While being a landlord may seem like a hands-off, guaranteed investment, the reality is that it can get complicated. Before people become property owners, they should consider what they’re getting into and how to approach it best.
1. Property Type Impacts Revenue
The residential property type a landlord purchases impacts their return on investment. Options like multifamily homes, townhouses, apartments or mobile home parks often require much more work, leading to lower monthly returns. They also affect how common resident disputes are — the more tenants someone has, the more issues they’ll have to deal with.
Single-family homes are a great investment choice for aspiring landlords who want stability. Their tenant turnover rates are lower than other residential property types on average. Plus, demand for houses in suburban neighborhoods with nearby school districts will always remain high, meaning people are more likely to renew despite annual rent increases.
2. Digital Payments Are Essential
Modern landlords live in the digital age — gone are the days of mailing in checks and asking for cash in person. Online rent management provides a digital paper trail and keeps payments organized. Property owners who use apps can automatically add fees, send monthly reminders and receive payments instantly.
3. Maintenance Can Be Challenging
Aspiring landlords should ask themselves if they’re prepared to take on maintenance work themselves. Upkeep can cost landlords both time and money, with a suggested budget of 1-4% of a property’s value allotted to annual maintenance. Everyday tasks like repainting, fixing appliances and salting sidewalks get tiring fast for those who work full-time jobs.
Maintenance requests are another crucial consideration. How will tenants submit work orders? While some landlords are comfortable giving out their phone numbers, others use third-party apps. They also need a way to track every task’s time limit and priority level.
4. Surveillance Systems Protect the Property
Every landlord needs a monitoring system to protect their property from criminals, trespassers and rowdy tenants. A camera will be a huge help since most break-ins happen in plain sight — 34% of residential burglars walk in right through the front door. A strategically placed surveillance system will deter this behavior and help property owners catch the culprits.
Aspiring landlords shouldn’t be mistaken about security — it’s their responsibility even if other people have cameras on the property. A tenant only has to hand over footage once they’re served a subpoena or a warrant.
5. Every Tenant Needs Screening
Many new landlords make the mistake of trusting prospective tenants based on interviews and a quick online search. They only realize their error when rent is due and they see no payment in their account. Many people can’t afford to pay. In fact, more than 8.8 million individuals were behind on rent in the United States in 2021.
Background and credit checks are vital for new tenants, no matter how good they look on paper. References and past renting history are also good sources of information. While the temptation to fill vacancies and get a return on investment is high, doing things this way guarantees a more reliable income stream.
6. Amenities Can Help Raise Rent
Many landlords overlook amenities as a way to attract tenants and increase revenue. They can raise rent without fully updating the property by adding a lounge, washers and dryers, a patio or a gym. This strategy benefits those looking to increase their return on investment but have limited space for tenants.
7. Setting and Increasing Rent Has Catches
Most businesses operate under the assumption that increasing their prices will raise revenue despite shrinking their customer base. While this technically applies to property owners, overly high costs will lead to vacancies — meaning they’re leaving money on the table. Ultimately, lowering prices to attract enough tenants is the best strategy.
When it comes to increasing rent, landlords usually have no restrictions other than the lease agreement. However, some areas have laws protecting tenants from price hikes. However, at least 31 states banned local governments from establishing rent control laws. Landlords who own property in those areas have much more flexibility.
8. Third Parties Simplify the Day-to-Day
Aspiring landlords may think they can handle everything themselves, but the reality is often different. Resident disputes, constant maintenance requests, staggered payments and unintentional loopholes in lease agreements can quickly turn an investment property into more trouble than it’s worth. Third parties can make things much smoother.
Instead of pulling a lease agreement template off the internet, people should consult an attorney. While they can cost a few hundred dollars an hour, they’re a quality investment. Property managers are another must-have when it comes to hands-off real-estate investing. Landlords should also consider a maintenance crew or payment software service to simplify their daily duties.
Being a Landlord Is Worth the Trouble
While handling resident disputes and repeatedly reaching out for late payments can be a headache, the high return on this low-risk investment is worth the trouble. Besides, aspiring landlords who prepare themselves well enough before purchasing a residential property can avoid most confrontations.
Devin Partida writes about investor technologies, big data and apps. She is also the Editor-in-Chief of ReHack.com.