A Few Tips that Might Be Helpful for First-Time Landlords

Lessons from the Pros

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We know that millions of homes have been foreclosed on since the economic downturn started in 2007. This has turned many homeowners into renters. According to the USA Today analysis of the 2010 US Census data, there has been a nearly 34 percent increase in rentals over the last decade. That equates to nearly 35 percent of all occupied homes are now rentals.

Also, according to USA Today, 25 cities went from over 50 percent home ownership in 2000 to a majority of renters in 2010. Some of these cities include: Baltimore, Minneapolis, Salt Lake City and Sacramento. Other cities that saw significant jumps were Irvine, CA with an almost 10 percent increase in renters and Philadelphia and Birmingham had over a 5 percent increase in renters.

According to the Census data, the number of renters nationally has increased nearly 700,000 a year since the peak of homeownership in 2006, and the number of owner households has shrunk on average over 200,000 a year. This shows that there has been some household formation, but all of it in the renters market.

So, the data would suggest that there must be more landlords out there. Whether it's your first time as a landlord because you're a new investor or because you can't sell your home, you might need a few tips.

First, and what I feel is one of the most important things to know is: Will the property cash flow? There are several things to take into consideration when looking at the cash flow of a property: Operation expenses which include insurance, taxes, repairs, homeowner's dues and so on. There is also the debt service expense (the loan payment). We cover the calculation of NOI (Net Operating Income) and CADS (Cash After Debt Service) in the Professional Real Estate Investor Class which helps with your assessment. These are a couple of simple equations that let you know whether the property will be profitable on a monthly basis.

It's very important to know the market and the ability to rent the property in that market. You need to know what your ideal renter will look like. You need a profile so you can market correctly to get the best possible tenant. If the property is in a family-orientated neighborhood with great schools and shopping, you don't want to be using a website that markets apartments for young single adults. Find the right tools for the right markets.

Knowing what to rent the property for is also key to success. There are several websites that can help with pricing; in class, I recommend www.rentometer.com. But there is no substitute for driving around the area and calling on similar properties for rent. Also, know when to reduce rent. Experts advise that if a rental home is listed for longer than about 30 to 45 days, it might be time to reduce the rent. I believe strongly in keeping my rents just below average. This makes my property desirable with a large pool of applicants to choose from.

Speaking of applications, rental agreements, leases, deposit forms, pet agreement forms....you get the idea, you may ask yourself, "Where can I find all these forms?" I belong to an association for apartment owners. I pay a membership fee once a year and have access to all these forms. The association keeps them up-to-date with regard to the current laws so I don't have to worry about the legality of the forms. The association also provides me with easy access to credit checks of the applicants.

You should also look into your state's laws about the legal limits for occupancy per unit. The Department of Housing and Urban Development (HUD) has a set of guidelines for occupancy. Many states adopt these guidelines. Minimum criteria are determined by maximum occupancy by square footage. The minimum square footage in a dwelling is 120 square with at least an additional 70 square feet for a kitchen. The maximum residency for this space would be two people. Each additional person sleeping in a room requires an additional 50 square feet. Personally, I feel that two people per bedroom is a reasonable guideline.

My last piece of advice is to hire a management company and figure it into your cash flow equation; now that makes being a landlord easy.

Source: http://www.fxstreet.com/education/related-markets/lessons-from-the-pros-real-estate/2011-08-23.html

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