Becoming a landlord is something many Americans do to help them diversify their portfolio and generate income. Data collected by the IRS shows that over 10 million Americans declared rental income when filing taxes. At the same time, other surveys suggest that "mom-and-pop" landlords collectively own over 20 million rental properties.
If you've got your sights set on becoming a landlord and would like to know what to do with one or more properties, then there is something you need to know before you embark on your journey into real estate.
You need to cover the mortgage and taxes
Getting a mortgage for a rental property differs from getting a mortgage for your home. As such, if you need to acquire funds to purchase the rental property, you should be confident you can afford to make any repayments required for mortgages and taxes if your property isn't let or tenants don't pay their rent at all or on time. The financial burden will be on you and you alone, meaning you need to have funds available when money isn't coming in. With this in mind, if you're renting to make money, then this can be an issue from the off. You should never start out with the aim of rental income being your only source of income, especially if you have a mortgage to pay.
Know your local laws
You need to know all the local zoning laws and building codes to ensure that any property you own to rent out meets all of the legal guidelines and that you are providing a safe and habitable home for your tenants. It isn't about just collecting the rent check every month; you need to fulfill obligations required of you by law to ensure that the home you are collecting rent on is fit for purpose and does pose a threat to anyone living there.
Insurance is a must
You need to ensure you have the right property insurance covering the building while tenants are living there. This can help you to cover the cost of damage or repairs by the tenant. You need liability insurance as a minimum and anything else you wish to add on top to protect you, the property, and those living there. A good insurance agent can help you to find the right policy for your needs.
Keep Meticulous Records
All landlords must keep meticulous records of their properties, whether they lease one or more units or single-family dwellings. It shows how many properties you rent out. Records are vital to keep on top of your obligations. Use leasing software to keep up with your rental payments, tenancy agreements, repair schedules, services, maintenance checks, insurance, or anything else required to help you maintain your portfolio. This way, come tax time or anytime you need to provide documentation, you have it all to hand.
Becoming a landlord is a great way to diversify your portfolio and invest in your future, giving you a nest egg to fall back on. But knowing what you're getting into before you purchase your first property can help you hit the ground running and stay on top of your obligations.