Is A Rental Property Investment For You?
I have shared the entire process of every flip house we have done. Matt and I love the flipping process and wish we could do it more often. We aren’t complaining. We both work full-time and have two kids that keep us very busy, so the rate we are flipping houses right now is probably where we need to be. Flip houses aren’t easy to find, but we have found there are ways to finding the right flip house. One of our “flip houses” was actually a duplex we bought a couple of years ago. Matt was really pushing to get a rental property so we finally did the one thing that made that happen. We were looking at houses and small apartment complexes at first. Then, a duplex came to us out of the blue. It was the perfect solution for us to try renting. When we bought the duplex, the long-time renter in the lower unit was going to stay. That was great news for us! We were able to have rent coming in while we fixed up the upper unit. You can see that full makeover HERE. Since we have had the duplex, I have gotten many questions (in person and online) about renting and if it is something anyone can do. We have learned so much since having the duplex over the past couple of years and I am now comfortable answering those questions and statements here.
Is a rental property investment for you? This post will go over the things we have learned, the questions I get asked the most and the “falsehoods” I hear the most. I want you to walk away from this post with a better understanding of what rental property investment entails, so you can answer the question, “Is a rental property investment for you?” with clear certainty.
I am going to start by being completely honest. I do not think rental property investments are for everybody. The reasons I say that are listed below, but that is my short answer to the title of this post. 🙂
Is A Rental Property Investment For You?
- Do you need a certification?
This may depend on where you live. For years, we didn’t have to do this, but after having some “slumlords” in the area, we are now required to take classes and all rental properties need to be inspected by the city every few years. Check with your city to see what the rules are.
- You Make A Lot Of Money With Rental Properties.
There is a misconception I hear all the time. Having rental properties is a “get-rich-quick” scheme. I wish that were the case, but it isn’t. I could spend an entire post just on this alone, but I am going to try to keep it minimal here. When you invest in rental property, you HAVE to be thinking long-term. Don’t go into it thinking you are making money when you collect your first rent check. Think if it more like a retirement plan. You won’t get the money for many years. Not only should you be thinking about a rental property as a long-term investment, but you have to think about the cost up front. People buy properties in all kinds of ways. Pay cash. Get a mortgage. Have private investors, etc. Depending on how you are financing your rental, you may have a mortgage that needs to be paid every month. Along with that bill, comes all the repairs and maintenance that are guaranteed to show up. You also have to pay taxes and insurance on the property and you may have to pay utilities (depending on what you have your renters pay). There are costs that come with owning a rental property and seeing “income” right away is not the goal in investing in rental property. When we bought our duplex, the top unit needed a lot of work. We had to put in a new furnace for both of the units and the roof needed replaced on the garage recently. We also had to replace windows, carpet, appliances and flooring in the upper unit. Soon, we will have to do some work on the lower unit because our tenant is moving out. These are all EXPENSES, not income, with our rental investment. After you have the property for a while, you are able to build up some funds with the rent coming in to cover these costs, but initially, it is all up to you. If you are wanting a quicker return on your money, you should be thinking about a flip house and not rental properties.
- Finding Good Renters
This is the hardest part about rental properties. SO HARD! We have been lucky and have had a great guy in our lower unit since we bought the duplex, but he will be moving out soon. He has never missed a payment and has always paid his utilities. He has been a dream renter. We know we will have to do a lot of work/updates to his apartment when we moves out, but other than that, he really has been a great renter. We have also had the other experience of a not-so-great renter. This renter didn’t pay rent on time and would miss utility payments. When that is happening, it is a lot of extra work for you as a landlord. It is like babysitting an adult who doesn’t want to adult. It is very frustrating. Do your research when people are applying to rent from you. Make sure you check backgrounds and many references. Checking references from past landlords is also important. They are going to tell you what kind of renter the person is. If you can get a good renter who is happy with the property, you have it made. Do whatever you can to keep them there for as long as you can.
- Communication Is Key
Keeping open communication with your renters is important. Talking to them and visiting the property often is essential. If things aren’t going as agreed on in the lease, that needs to be communicated ASAP. If something is wrong with the property, you want the renter to communicate that with you immediately. Having open communication is essential to making it work, so both sides are happy and getting their end of the deal.
- Rental Properties Is A Business
THIS IS A BIG ONE! We have had to learn the hard way about this, and by “we”, I mean Matt. Matt was the one who pushed for a rental property hard. He had to sell me on it for a bit. When our duplex was being rented by two guys, Matt thought it would be best if he dealt with them and the rent, etc. Matt is great, but in the rental business, he is too nice. If you give your renter an inch, they will take a mile. Owning rental properties is a business. It is not personal. If you don’t think it is a business, don’t invest in rental properties. As the owner, you have a job in the business. Your job is to make sure the lease is being upheld by the renter. If not, you need to take the actions that are stated in your lease right away. If you don’t follow what is in the lease and start being lenient about when rent can be paid or by not enforcing late charges, you have lost control of your business. Period. There is no gray area here. You are running a business.
When someone is signing a lease with you, review the terms of the lease with the renter when they are applying and when they move in. They need to know what your rules are and how things are going to be. If things start going different from what is stated in the lease, you have to communicate with the renter and take the next steps as stated in the lease. Example: If rent isn’t paid by such and such date, you will be charged a late fee. If rent isn’t paid in 10 days after that, we start the eviction process. YOU HAVE TO FOLLOW YOUR LEASE BY THE BOOK. This is something that Matt is still working on and something that is a bit of contention between us. This is where we struggle. I don’t like being taken advantage of. I don’t like it when people are messing with my finances, business or money. I have told Matt that I would take it over, but he hasn’t wanted to do that yet. We are still learning and I am trying to bite my lip. 🙂
- Do You Like Being A Landlord?
If you have great renters, it is great. If you don’t, it isn’t great. When it isn’t great, it is a lot of babysitting and extra work on your part. One thing that I think people don’t realize about being a landlord is that YOU are the person who has to deal with anything that goes wrong (unless you have someone else handle that). If something needs fixed, you are the person to call. When someone doesn’t pay rent, you have to deal with it. When neighbors contact the city because the grass hasn’t been cut, you are the one getting the notice in the mail. You are the owner of the property and when things aren’t right, you are the one who has to handle it. That may mean you have to fix the problem yourself or get the right people to fix the problem. It all starts with you. Matt has been called at work when there was a leak in one of the apartments. He couldn’t fix it, but he had to deal with it and get the right people there to get it fixed.
- How Do You Get Rent?
You can get rent in many different ways. For us, what has worked the best is going to the duplex and picking it up in person. If you are able to do this, I would highly recommend it. Picking up the rent, in person, at the property, gives you a chance to look at the property at least once a month. We have two units and the rent is set up at two different times of the month, so we are there twice a month. It is a great way to keep an eye on the place and know what is happening on a regular basis.
- Do Your Renters Pay Utilities?
We have our tenants pay all utilities. You don’t have to set it up that way, but we do. If you are having the tenant pay the utilities, make sure the utility companies have your contact phone on file so that if a payment is missed or not paid, they contact you right away to let you know. When a tenant wasn’t paying the utilities, the companies were calling our home phone and leaving messages. We don’t check those messages often, so we didn’t know they weren’t being paid. We called all the companies and made sure our cell phones were on file instead so we would get the message right away.
- How Do You Pay For Things That Need Fixed?
As soon as you get a rental property, set up a separate account that is just for that property. All rent that is paid goes into that account. Then, when taxes are due or you need to fix something, you take the funds out of that account. That way, everything is kept in one place and you aren’t having to move money from different accounts. In the beginning, you will have to fund it with your own money, but after some time, you will hopefully have rent coming in and can use that account to pay for expenses.
- Odds & Ends:
- If you have a renter move out, change the locks on the doors. Who knows how many keys the renter made or gave out.
- Every investment comes with risks and challenges and rental properties are no exception.
- Make your property nice, but don’t overspend on a makeover or upgrades.
- Make sure you add lawn care and snow removal to your lease agreement. Do you want the renter to take care of that? Are you responsible for it? Either way, put it in the lease contract.
- Make sure your lease is good. Have an attorney look it over to make sure you have everything you need in it.
- Know your lease inside and out.
- Get insurance on your property! Renters should get their own insurance, but you need to have insurance as owners as well.
After reading this post, I would love to know – Is A Rental Property Investment For You?
If you have any other questions or comments about investing in rental properties, leave them in the comments below and I will answer them in this post.
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