Essential Tips For First-Time Landlords

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For many people, becoming a landlord for the first time means they are making a big step forward in their financial lives.

When they begin to rent their properties as an investment, they can earn “passive income,’” create a wealthier future, and have an opportunity to grow the potential for their investments through rental homeownership.

However, being a property owner can also bring responsibilities that would surprise many first-time landlords. First-time landlords usually enter the rental business with excitement but little current experience.

To be successful, the first-time landlord must be well-prepared and well-organized, and approach property management in a businesslike manner.

In this article, we at Compass Property Management will provide some important information and advice that all first-time landlords should know before renting out their property.

1. Consider Your Rental Property as a Business

For first-time landlords in Michigan, one of the most significant transitions in their thinking is the recognition that being a landlord is a business.

Many first-time landlords have an emotional connection to their investment property and often make decisions based on that connection. This is especially true for those who are renting out their former primary residence.

However, good property management requires objective decision-making about pricing, maintenance, resident selection, lease enforcement, and financial planning.

2. Understand the Local Laws

Before you start renting out your property, you must have a basic understanding of the laws that govern landlords and residents.

Many new landlords believe that the only applicable rules to rental transactions are those contained in the lease agreement. This is not the case.

There are several legal areas a landlord must comply with, including:

• Security deposit laws.
• Fair housing laws.
• Habitability standards for rentals.
• Eviction procedures.
• Notice requirements.
• Resident privacy rights/entry rights.

Landlords can face fines, lawsuits, or delayed enforcement if they fail to comply with applicable law.

4. Carefully Screen Your Residents

Choosing a resident is among the most important things a landlord does. New landlords sometimes hurry through this step of the rental process out of desire to avoid a costly vacancy period and generate cash as soon as possible.

Additionally, some landlords put too much weight on their intuition when deciding on residents rather than utilizing some type of objective criteria. “Trusting your gut,” and not resident-screening rules may land you in trouble.

To avoid breaking the law, a thorough screening should only include:

• A credit check.
• Verifying income.
• Verifying employment.
• Evaluating rental history.
• Verifying references.

The goal of a good screening is to find a dependable resident who will pay rent on time, comply with the lease, and take care of the property responsibly.

5. Establish the Appropriate Price for Rent

Establishing the appropriate rental price for a property is crucial to balancing profitability and occupancy.

Overpricing a rental property can result in:

• Extended vacancy duration.
• Decreased quality of applicants.
• Negative financial impact from loss of income.

Similarly, a rental price that is set too low may have a negative effect on long-term profitability. Typical aspects of rental properties that should be used in determining a rental price:

• Types of rental properties located in your neighborhood.
• Overall demand for rentals in your area.
• Condition of the property.
• Amenities provided.

It’s important to establish and evaluate Key Performance Indicators (KPIs) early so you can maximize your rental income.

6. Have a Written Lease Agreement

A detailed written lease will provide both landlords and residents with a clear understanding of what their obligations and rights are.

Generally, first-time landlords make the mistake of utilizing generic lease templates or relying on verbal leases that fail to define key issues.

Therefore, a detailed lease document should establish the following items:

• Rent amount and due date.
• Security deposit requirements.
• Who is responsible for maintaining the property.
• How many residents can live in the rental.
• Pet policy.
• Length of time the resident will rent the property.
• Legal action that will be taken against the resident for violating any of the rules established by the landlord.

We’ve also written a more detailed guide to lease agreements to help landlords in Michigan.

7. Understand the Total Cost of Owning Rental Property

New investors making the transition to becoming a landlord often focus mainly on the mortgage payment without taking into account all other expenses associated with owning rental property, or how those expenses can be remedied.

Some examples of expenses you should anticipate include:

• Property taxes.
• Insurance.
• Maintenance.
• Repairs.
• Vacancies.
• Landscaping/lawn care.
• Utility bills during vacancies.

As well, occasional unexpected repairs may happen, such as:

• Plumbing issues.
• Hvac malfunction.
• Roof leak/leakage.
• Replacing/repairing appliances.

Having adequate cash reserves is paramount in making sure you can afford the long-term costs associated with being a landlord.

8. Establish a Preventive Maintenance Routine

Preventive maintenance is one of the best ways for new landlords to keep both their residents satisfied and their rental property’s value intact for years to come.

Some first-time landlords will ignore repairs and other maintenance in their rental homes to save money, only to find they will wind up spending more on these necessary repairs if they had done them when needed.

Conduct move-in , move-out and routine inspections of your rental home. Immediately adressing repairs will also keep potential larger issues from occurring while helping your rental property maintain its current condition.

Final thoughts

The journey of a first-time landlord can be financially rewarding and extremely challenging from a professional perspective.

In addition to generating income and providing long-term financial stability, owners of rental properties must also take into account the many factors that contribute to the overall success of their real estate investment.

To that end, the best option for first-time landlords is to hire Compass Property Management .

Our preparation, professionalism, and practice of repeatable, consistent, operational processes can magnify the level of success experienced in an ongoing rental business.