Author Topic: First Step into Landlording - What do I need to Know?  (Read 474 times)

Valley of Plenty

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First Step into Landlording - What do I need to Know?
« on: July 28, 2020, 08:03:33 PM »
Hey everyone. Some of you may have seen my post a couple months ago about looking into purchasing my first rental property. Specifically, I said that I was looking to do a house hack, i.e. buying a multi-unit property, living in one unit and renting the others out.

I found the perfect deal, and have started the buying process. Property is a triplex in a fairly good part of town, within walking distance of grocery stores, library, gym, and post office. Currently only one unit is occupied, with a tenant that has plans to vacate before closing. Their unit is move in ready and the other 2 are very nearly there (some flooring needs redone, paint touched up, etc). At least a portion of the roof is going to need replaced within the next couple years, but that's the only major capital expense I can foresee. Both the seller and I have signed off on the sales agreement and we're now waiting for the bank to get everything processed on their end before scheduling the appraisal.

Now that I'm likely less than 2 months away from acquiring this property, it seems like a good idea to start preparing for what I'm going to do once I have it. What should I do to prepare myself for my first foray into real estate investing? Is there any research you all would recommend that I do beforehand? What all do I need to see to before placing tenants in these units? I feel I have a pretty good understanding of the basics, but I value the experience and insight of the Mustachian community.

All input welcome!


NonprofitER

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Re: First Step into Landlording - What do I need to Know?
« Reply #1 on: July 29, 2020, 06:59:54 AM »
Great question, and congratulations!

Did you already check out Bigger Pockets.com?  It's a great resource. I fully recommend most of the books they publish, but in particular, Brandon Turner's book on Managing Rental Properties.  His book also comes with templates you can tweak if you plan to self-manage (applications, move in inspection checklists, notification letters, etc.).  I believe the BP website also has state-specific forms you can download. 

I would say the biggest things you need at the beginning are:
-a strong tenant screening process (if you plan to do this yourself - or strong parameters if you plan to outsource this to a realtor or placing service),
-a plan to collect rent - mailbox if you plan to allow checks, electronic payment options (using a resource like Cozy, Tenant Cloud, etc.)
-Move In paperwork/packet for tenants (Move In Inspection checklist, contact info, reminders, list of what tenant is responsible for and what constitutes an emergency or maintenance request, names/numbers of utility companies if tenants pay their own utilities, etc.)
-Bank account for the rental that's separate from personal funds to keep track of expenses, security deposits (depending on local laws), etc.
-I recommend a Google Voice number for your rental/tenants, so they don't necessarily have your personal cell and you can distinguish between personal calls and rental-related calls


Valley of Plenty

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Re: First Step into Landlording - What do I need to Know?
« Reply #2 on: August 01, 2020, 08:18:56 PM »
Great question, and congratulations!

Did you already check out Bigger Pockets.com?  It's a great resource. I fully recommend most of the books they publish, but in particular, Brandon Turner's book on Managing Rental Properties.  His book also comes with templates you can tweak if you plan to self-manage (applications, move in inspection checklists, notification letters, etc.).  I believe the BP website also has state-specific forms you can download. 

I would say the biggest things you need at the beginning are:
-a strong tenant screening process (if you plan to do this yourself - or strong parameters if you plan to outsource this to a realtor or placing service),
-a plan to collect rent - mailbox if you plan to allow checks, electronic payment options (using a resource like Cozy, Tenant Cloud, etc.)
-Move In paperwork/packet for tenants (Move In Inspection checklist, contact info, reminders, list of what tenant is responsible for and what constitutes an emergency or maintenance request, names/numbers of utility companies if tenants pay their own utilities, etc.)
-Bank account for the rental that's separate from personal funds to keep track of expenses, security deposits (depending on local laws), etc.
-I recommend a Google Voice number for your rental/tenants, so they don't necessarily have your personal cell and you can distinguish between personal calls and rental-related calls

Thanks, these are all great suggestions!

I do plan to do my own tenant screening, management, etc. I'm not looking to outsource anything at this point.

I've never heard of doing move-in packets, but that seems like a good idea. Renting in my area tends to be very informal and somewhat messy, so I'd like to stand out from other landlords as someone who really has their shit together.

I hadn't even thought about using Google Voice but that's definitely a great idea, especially since I plan to set up an LLC for my rental properties in the near future.

Evie

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Re: First Step into Landlording - What do I need to Know?
« Reply #3 on: August 02, 2020, 03:01:43 PM »
1) Buy the landlord tenant guide from NOLO press for your state. They are a legal press that provides contract templates and great coverage of the laws you need to follow and if you only read one book it should be this one IMHO.  It provides a legal overview of all the rules (but depending on your city you may have additional research to do). I prefer the physical copy for skim reading. Many libraries actually have this. 

2) Buy the NOLO press guide for landlord tax deductions--read it and then hire an accountant to help you deal with the tax implications (which can be super advantageous but need to be done correctly (along with depreciation). I always did my own taxes before (and they were super complicated with W2, two types of 1099 income, tuition income etc) but for liability reasons in case of an audit and in order to maximize your deductions and advantages I don't recommend landlords handle it themselves. I pay about $400 a year for this in a high cost of living area and think it's been worth it for me.

3) Figure out your screening process.  Absolutely you want to run credit check and background check on everyone. I personally require high credit and three times income for the rent and use applications to only prescreen people I think will qualify then have them pay for and run the background check through mysmartmoves.com (though some states have started restricting the cost for background/application/credit checks so make sure the cost complies).  I always call references--you would be amazed the crazy shit people will tell you.

4) I add a few additional restrictions to my leases--they must maintain utility service continuously (to avoid someone not paying a water or electric bill, getting shut off and thus violating habitability requirements), have to register all vehicles on the property to avoid abandoned vehicles, and everyone over 18 on the lease and do a background credit check no exceptions. I also ban smoking anywhere on the property and am very strict about this.

5) Do not rent to friends.  Just don't. The only time I had a tenant break a lease earlier it was a friend.  You will probably ignore this advice (everyone has to make this mistake themselves) but I say it out of caution so when you do it and it goes badly you can at least have some extra savings and your spider senses up to cover you.

6) Plan on vacancies. I didn't get our back unit on our duplex rented until we had been living in the property for six months.  It took time to get ourselves moved in, settled, clean things up and get our process dialed in.  In the time you aren't in the unit SHUT OFF THE WATER AT THE VALVE!  That way if your old water heater fails (like ours did when no one was living in it) it won't leak everywhere.

7) Read read read about advice on tenant screening, experiences land lording etc.  Bigger Pockets as was already mentioned is great for this.

8) Have money set aside to cover unexpected expenses.  Get three quotes for all work. Wait to do any remodeling until you have lived in the unit. Don't go crazy over improving but definitely keep things up and plan to spend money between tenants.

9) Have consistent rules and communicate expectations up front, and address any problems (like tenants parking in the wrong place or storing items where they shouldn't immediately upon move in and don't let it go to avoid conflict).

10) If all your showings and prospective tenants just seem off pull it off the market and wait. We got stuck listing in March one year which is off cycle for our market and the people who came by were just not qualified, totally nutty, or clearly couldn't read and follow the listing.  We yanked it, hosted some international students for a few months then listed in the summer and got great tenants.

11) Even if you are handy have 2-3 plumbers, electricians, handymen you like and trust already identified so you can fix issues within 24 hours.  We've had the only toilet in a unit go out, or a water heater fail and sometimes even if you can fix it yourself if you aren't available you just need to get it fixed quickly. 

12) Find a good move out cleaning company.  In my market it took me calling through 15 companies to find someone I trusted that is affordable and does a great job. I only use them now, but you don't want to leave this for the last minute if you have someone moving in on a deadline.

Overall, our duplex has been a great investment, and we have been really lucky by sticking to strict tenant screening, making improvements over time, and handling the property management ourselves.   

 

Evie

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Re: First Step into Landlording - What do I need to Know?
« Reply #4 on: August 02, 2020, 03:04:29 PM »
Oh, and congratulations! 

SwordGuy

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Re: First Step into Landlording - What do I need to Know?
« Reply #5 on: August 02, 2020, 04:10:25 PM »
Did you run the numbers?

What will be your Cash-on-Cash return and your Net Operating Income for a year?   With what vacancy % and how much for initial renovations and how much or repair set-asides?


SndcxxJ

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Re: First Step into Landlording - What do I need to Know?
« Reply #6 on: August 02, 2020, 08:35:51 PM »
When I started I became a member of my local rental property owners association.  They exist in a lot of places, hopefully yours.  My local chapter teaches classes on various topics like how to read credit reports, writing rental agreements, lead based paint remediation, you name it in rental property they address it.
They also offer free legal advice, up to date forms, and partnerships with decent companies that you can use to run credit, sub meter utilities, again basically anything you might need. 
I first became a certified property manager through one of their courses, which taught me all the basics including how to serve notices, and a full understanding of the rental process and associated legal forms.  I found the course super valuable.