So, you want to dip your toes into the world of real estate. Being a landlord requires a ton of responsibility, but if you are committed to making this career change worth it, being a landlord can really improve your income and quality of life.
However, in order to make this a profitable business, there are some financial factors to keep in mind. Here are some money moves every landlord should keep in mind before signing on that dotted line.
Being a landlord means you are working for yourself, and your business should be recognized by the state you are in. Before you open your business, it is important to get advised. Working with a fully accountable CFO advisory group will ensure you have all the systems and proper processes in place before you can start making money.
Not only will these advisors help you with the accounting parts of your business, they will give you the tools you need to understand how to efficiently and accurately run a business by yourself, and maybe even grow it one day in the future. Investing in an advisor is a great financial move, one that will only give back to you later down the line.
It is crucial to start small when working with investment properties so that you won’t become overwhelmed. The easiest way to do this is to start out with a single-family home, or a duplex with two tenants.
For starters, the management of these properties is easier than larger buildings. But more importantly, the down payments needed are typically smaller than what you would need if you invested in a condo or a group of townhomes. Plus, starting small means you can only grow from there.
It goes without saying that you always need to protect yourself when you’re a landlord. Owning properties means that there are a lot of legal liabilities, and if something goes wrong, then you are solely responsible for fixing them. A good way to protect yourself is by always completing a tenant background check. This protects you by giving you information that shows whether your potential tenants can be trusted.
Do some calculations when setting rent
You want your rent price to be a number that appeals to potential tenants while still making you money in your local market. To do this, you’ll have to find your capitalization rate. This measures the amount of return on your property investment based on the annual income divided by how much you purchased the home for.
Even though this number may be more than your monthly payment on the mortgage, you should consider raising it simply to cover some supplemental costs such as utilities, property taxes, and repair costs. Keep in mind that it may require a combination of a couple rental properties to equate to a full-time income for you. But at the end of the day, you’ll want to come out on top and not simply make a few bucks off one home.
Make your tenants happy
The key to landlord success lies within their tenants. Happy tenants will continue to renew their lease, which means a steady source of income for you. Constantly having new tenants every year can be exhausting and cost a lot of your hard-earned money. So be a cool landlord and keep your tenants happy, and you won’t have to worry about anything.
With these tips in mind, any newbie landlord will be well on their way to making smart money moves for their new business. So go out, find those tenants, and have fun. After all, this is your business you’re talking about.