Whether you’re considering renting a home you already own or buying a new property for investment, becoming a landlord has a range of perks.
Investing in real estate is a great way to generate wealth. Take a property, bring in a tenant, and watch the money roll in each month!
This simple formula has attracted millions of people from around the world to invest in real estate and become landlords. But the reality is more complicated than you’d think.
In this post, we’ve outlined some important steps on how to become a landlord. We also go over what you’ll need to become a landlord, along with the associated costs.
An Overview of Landlording: A Primer
A landlord is a property owner who leases out a property they own to tenants in return for rent payments. That property can be a house, an apartment, a building, or a piece of land.
If you’re just starting with the real estate industry, it’s better to begin with a single-family home or condo to gain some experience as a landlord.
Remember, owning rental properties comes with legal obligations and risks. You’re legally responsible for providing the tenants with safe accommodation while complying with fair housing laws.
Both the landlord and the tenant assume obligations towards each other. These obligations should all be spelled out in a lease or rental agreement between the parties.
Landlords may also advertise their listings to attract tenants or collaborate with real estate agents.
How Much Do Landlords Make?
According to Comparably’s data on wages, the average landlord in the US makes about $61,920 a year. The salaries fall in the range of $28,490 to $123,790, with a median salary of $55,380.
The numbers suggest how profitable it can be and you can make a lot of money from this business. The income potential, however, can vary depending on the location, property type, rental market conditions, and rental prices.
What You’ll Need to Become a Landlord [& Associated Costs]
Investing in residential rental property is a great way to generate regular income, but it has its fair share of challenges and associated costs.
It’s important to identify and calculate the fixed costs associated with owning a property. Apart from the mortgage, there are many expenses to consider, including:
1. Maintenance and Utilities
These are fixed monthly expenses for the upkeep of the property. They include plumbing, electrical repairs, lawn care, HVAC servicing, appliance repairs, pest control, pool maintenance, etc. The cost of repairs and maintenance will depend on the property’s condition.
2. Property Taxes
These are annual taxes every homeowner must pay based on the property’s assessed value and local tax rates. Do your homework and research the tax rates in your area before investing and factor this into your budget.
3. Property Insurance
Insurance provides financial protection against any structural damage and helps cover various associated costs. It covers losses due to unforeseen incidents such as fire, natural disaster, theft, burglary, etc. The costs of insurance depend on the property’s location, size, and coverage limits.
4. Rental Licenses
The rental license fees vary from state to state. Some states require you to obtain a rental license before leasing out, while other states don’t. Look into the housing mandates for your state and city for more information. If you do require a license, you’ll have to submit applications along with the necessary documents.
How Much Does It Cost to Become a Landlord?
Based on a survey from Real Estate Witch, the average homeowner spends about $17,459 on their home each year, in addition to mortgage payments.
The survey finds that homeowners spend $4,283 a year on maintenance and repairs; $4,975 on utilities per year; $3,890 on home improvements; $2,795 on property taxes; and $1,516 on insurance.
These estimates can give you a good idea of how much money you’d need to spend a year to be a landlord.
Is It Hard to Become a Landlord?
Becoming a landlord, like any other business, is no walk in the park. But, with careful planning and preparation, you can expect a regular cash flow as your property appreciates in value. You might enjoy some tax benefits too.
Being a landlord requires time and effort, and you have to familiarize yourself with the legal responsibilities, such as local and federal laws.
It’s not difficult being a landlord, but it does require a good understanding and knowledge of the process, finances, and laws.
How Long Does It Take to Become a Landlord?
The time can vary depending on many factors, such as property acquisition, financing, property maintenance, legal aspects, preparing the rent agreement, and more. Don’t forget the work needed to market the rental property to prospective clients.
Whether it’s a career choice or a way to earn extra money, becoming a landlord involves many responsibilities. It might take you a couple of weeks to a few months, depending on how well you navigate through the rental process.
How to Become a Landlord in 7 Simple Steps
Becoming a landlord isn’t as simple as buying a property and renting it to make money. There’s a lot that goes into investing in real estate and managing a property.
Here’s how to get started in a few simple steps:
Step 1: Buy an Investment Property
Unless you already own a home or any residential property, the first step is to acquire an investment property that tenants can rent.
Ask yourself what kind of real estate you want to buy and if it has the potential to produce a steady cash flow.
If you’re a first-time buyer, you can look for some great properties on popular property-hunting websites, such as Zillow, Redfin, HomeFinder.com, Trulia, etc.Â
Step 2: Determine the Structure of Your Rental Business
Owning a property is like owning a business, and there are financial risks involved. Determine how you want to manage your rental property—as an individual or as a business entity.
Depending on your preferences and future goals, you may choose a legal structure for your business. This ranges from sole proprietorships to partnerships and corporations.
Step 3: Understand Landlord-Tenant Laws
One of the crucial steps in renting a property is to understand and abide by local landlord-tenant laws. Landlording can be an easy process if you use the right tools and are aware of the laws and regulations in your area.
Every state has specific landlord-tenant laws that regulate the rules of renting a property and ensures that neither the landlords’ nor the tenants’ rights are violated.
You should also be familiar with the Fair Housing Act, which makes it illegal to discriminate against people you’re renting to.
Step 4: Make Sense of Taxes
Taxation laws regarding property investment can be complex. If you’re just getting into the landlord business, it can get overwhelming. Because taxation laws can work for or against your investment, you should have a solid grasp on everything related to taxes.
Each state has different laws for taxing rental income, so do thorough research on the tax rates in your area. There are many legal and financial issues to consider as a landlord, so don’t rule out tax considerations.
Step 5: Insure Your Rental Property
Landlord insurance acts as a safety net to safeguard your finances against property damage from natural disasters, accidents, injuries, and so on.
Find the right insurance company to make sure you’re covered with the right insurance coverage to protect your assets. Consider your unique needs and compare several insurance companies to find which type and amount of coverage is best for you.
Step 6: Get Your Property Ready for Prospective Tenants
Preparing your rental property for potential tenants is critical. You need to attract stable, rent-paying tenants by making sure the property is clean and safe.
Consider professional cleaning and painting services if needed. First impressions are important, which is why you want to make that count.
Remember, some tenants may avoid paying rent, damage property, or disturb neighbors. Screen prospective tenants by running credit and background checks to avoid these tenant problems.
Step 7: Finalize and Sign the Rent/Lease Agreement
Before you officially become a landlord, you need to set the right rent prices, security deposits and have a rental contract ready to go.
Don’t set the rent too high or too low; find the optimal price by researching other rental property owners in your area.
Once you’ve finalized all the details, like rent details, security deposit, terms and conditions for termination of the agreement, sign the rental/lease agreements.
It’s a legally-binding document that must be signed by both the landlord and the tenant.
Reasons to Consider Becoming a Landlord
Becoming a landlord can be tempting, and who doesn’t like some additional income?
Here are some of the reasons why you should get into the landlord game:
- Passive income: Renting a property and collecting rent provide a good source of passive income on top of the money you make from your regular job. A steady cash flow each month can supplement your regular earnings.
- Tax benefits: You also get some tax benefits when filing your federal and state taxes. While it may not be much, it can marginally reduce your tax burden. This means you can earn more money while saving some on fees.
- Control: One of the best things about investing in real estate is control over rental prices, tenant selection, expenses, and cash flow. When you have control over everything, you have control over how much profit you can make.
- Potential to grow: A rental property is a tangible investment with long-term benefits. As a landlord, you have the potential to grow and build a diverse portfolio of properties. This increases your chance of making more money.
Frequently Asked Questions
Do I Need Previous Experience in Real Estate to Become a Landlord?
While prior experience in real estate is beneficial, it’s not required. However, at the same time, managing rental property isn’t for everyone.
Should I Hire a Property Manager?
Hiring a property management company is a viable option if you don’t mind the fees.
A property manager aids in operating the property, interacting with tenants, and handling maintenance. This will save you time and money, and you can avoid legal hassles.
Similar Gigs to Check Out
If the stress and legal hassles are too much for you, there are other alternatives to earn extra income.
Here are some alternative business ideas to consider:
- Start a Car Rental Business: If you love the idea of being your own boss and are a people person, you could consider starting a car rental business to make some extra money.
- Start a Laundromat Business: If you’re looking for a profitable, recession-proof business, you could open a laundromat to keep the money rolling in every day.
- Start a Cleaning Business: If you’re ready to enter into a new niche with little to no startup cost, it’s worth starting a cleaning business to make money.
Wrapping Up
Renting a property is a great way to earn a steady income. That’s if you have what it takes to become a landlord, of course.
Hopefully, our comprehensive, step-by-step guide has helped you determine if being a landlord is for you and figure out what steps you need to start this new career.
Share your thoughts about this article in the comments section below, and feel free to send it to others who might be interested in rental properties.
