You’ve decided to become a landlord. Perhaps you have moved to a bigger home and will be renting out your prior property? Or perhaps you have purchased a property with the intention of renting it out. There are many critical steps to consider in order to achieve success as a landlord. We discuss a few items to consider in this article.
Research the market
As with any real estate purchase, it is critical that you thoroughly research the local real estate rental market to determine what the market rents are. In addition, factors such as school zones, crime rates, & the local economy are also extremely important. In addition to determining a fair market value to purchase a property, it is equally important to determine if the local market rents would justify the purchase. In other words, you will want to be sure that a typical monthly rent would cover the costs of a mortgage, property taxes, insurance, and maintenance costs.
Determine the right rental cost
Once you own the property & it is ready to list, it is important to set an appropriate rental price. You should already have a good fair market range that you will want to price the property at. Although the rental market is very strong in most markets, you will want to be sure not to price the property too high or too low. As a guideline, some try to price a home at approximately 1% of the home’s current market value. Another option is to review your monthly mortgage bill and charge a certain percentage, such as 20% to 50% of the total cost to the renter. These are inexact approaches and therefore it is highly advisable to go off of recently closed comparable rental properties.
Develop an application process
It is highly recommended to adopt a uniform application process. In addition to capturing all contact information for the prospective tenant, you will also want to employ a standard background screening process. While there are various background screening service companies available, it is highly advised that all screenings include credit, criminal, & eviction history reports. Typically, the biggest red flags to look for when screening a tenant are criminal and eviction histories. As the property owner, it is important that you have a uniform and structured approach to the background screening process.
Draft a thorough lease agreement
It may go without saying, however any property that is rented to a tenant must have an executed lease agreement. Typically, annual lease agreements are the most common. With this said, sometimes homeowner’s associations dictate what the length of lease terms are allowed to be in a given community. If this applies to your property, you will want to check with the homeowner association first. In addition, some associations may even have an application and/or interview process of their own.
Lastly, if your lease term is six months or less, the tenant must also pay the Florida sales tax of 6%. It is important to remember that this is just the state tax. In certain circumstances, there will also be county taxes applied as well. If you are investing in real estate, it is always advisable to be represented by a real estate attorney. He/she should be able to guide you with this process.
Handling delinquent tenants
The biggest potential challenge with becoming a landlord is the potential challenge brought on by a nonpaying tenant. Just as with the application process, there should be a standard protocol employed for these situations as well. It is important that you follow common rules and restrictions that pertain to how you should carry out a legal eviction. The process starts by giving a notice and providing enough time for the tenant to respond. These terms should be reflected in the lease agreement as well. This way there a no surprises to the tenant. As always, a real estate attorney that is well-versed in landlord-tenant disputes is a highly recommended team member.
In closing, owning rental properties can be one of the best ways to supplement your income and even help fund a retirement. As with any investment, it is important to perform your due diligence prior to making any decisions. Items such as school zones, the local job market, & future development must all be considered. A local and experienced real estate agent should be able to guide you in the decision making process.
Are you ready to build or add to a real estate investment portfolio? We can help. Contact Live South Florida Realty, Inc. to begin or continue investing in one of the most desirable locations in the country.