A lot has changed in the world over the past decade.
But, fortunately, while it continues to ride the winds of the changing world and local markets, real estate is still much the same.
In fact, you’d be hard-pressed to find a better or more sound investment than real estate.
So if you’re considering becoming a rental property owner, it’s no surprise.
You’re in good company too, as many of the world’s most powerful investors and investment firms stake a portion of their assets in property.
And given the importance of homes for our families and buildings for our businesses, that’s not likely to ever change.
So then, how do you become a rental property owner?
What kinds of things should you look out for, and what prep work is there to make sure you get started right?
Below, we’ll cover all of that and more so that you can get started right as a rental property owner.
How to become a rental property owner
Below are the major key points to understanding what it takes to become a rental property owner.
Not just the technical aspects, but the strategic elements that will hurt you if you don’t plan in advance for.
1. Learn what it’s like to be a landlord
If you’re just getting started, you might not yet understand what it’s like being a landlord.
For many that get into rental investing, it’s great, but being a landlord isn’t what they expected.
And not knowing what you’re getting yourself into can lead to all kinds of mistakes and lost time and money.
Being a rental property owner is great because you can collect “passive” income from your properties.
Note the quotations. Good landlords know that you– or a property manager you hire– needs to take an active role in managing that property for it to be successful.
This comes in the form of:
- Rent collection
- Periodic inspections
- Regular maintenance and repairs
- Communicating with tenants
- Managing the property’s accounting and taxes
- And more
Not to mention, the work involved in getting tenants in the first place. Including:
- Marketing on listings platforms and elsewhere
- Showings and taking applications
- Screening those applicants
- Completing leases
- Moving your new tenants in
And often, it means being on-call or having someone you hire being on-call around the clock to handle those unexpected repairs and other issues.
Worth it? Absolutely.
A lot of work? Absolutely.
Don’t underestimate the responsibility and you’ll be able to adapt and manage your properties with ease.
2. Understand the financials of being a landlord and organize your accounting
Another major point is understanding the financial aspect of owning a rental property.
This encompasses a number of areas, including:
- Rent collection
- Security deposit collection and holding
- Getting and maintaining insurance
- Maintaining your books and recording tax write-offs
- As well as keeping a chunk of reserve for repairs and maintenance
And within each of these areas can include multiple points that need to be managed.
Repairs and maintenance are of particular concern, as they’re partly irregular.
You might know you need to check your property’s water heater every 6-12 months, but what about sudden repairs?
You need reserve put away to take care of the inevitable repair job, otherwise risk being caught unprepared which could result in legal trouble or at the very least a very unhappy tenant.
3. Purchase your first property
Purchasing your first rental property isn’t all that much different from purchasing a home for personal use, with some exceptions.
Because you can’t insure a rental property with mortgage insurance, you need to put more down on the property.
Usually that’s at least 20% down, though it can be more.
In addition, there are generally higher credit score requirements to purchase property for the purpose of using it as a rental.
A few common loan options for purchasing rental property include:
- Conventional loan
- Commercial investment loan
- Second mortgage through refinancing
Which type of loan you go with depends on:
- How much funding you have for a down payment
- Whether you have an existing mortgage that is mostly paid off/has equity
- And if you’re buying one or more properties at a time
In every case, it’s best to speak with a lender to see what your options are before setting yourself on one course or another.
4. How to finds tenants for your properties
We’ve covered a lot of ground already, but now comes the fun part: getting your first tenant.
Finding tenants to fill vacancies in your rental properties is easier than ever thanks to listing platforms like Apartments.com.
There are a lot out there, so to take full advantage of them you’ll want to put a listing up on many different sites at once.
That would typically be a ton of work. Fortunately, tools like DoorLoop’s automatic listings tool allow you to upload your listings to multiple sites simultaneously.
Not only are you able to reduce the amount of time it takes to list your units and properties, you can keep track of communications with applicants all within the app.
Here are a few of the biggest listing sites:
The original, Zillow remains the biggest property listing site online.
It isn’t designed specifically for rental property, but its sheer amount of traffic makes up for that.
Plus, you get a free 30-day listing on your first property.
Apartments.com is the largest rental-specific listing platform.
That makes your potential conversion rate on your listings sky high. But to make things even better.
Apartments.com also owns several smaller listing sites which it automatically disseminates your listing to.
Realtor.com is one final option that doesn’t get as much attention from professionals, but gets quite a bit of traffic, making it another solid option for listing your property.
And for more ideas on how to advertise your rental property for free, check out our guide: How to Advertise Rental Property for Free: 8 Best Listing Sites.
5. Get your forms and legal documents in order
There’s one aspect of owning rental property that is easily forgotten but critically important:
The legal stuff.
This is the part that isn’t so much fun, but absolutely essential if you hope to maintain a healthy and successful rental property investment.
Items here include:
- Tracking write-offs for taxes
- Keeping a copy of every application and tenant lease for your records (by law)
- Making yourself aware of Fair Housing laws
- Knowing when and how to properly issue eviction notices
To help make this process a bit easier, we put together a convenient (completely free) resource to access commonly used rental property forms.
- Residential and commercial lease agreements
- Lease termination letters
- Eviction notices
Check it out here: Real Estate Rental Form Templates for Landlords & Prop Managers
Should you hire a property manager?
Before we finish, there’s one last thing we should cover: do you need a property manager?
When should you hire a property manager and what exactly do they help with?
A property manager can handle one aspect of the property’s maintenance or management or tend to 100% of the property’s needs, depending on your preference.
That can include one or more of the following:
- Bookkeeping and taxes
- Maintenance and repairs
- Even things like market research and setting rental prices
Deciding whether to hire a property manager generally comes down to two things:
- Budget (do you have it)
- And profit margin (can you justify it)
If both of those align, it’s often worth hiring someone to take one or more tasks off your hands or even the entire property.
However, you’ll have to decide for yourself based on your own preferences.
You might enjoy managing your properties and prefer to do it yourself.
Or, if you only have 1-2 properties you might not have any need of help yet.
Streamline your property management with the right tool
Ready to get started?
We covered a lot in this guide, but it won’t do you any good if you’re not organized properly and have the right tools to get the job done.
As a property manager, you need:
- Accounting software to keep your books straight
- A rent collection tool
- Something to help you manage maintenance requests
- And tenant communications
- Plus don’t forget screening, leasing, listing your properties… you get the idea
DoorLoop helps with every one of those items and more.
Plus, you can take it on the go via your smartphone or use it on your desktop. Wherever you are, your property data is at your fingertips.