Thinking of renting out a property? It can be hard to know where to start from permits to maintenance. However, becoming a landlord can be a great step for an smart DIYer who is looking to supplement their income or to start a new career path. We sat down with Michael Boyer, author of Every Landlord’s Guide to Managing Property: Best Practices From Move-In to Move-Out to find out what actually goes into renting out a property.
For someone just starting out, how difficult is the process? For example, what types of permits should a new landlord be expected to obtain?
One benefit to being a do-it-yourself landlord is that there are fewer barriers to entry than in other fields. For example, if you own the property, such as a single-family house, and rent it out yourself, you don't need to be a licensed real estate broker or property manager.
DIY landlords with residential properties (defined as four units or less) should check if a license is required. For example, some cities may require a rental license or permit. It’s also a good idea to check on any state business license requirements that may apply.
Often, a bigger hurdle for first-time landlords is having the capital and credit to buy a rental property, and choosing the right one. This topic is covered in depth in my recently published book, Every Landlord's Guide to Managing Property: Best Practices From Move-In to Move-Out.
To keep costs down, what type of general maintenance should a landlord be prepared to do themselves?
To run a profitable business, DIY landlords should be prepared to paint, clean, caulk, and handle routine maintenance work like fixing a loose handrail or changing a toilet tank flapper. These little items come up so much that if you have to call someone, such as a plumber or contractor, every time, it may not be cost effective.
But you don't need to be highly skilled in any trade. My view is that small-scale DIY landlords are generalists and should be on par with the average homeowner in terms of their maintenance skills and habits. There are landlords that outsource all work and even hire property managers, but my book is very much for the DIY landlord.
When a professional needs to be brought in, efficient and affordable repairs to a property can be a problem for landlords. Do you have any advice about how to best approach this?
Good contractors will always be part of a landlord’s team – the issue is how and when to best use them.
It is often more efficient to hire out larger or more complex jobs that require specialized skills, such as major plumbing or electrical work, especially when you figure in vacancy costs or your own time.
Choosing a qualified contractor with good references and necessary licenses is key.
Next, make sure you have a written scope of work, so that both you and the contractor are on the same page regarding exactly what will be done (include descriptions, specs, plans, materials, etc.). In my view, the more detailed scope of work, the better.
Finally, be sure you understand the basics of how you will be billed, and the difference between a cost-plus estimate and a fixed-price bid.
If you select a good contractor and make sure both the scope of work and payment terms are crystal clear, you'll increase your chances of getting a job done right with fewer problems.
How often should you plan on cosmetic upkeep, such as painting a property’s interior and exterior, for long term renters?
An active maintenance program is very important. In my book, I explain the main skills a DIY landlord should master: painting, caulking, and using a drill. Painting is probably number one.
You really get so much value from paint. Remember, you'll typically be in a competitive rental market, so if rental applicants see a newly painted interior and well-kept exterior, you can really boost your chance of getting good long-term tenants. Great maintenance is a competitive advantage.
On the frequency of painting, it can vary. After a multi-year tenant moves out, I generally like to repaint the interior of a unit. Other times, like a shorter tenancy of a year or less, I may just touch up a unit. I share my guidelines for "turnaround" (the process of getting the unit ready for the next tenant) in my book. Turnaround is where the DIY landlord can really make the unit shine.
Regarding the outside, I paint the exterior of my fourplex at five- to seven- year intervals. Much depends on your climate and exterior type.
Are there tax laws in place that allow landlords to write off things that relate to a rental property such as improvements?
Yes, you can deduct all the ordinary and necessary expenses from your rental property. Whether it is a new appliance, property taxes, insurance, or simple cleaning supplies, my book covers ways to track these expenses and use them to offset your rental and other income. There are some complicated tax laws, so new landlords should take a look at the IRS form "Schedule E". It categorizes most major landlord expenses (and is filed with your Form 1040). My book covers basic taxes, but for more detail and complicated questions, I also recommend Every Landlord's Tax Deduction Guide, by Stephen Fishman, a great companion for my book.
What's the biggest mistake new landlords make when they buy rental property? When they choose tenants? When they manage their properties and their tenants?
Being a landlord is largely about managing the people and the property, and there are a couple of major early pitfalls in both categories to look out for.
Property selection is key. Even the best landlord can't fix a bad neighborhood or defective building. This is why I have an entire chapter on selecting rental properties in my book.
Tenant selection is very important. Problematic tenants can quickly make their problem yours, not paying rent or worse (damaging the property). So the effort spent screening up front can save stress and money.
Another common pitfall for new landlords is over remodeling their rental units. Pride of ownership is great, but remember that your rental is not in a television show or magazine spread. Aim for fair rental condition – not high end, showroom condition. Lavish finishes seldom command more rent and may even be less durable.
What's the best way to limit turnover in tenants?
Much of a landlord's work is in the tenant turnover, so if you can keep tenants long term, your work is reduced (and your profits usually increase).
Here are three larger themes that I find correlate to longer tenancies.
a) Tenant satisfaction is crucial for retention. If you keep the sidewalk shoveled, grass cut, and respond to tenant concerns, be they noise or a leaky faucet, you will likely retain tenants much longer. Often minor annoyances or inconveniences will drive people away. So stay attuned to tenant satisfaction.
b) Offering a great value for tenants can prevent them moving away. If you have the best service and the best price (and this why I like to price my rentals just under market), there is less incentive for a tenant to leave.
c) Being distinctive can also help. Think about your rental from the tenant perspective. If you are offering something somewhat different, tenants may be less apt to move away. It could be a convenient location, special terms (like I allow pets on approval), or simply a fenced yard for their kids or dog.
Life changes do cause tenants to move eventually, but you can often retain them for several years with the right approach. This gives your property a chance to appreciate, while the tenants pay down your mortgage, and rents often rise over time. So being a landlord can be a great "get rich slowly" strategy if you can manage the property and keep good tenants.
There are a lot of things that go into renting and managing a property that people might not realize. What is your advice to someone who is considering this path? Is there a certain starting budget a potential landlord should expect?
Anyone thinking of renting out a property probably should think about several factors.
First, make sure being a landlord fits your lifestyle. It may mean showing units on a weekend rather than watching sports or pursuing a hobby.
Second, think carefully about the property you want to buy. The location and type of rental property will determine the type of tenants you attract and your maintenance duties. For example, a well-maintained condo (my book covers renting condos in depth) may work better if you are a professional with a demanding career. But an older fourplex might be a fit for someone who is very handy and has flexible work hours.
Third, have a strategy. Just buying and hoping for the best is not a plan. Consider what you can offer that sets your rental unit apart. It might be a lower cost rental unit (and DIY landlords can keep costs down). Or offer something different, like a more flexible lease term; an ideal location; a cleaner unit; amenities, such as a washer and dryer; a liberal pets policy; or more responsive management. Be thinking about these issues from the start.
On the budget, it really can vary. I am active in national internet forums and see rental properties across the U.S. selling from $10,000 in aging Rust Belt neighborhoods to millions in San Francisco. So know your market, your niche, and try to find a property that will produce positive cash flow every month (figuring in all your expenses).
To get started, you'll generally face a 20% down payment on a non-owner occupied rental property. But you can do interesting things like buy and live in a two-to four- unit property, such as a duplex. Then you get low down payment options like you would with your single-family home. Some people even rent their current home and move into another one. Also, if you are renting a property you want to set aside amounts for repairs and reserves (to cover broken pipes, appliances that break, and also longer-term capital expenses like a new roof).
You can read more in Michael Boyer's new book Every Landlord’s Guide to Managing Property: Best Practices From Move-In to Move-Out, available on Nolo, Amazon, and bookstores nationwide.
About the Author:
Michael Boyer is a college professor and attorney as well as a landlord who owns several small properties. He has graduate degrees in management and law, plus more than a decade of experience as a successful do-it-yourself landlord. He lives with his family in Juneau, Alaska.
More details on landlord’s legal rights and responsibilities, including state rules on everything from security deposits to lease terms, can be found at the Landlords section of Nolo.com: http://www.nolo.com/legal-encyclopedia/landlords.