities involved. Although accepting section 8 tenants can bring in consistent rent payments and keep your properties rented, there are some potential issues:
- To accept section 8 vouchers, you need to meet the housing authority’s rules for rent prices. This often means lowering your rent to meet what they call Fair Market Rent.
- Many Section 8 landlords end up with renters in challenging and dire situations. With no security deposit at stake, and the ability to move to another Section 8 unit, some tenants aren’t motivated to take good care of the property and end up leaving properties destroyed.
- You won’t get a security deposit from the housing authority. If you want to collect a security deposit, you need to collect it from the tenant. Being able to collect a security deposit from a low-income tenant can be difficult. You may need to lower the security deposit amount in order to rent your unit.
- You’ll be required to have yearly inspections performed by HUD. If anything doesn’t comply – like a broken light fixture or electrical outlet that doesn’t work – you’ll need to fix it before you can continue accepting section 8.
Green Residential can help first-time Houston landlords
If you’re new to the landlord scene and are overwhelmed with your new responsibilities, we can help. We’ve got decades of experience screening Houston tenants, running background checks, filling vacancies, and collecting rent from tenants. We partner with local contractors to provide repairs and maintenance, and work hard for you to keep your tenants happy.
Contact us today for a free analysis and find out how we can help you turn a profit from your real estate investment.