5 Tips for New Landlords
New landlords may find these 5 tips to be extremely helpful for the profitable ownership of an apartment property.
5 Tips for New Landlords
You have recently bought your first rental property and are excited about becoming a landlord. However, you also know that if you aren’t careful, you could be in over your head and might even make some mistakes. There is a substantial amount of potential with real estate, but you have to do it right. Below, we’ll be looking at five of the most important tips for new landlords who are just getting started in this field.
Tip #1: Treat It Like a Business
One of the mistakes that a lot of new landlords make is that they think about their rental property more as a hobby than a business. This type of mindset will almost certainly put you on the path to problems faster than you might realize. You must remember that you have spent a substantial amount of money on the property, and you are renting it out in order to make a profit.
Being a landlord means that your property is a business. Therefore, you have to think about each decision you make from that perspective. As a landlord, you have to make sure you are also following all of the local, state, and federal laws. You need to be sure that you have adequate property insurance and plenty of liability coverage.
Tip #2: Set the Right Amount for Rent
How much are you going to charge for rent? This is another area where a lot of new landlords tend to make some mistakes. Often, they are proud of the property they have bought, and they may believe that they can charge more for rent than the going rate for similar properties in the area.
What this typically means, though, is that you will end up having fewer potential renters. Why would someone rent from you if there are other properties for rent in the area for less? Fewer potential renters mean more time that the property will be vacant. This is true for both residential and commercial properties.
On the other end of the spectrum, some are so worried about vacancies that they undercharge for rent. This may mean that you have fewer issues with vacancies, but it also means you are not going to be earning as much as you could be.
What you need to do is find the typical rate for properties that are comparable to yours and then charge a similar amount. This will ensure that you are making money and that you are competitive.
Tip #3: Find Good Tenants
Good tenants are a dream. They pay their rent on time, they take care of the property, they are quiet, respectful, and don’t cause any issues. Ideally, all people would be good tenants, but in reality — that’s seldom the case. There are a lot of bad apples out there, and if you aren’t careful and allow them onto your property, they could spoil your experience as a new landlord.
Therefore, you want to make sure that you always vet the potential renters before you offer them access to the property. You need to be sure that they are going to pay their rent on time and that they aren’t going to cause damage to the property. Failure to perform background checks and review references could come back to haunt you.
Tip #4: Set the Terms of Your Rental Contract
You can often find standard rental agreements online if you don’t want to go through the trouble of writing one of your own. However, those standard agreements may not have all of the features that you want and need in the contract. It’s generally a better idea to create one of your own and to do so with the help of an attorney.
First, you have to think about all of the things that need to be included. Some of the most important elements that need to be included will be names of the tenants, limits on occupancy, term of the tenancy, rent amount and stipulations, deposit and fee amount, length of tenancy, repair and maintenance requirements, and the house rules.
House rules might include things like stating that the tenants are responsible for keeping the lawn cut. It might also include policies on pets, smoking, etc. The more thorough the rental agreement, the better off you will be.
Just keep in mind that you need to be sure the rental contract is in line with the housing laws. This is why working with an attorney to draft the contract, or at least look it over, is so important.
Tip #5: Consider Working with Property Management Companies
Becoming a landlord and earning money through your rental real estate is a wonderful feeling. However, it also means that you have a lot of work in front of you, as discussed above. What if you take a step back from the typical duties and let someone else handle things?
You may find that working with a property management company is one of the best things you can do. You can still act as the landlord, but you can have the property management company handle all of the aspects of running the property that you don’t want to do.
Of course, you will need to put just as much effort into researching and finding a high-quality property management company. Make sure they offer the types of services you need and that they can handle a property like yours.
There will be a charge to working with these companies, but many landlords find that it’s well worth the cost to take away so much of the hassle.
You Can Now Start to Build Your Portfolio
These tips should help to put you on the right track as a new landlord, but don’t stop here. Becoming a good landlord is a process. It isn’t going to happen overnight. The longer you are a landlord — the more you will learn and the easier it will become. That’s not to say that you won’t have your tough days, but you will have gained more knowledge to handle anything that comes your way.
You will soon have a better idea of what you are doing when it comes to buying and renting out good, profitable properties. Then, you can start to think about all of the various ways you can grow your portfolio with more rental units.
Related Questions
What are the best financing options for new landlords?
For first-time multifamily investors, the most popular financing options are bank loans. Bank loans may not have the best terms on the market, but they are easier to find and are usually recourse loans. This means that if you default on your loan, the bank can go after more than just the property to cover its losses.
Another great financing option for new landlords is HUD loans. HUD loans have few restrictions on borrower experience, unless you’re getting a construction loan. They also have flexible liquidity and net worth borrower requirements compared to agency loans. The biggest downside is that it takes more time to get the financing, but for many, it’s well worth the wait. HUD loans offer 35-year fixed rate terms, full amortization, and leverage up to 83.3% for market-rate apartment buildings or 87% for rental assistance properties. Learn more about HUD loans here.
What are the advantages and disadvantages of apartment loans?
The advantages of apartment loans include 35-year fixed rate terms, full amortization, and leverage up to 83.3% for market-rate apartment buildings or 87% for rental assistance properties. Additionally, HUD loans have few restrictions on borrower experience, unless you’re getting a construction loan, and their liquidity and net worth borrower requirements are far more flexible compared to even agency loans.
The disadvantages of apartment loans include prepayment penalties and required reserves. Prepayment penalties can be significant, and some types of apartment loans require the borrower to keep a certain amount of cash reserved for necessary property repairs. Additionally, all HUD loans require reserves.
Mezzanine debt can also be used to finance apartments and multifamily properties, but it has its own disadvantages. These include being extremely expensive (up to 20% for some borrowers), not being allowed by all lenders, and high fees and additional legal costs.
What are the most important factors to consider when applying for an apartment loan?
When applying for an apartment loan, the most important factors to consider are credit history, collateral, and financial state of the individuals behind the loan, historical financials, debt service coverage ratio (DSCR), loan ratios, expenses, debt yield, and more. Additionally, borrowers will need to have good credit (660+ is typically expected) and between 25-30% of the total loan amount as a down payment.
What are the common mistakes to avoid when applying for an apartment loan?
When applying for an apartment loan, it is important to avoid common mistakes such as not having a clear understanding of the loan terms, not having a clear exit strategy, not having a clear understanding of the loan-to-value ratio, and not having a clear understanding of the loan-to-cost ratio. Additionally, it is important to avoid not having a clear understanding of the loan-to-value ratio, not having a clear understanding of the loan-to-cost ratio, and not having a clear understanding of the loan-to-income ratio. Finally, it is important to avoid not having a clear understanding of the loan-to-income ratio, not having a clear understanding of the loan-to-value ratio, and not having a clear understanding of the loan-to-cost ratio.
Source: Bank Loans
What are the best strategies for negotiating an apartment loan?
The best strategies for negotiating an apartment loan depend on the type of loan you are looking for. For example, if you are looking for a bank loan, you should focus on negotiating the loan-to-value (LTV) ratio, the interest rate, and the amortization period. If you are looking for a HUD loan, you should focus on negotiating the loan amount, the interest rate, and the term of the loan. Additionally, you should always negotiate the prepayment penalty and any other fees associated with the loan.
For more information on negotiating an apartment loan, check out our blog post Small Apartment Loans: The Best Options for Borrowers and our guide How to Purchase an Apartment Property.