There are a lot of moving parts associated with being a landlord, and the process can quickly become complicated. Before you make the leap to finding an investment property, there are several important things to consider that can impact your success. Completely preparing yourself will help you avoid mishaps that lead to wasted money and time. Below are 4 crucial things to consider before you become a landlord.
Determine market rent.
An essential first step before renting your property is evaluating how much you can charge for rent. Start with some market research of your area.
- What other rentals are near you?
- Are they similar to your property?
- Will those rental prices cover your costs and provide an appropriate income?
When you look at comparable rentals, take location into account as it will be a huge factor. Properties closer to downtown areas or hubs of activity tend to support higher rent than rural communities. Consider community amenities such as pools, dog parks, or playgrounds as these will appeal to tenants and contribute to property value. Doing the research on the rental market in your area is a fundamental first step, as rent that is too high will drive away tenants. Lack of interest will create gaps in tenancy – your expenses will not have rental income to offset them. On the other hand, rent that is too low may attract tenants, but might not cover your expenses.
Know the tax implications.
Any income you receive from a rental property is considered taxable income. This extends beyond only the monthly rent you receive. It includes, among other things, advance payments from tenants, fees you have charged, and any withheld security deposit upon the lease’s conclusion. You must declare the correct earnings to the IRS. Understanding how this may impact your profit margin is one more aspect of determining if the market rent in your area will cover your expenses.
There are certain rental expenses that can be claimed during the course of the tax year. Available deductions include but are not limited to rental mortgage interest, rental repairs provided by professionals other than yourself, and the costs associated with paying a property manager to oversee your rental property. Sitting down with a tax accountant and going through all tax implications involved with owning a rental property will help you manage costs in the long run.
Research the laws in your region.
Specific requirements of a landlord are highly dependent upon your region and federal, state, and local laws. It is critical that you gain an in-depth knowledge of legal expectations. Spend time researching exactly what you must provide to your tenants.
- Do I have to get a city rental inspection?
- Do I need a rental license?
- What must the dwelling have before you can rent it out? For example, is a functioning heating and cooling system required?
- How long do you have to make requested repairs?
- What are you allowed to deduct from the security deposit at the end of the lease?
- How long do you have to return the security deposit at the end of the lease?
These are just some of the numerous legal questions you should know. Reviewing and understanding your region’s expectations protects you from surprises and misunderstandings.
Find the right help.
Navigating all the moving parts associated with being a landlord can be overwhelming, and many landlords choose to seek help in at least a few areas. There are individual services available that can tackle finding and screening applications, collecting rent from tenants, or cleaning once the lease ends. Organizing multiple separate companies, however, is a formidable task. Experienced property management companies should have a streamlined system in place that eases the pressure of managing all that comes with being a successful landlord. No matter how or where you choose to get help, always weigh the costs of the service against the benefits.
Digging into these aspects of renting a property may feel like overkill, especially if you haven’t invested in a property yet. Nevertheless, equipping yourself with an extensive knowledge of the rules and expectations will ultimately ensure a smooth process for all involved, and protect you from any setbacks that you wouldn’t have otherwise seen coming.