Stop me if you’ve heard this before. Actually, don’t stop me. I’m kinda on a roll.
You’ve been living in a house for a couple of years, and life is good. Your girl constantly walks around naked, there’s throw pillows all over the place, (which, for some reason, you’re not allowed to use as actual pillows) and it mostly keeps the bugs out. You have a booze cupboard and a chips cupboard, and maybe even a basement. But then, one day, you get an awesome job offer in another city. It turns out Berlin needs a guy to walk around the red light district and make sure the hookers are attractive enough. What a job, right? Ah, if only real life was as interesting as my fantasy world.
So you look to sell your house and go buy a new place there. You invite your friendly neighborhood real estate agent over, (just kidding, they are all THE SPAWN OF SATAN) and she tells you the place is worth $20k less than what you paid for it. You’ve got one of two options. You can ask the bank for debt management help, but I’m not sure that’s going to happen. Or, you can do what many people are doing – especially in the United States – and that’s renting out your underwater house.
Many personal finance bloggers are taking this route, choosing to keep their current houses and rent them out. And, as an actual landlord, it kind of amuses me. As Holy Potato once pointed out, somebody who rents out a former home is more of a speculator and less of a landlord. They’re just kind of dabbling in the arena. As long as they make enough to cover the mortgage, they’re happy.
And hey, I understand there are different motivations for someone who is just dabbling in the space compared to someone like me who actually makes money at it. Which is fine and good, but that still shouldn’t stop you from actually profiting from this endevor. So, for your viewing pleasure, here are some ways amateur landlords screw up. Once you read these tips you owe me 5% of all your future rents. NO TAKEBACKSIES, SUCKERS.
Being a landlord is kind of like walking a tightrope, except without the fear of a certain death if you slip up while scratching your nose. You want to make as much money as possible, but you still want to have a place where people want to live.
What most people do wrong is they look at the place from their perspective, rather than a renter’s perspective. They look at carpet that’s in fair shape and think “I have to replace this because I wouldn’t want to move into a place with kinda crappy carpets.” Meanwhile, a renter will look at the same room and might not even notice the carpet. It all depends on what price range you’re looking at. If you’re somewhere in the middle of the market, renters will tolerate small imperfections. Plus they’re hoping you won’t notice when they spill stuff on it, because we are all disgusting slobs.
Here’s the deal. While renters are a generally respectful bunch, nobody is going to treat your place as well as you treat it. You own it. They just rent it. When your renter moves out, you will notice a whole bunch of little things – dings on the wall, stains, stuff not cleaned that well – and they will drive you insane. Fixing all these little problems will cut into your profits. Remember, this is a business.
Not Doing Proper Paperwork
There are some bad people out there. Did you know there’s a whole subset of the population that insists on eating Chunky Soup with a fork? DIE IN HELL, MONSTERS.
There are also professional dirtbags who prey on unsuspecting landlords. They get into a place that’s managed by somebody who doesn’t have a clue, they pay one month’s rent, and then they don’t pay another dime. It takes months to get them out, especially if you don’t know what your doing. Chances are you’ll cry over it, and nobody wants that. I’d give you a hug, but I’m not really a hugger. Fine, I’ll shake your hand. Weirdo.
How do you protect yourself from people like this? Simple, do your homework. Have a detailed application form. Take copies of ID. Actually check his credit rating. Insist on references, and actually call said references. Call your applicant’s employer and ask his boss what her opinion is. (Just kidding. Like a girl can be the boss.) Get to know your tenant. If he’s a professional dirtbag this will scare him off.
Also, while I’m on this topic, make sure you do an inspection when they move in. If there’s no inspection when your tenant moves in, there is zero proof any damage is caused by the tenant. Plus, if you ever go to court, the judge will ask for it. And then he will ask you to put on pants. I’m not very good at court.
Unless you live in a crummy market, there’s no excuse for vacancy.
I don’t care if you’re doing renos. Show the place during the renos. Don’t procrastinate getting your place listed, do it THE DAY your current tenant gives their notice. If you’re on top of these things you shouldn’t have to go a minute without a renter and those sweet, sweet rent cheques.
Property managers are great for the amateur landlord. They take care of everything and usually you’ll still make some money after they get paid. They screen the tenants for you, and they’re not too bad at it. You’ll save a bunch of work and a bunch of reading up on tenancy law, which is worse than the typical Yakezie blog. For the most part, hiring a good property manager is something you should do.
There’s one big caveat though. Remember, property managers want a place to rent quickly and without hassles. Which means they’ll often push you to change things that might not need changing or they’ll set the rent a little under market. Their motivations are different than your motivations. Remember that and you’ll be okay.
Is This Thing Over Yet?
Here’s the deal, wannabe landlords. Start looking at your rental house as a business, not as something you do to make a little extra cash. Minimize cosmetic repairs, eliminate vacancy, and maximize your profit. Nobody wins if you half ass it.