Many people who are looking to expand their portfolio or are looking to make passive income are looking at alternative options. One of the most popular options is the idea of becoming a landlord.
But becoming a landlord since the COVID-19 global pandemic has significantly changed. In fact, it even has become more profitable for many entrepreneurs. This is in part because a lot of people had to downsize or sell their homes and are instead looking to rent rather than maintain a mortgage.
Becoming a landlord at the turn of 2022 will look a bit different than it has in the previous years, but in a way that is completely feasible for anyone looking to invest in rental property. If you are one of these people, keep reading to learn more about how you can become a landlord starting next year.
Things To Consider Ahead of Time
Becoming a landlord may sound as simple as buying a property, finding someone to rent it out, and collecting their monthly rent. But in fact, there are many things you will want to consider beforehand such as:
- Do you have the time, energy, and funds to be able to dedicate yourself to the work that is ahead of you? Investing in rental property requires a substantial amount of work and research in order to make a positive cash flow.
- Are you ready to hire a property management company to help assist with many of the logistical factors involved such as leasing agreements, tenant screenings, or eviction notices?
- Have you consolidated or eliminated most of your debt and saved up enough money for any unexpected expenses? Owning a rental property also means you will have to pay various fees your tenant does not such as property taxes or landlord insurance.
- Do you know the legalities involved with becoming a landlord? Aside from protecting yourself from any situation that may arise, you will also want to have full knowledge of tenant laws and what their rights are.
Taking The First Financial Steps
The first step into becoming a landlord is considering your financial situation. You will want to discuss with a lender or mortgage broker the options you have available as owning a rental property is vastly different from owning and financing a house as your primary residence.
There are several different types of loans you could consider when purchasing a rental property. The most common types are conventional loans and commercial investment property loans. Some people even take out a second mortgage on their current home to borrow against the equity of their existing house.
Other types of loans such as VA loans or FHA loans are usually meant for people who are looking to take out a loan for their primary residence and cannot be used on a specific rental property. There is, however, a loophole.
Some people will purchase a home that can be utilized as a duplex or a multi-family home. This allows the property that will be used as a rental unit to still be the primary residence of the person who owns the house because they will be living in it alongside the people who are renting it.
Each type of loan comes with its own risks just as any type of investment would have. This is why it is always important to speak with a professional when looking at a big financial decision such as this.
Aside from figuring out your loan situation, you also want to make sure that you have a better understanding of your current personal financial situation. If you have a mountain of credit card debt, a car, or a student loan bill that is not yet paid off or has other assets you currently owe money on, you will want to be figuring out how to eliminate that prior to speaking with a lender or broker. Otherwise, they will essentially tell you the exact same thing: Pay off your debts first, then consider investing in a rental property.
Understand What a Landlord Actually Does
This is a huge element to becoming a landlord, especially if you are planning to do it within the next six months. You have to know what the job actually entails and not what you assume it entails. First-time landlords often have it significantly more difficult than seasoned professionals as they are having to navigate brand new territory.
Certain tasks of a landlord can include anything and everything from:
- Handling the marketing and advertising for their properties to find potential tenants.
- Vetting and doing proper screenings or background checks on their future tenants.
- Setting up showings of the home or unit to potential renters.
- Creating legal leasing agreements for tenants and landlords to sign.
- Collecting security deposits along with regular monthly rent and utility payments.
- Adhering to equal housing opportunity laws and understanding how to avoid discrimination lawsuits.
- Keeping track of all tax write-offs and handling regular, up-to-date bookkeeping to avoid further tax issues.
- Handling all of the required maintenance along with regular pest control.
- Making sure both you and your tenants have the proper insurance for the unit or home.
- Deciding who will be in charge of taking care of lawn maintenance or snowplow removal as well as what repercussions will happen if they are not done by the tenant if it is required of them.
This list is not exhaustive and as you can see, there are several responsibilities that the landlord has to take on with their new rental property. This is again why hiring a property management company may be a better alternative than trying to handle every aspect on your own. They have the proper experience, skills, team, and resources on how to handle each and every one of these situations.
If you are in San Antonio and are in need of a property management company to be able to help make your dreams of becoming a landlord a reality, give the professionals at Green Residential a call. They can help alleviate any and all of the stress that comes with the job while helping you to make the most income you can for your future.