After taking the leap into landlordship, you’re eager to sign your very first tenants and start earning passive income. But before you rush to sign a lease, are you certain you’re ready for tenants? Managing a profitable rental property requires more than an iron-clad lease. It requires good math, careful preparation, and a solid understanding of what you want in a tenant — and what they want from you.
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Plan Your Business
One of the steps involved with launching a rental property business is setting up the company structure. Though there are a dozen entity types recognized by state governments, one legal business entity type that is very popular because of its flexibility is a limited liability company, or LLC. There’s another reason it’s very popular: It can be completed in about five steps, depending on a few variables related to Maryland’s requirements. You can make this an easy process by utilizing an online formation service
Work with a Property Manager
For those who have never owned a rental home, hiring a property manager is a good idea. For a modest investment, a property management company will take care of the day-to-day details that will help your venture be profitable, including collecting rent, getting repairs taken care of, and cleaning the property between tenants. Many real estate companies also offer property management services or can refer you to a top-rated agency, so ask your Realtor for recommendations.
How to Price Your Rental Property
Rent should be enough to cover the mortgage payment, taxes, insurance, and set a little aside for repairs. However, that’s not the whole picture when it comes to pricing a rental property. You also have to factor local market conditions. Setting the rent too high could cause your property to sit vacant, while pricing it too low could mean losing money.
To price your rental property, compare it to similar homes in the same neighborhood and talk to your trusted Realtor. Don’t just pay attention to the number of bedrooms and bathrooms. A home’s appearance and amenities also affects its rental value. Is your property updated and well-maintained, or is it lackluster compared to rentals at the top of the local price range?
How to Prepare Your Property for Renters
Don’t expect to list your property as-is and fetch top-tier rents — nor top-tier renters. If you want to reap higher profits from your rental property and boost its value, consider investing in affordable upgrades first.
Painting is perhaps the easiest way to make your investment property look clean and inviting. Interior painting is important because it erases old smells, but don’t underestimate the impact of exterior paint. While it’s a big project that can cost thousands depending on square footage, height, and siding material, fresh paint hides the little flaws that make a property look drab from the street and, in turn, makes your property more desirable.
Another project that’s worthwhile (if a bit costly) is replacing kitchen appliances. Many investment properties come with old appliances that have seen lots of wear and tear over the years. Rather than buying top-of-the-line new appliances, save money with gently used appliances in modern finishes like stainless steel and matte black.
If you really want to raise the value of your rental property, install a washer and dryer (installing a dryer costs $396 on average). Doing laundry at a laundromat is expensive, and renters will pay a premium to avoid the cost and inconvenience.
How (and Where) to Find Good Tenants
These amenities don’t just help investors maximize the monthly rent check. They also help attract quality, long-term tenants. People who care about a home’s condition are more likely to treat it like their own, reducing what you spend on repairs and turnover. Long-term tenants will also be attracted to amenities that are good for families, like an updated kitchen, laundry, and a fenced backyard.
As for where to advertise your rental property, that depends on the local market. In a city where rentals are in high demand, simply putting a sign in the yard could be enough to have renters knocking on your door. However, most landlords have to do a little more legwork to find tenants. In addition to posting on certain rental sites, remember that your Realtor is the best source for help, and many offer rental listing and property management services. Included in a rental listing, the real estate company will screen the tenants, get the security deposit and first month’s rent, coordinate the lease signing, and if the landlord chooses, manage the property.
Renters want more than a place to live — they want a home. Luckily, creating a space that tenants will love is good business for property investors, too. When you invest in your rental property and price it right, you make it easier to find the kind of tenants that make landlording worthwhile.
Written by Natalie Jones of Home Owner Bliss
Image via Unsplash