Many people are like me: they had no desire or motivation to become a landlord. Maybe they think that landlords are all rich people trying to make a buck off people with less. Maybe they heard a bad story about a broken toilet in the middle of the night and resolved they would never have that problem. Maybe they thought it was just too expensive to buy that investment property. For me, it was simply thinking I didn’t have enough time.
Then, one day, we decided to build a home but we needed a place to live for the year it was constructed. We considered renting, but couldn’t find anything, and we wound up buying an REO (Real Estate Owned, property owned by the bank, usually from a foreclosure). That’s how we got the house I call Dumpy. We planned to sell, and when our new house was finished, we considered putting it on the market. But at that time, the market wasn’t great and we would have made very little money. Our real estate agent presented us with a crazy idea – rent it out for a while. He happened to have two people that wanted to buy a place but their credit was too low. Perhaps they would live in it and buy it later. He connected us free of charge and I’m forever indebted to him for that suggestion that put me on the path to where I am today.
Most accidental landlords come to it from a family inheritance. They probably hadn’t expected it and when their uncle died, the house was bequeathed to them, possibly with tenants built in. It’s a scary proposition to suddenly have a property and tenants to work with, but it usually is easier than trying to sell, so they kind of slide into the landlording business. This critical time determines whether they will continue investing or give it up forever. If they have a bad experience, they’ll resolve to never do it again. Here are a few ways to make it a good experience:
- Get the tenant on a good lease. Pay the money to involve a real estate attorney. If there is a current lease, as soon as the term is up (usually 1 year) then have them sign a new, quality lease, put together by your attorney.
- Be a good landlord. This costs money but pays dividends. If the toilet is broken, pay a professional to fix it. Don’t try to DIY that thing at midnight and make it worse. Determine expectations for repairs and rent payment with the tenant up front and stick to the expectations. Being a good landlord also means understanding when a tenant has a life-issue and helping them. It also means continuing to expect rent payments. Each of you have one side of your agreement to uphold.
- Get a bookkeeper and accountant. This is often overlooked because it is expensive. Trying to do the books yourself can make you pull your hair out. It’s not fun and you won’t do a good job. You certainly are thinking: it’s just one property, I can handle it. Maybe you can, but you won’t be able to when you scale up your investing. Further, the accountant can give you big help on your taxes and you won’t find this help in free online tax software you are using right now.
- Restructure the mortgage. If you are lucky, you’ll inherit the property free and clear, but more likely you’ll have a mortgage to deal with. You’ll need to have a look at the mortgage terms. Try to keep paying the mortgage in its current form if they are good terms. If not, talk to the bank about a new mortgage that’s more favorable. If you own it free and clear, then consider starting a line of credit on the place so you can either make repairs as they come up without dipping into your personal funds, or you can take out money to purchase the next property.
- Celebrate your great accomplishment when you see the rent check come in by the 5th of the month!