You took the time to scour the greatest neighborhoods diligently; you waited patiently to find the best property with the highest value, you hired a skilled real estate agent who helped you negotiate the lowest price and walked you through escrow—now what? If you made it this far, congratulations! You are now a proud owner of a rental property and poised to add a significant amount of money to your monthly income. However, once you’ve gone through the hard part, phase two can be a little fuzzy. If you find yourself wondering what to do next, these tips can help steer you on the right course.
1. Prepare the Property
Before you can even begin thinking about renting out your new property, you need to make sure it’s in tip-top condition—especially if the property was below market value and you made a fix-and-flip purchase. Even if its previous owner maintained it, the chances are that it’s somewhat outdated and could benefit from a fresh coat of paint and new carpeting. Give it some curb appeal with updated landscaping to turn heads as potential tenants drive by—after all, if the exterior of your property isn’t enticing, it’s less likely they’ll want to see the interior.
Don’t forget to contact utility companies and ensure that gas, electric, cable, and trash services are ready to go as well. You won’t be able to show the property if the light switch doesn’t turn on!
2. Set a Price
Setting the right rental rates can be a bit tricky. Do you set rent low to attract more renters and beat the competition? Or do you price high to achieve more profit and reflect an elevated status? There are several considerations to keep in mind when setting your price:
- What are comparable properties (comps) going for in the same neighborhood?
- What amenities would your tenants enjoy that could justify paying a higher price than the surrounding comps?
- What season is it? Across the country, demand for properties skyrockets during summer months, meaning you could charge a bit more.
- How long has it remained vacant? Remember that the longer the property sits unoccupied, the longer you’re responsible for paying off its mortgage and tax burden, meaning you might have to settle for a lower rent price.
- How much interest is the property receiving? If two potential tenants view the property at the same time, they may feel as though they’re competing against each other and might feel more pressured to act quickly and pay the asking amount.
If you’re having trouble setting the price yourself, use guidance from websites such as Zillow’s Rent Zestimate which can automatically predict the best price for you. You might also consider reaching out to fellow real estate colleagues to get a better idea of what they’re charging for different types of properties.
3. Create a Lease Agreement
Unless you’re experienced in legal matters, it might be better to rely on the help of a professional to draft your lease agreement for you. Either way, be sure it includes critical terms including:
- Names of all tenants (and the limits on occupancy)
- The term length of tenancy
- Rent price
- Security deposits and late fees
- Repair and maintenance responsibilities
- Right to legal access
- Restrictions on illegal activity
- Pet policy
You can always take advantage of free templates offered by LawDepot for a cheaper alternative than hiring a lawyer.
Finally, it’s time to start advertising your property across various classifieds! Once those applications come in, don’t be hasty—do your due diligence and find a fantastic renter that checks all the boxes. Screening your applicants is critical, so never sign a lease without obtaining a tenant credit report. You need to make sure they’re responsible for paying their bills on time or run the risk of going through a costly, time-extensive eviction process. Your tenant(s) should have an income statement that’s 2-3x higher than the rent price, reliable references, and a clean background check.
5. Perform Regular Maintenance
Once your tenant is in place and your rental income starts rolling in, don’t get too comfortable. Make sure they know you’re available to them at any time within a specified set of hours for repair requests as noted within the lease agreement, but that they can and should call you during an emergency such as flooding or the like—even if it’s at 2 A.M. If that sounds like too much of a responsibility for you to handle, consider hiring a property manager who can upkeep the property instead. Keep the landscaping clean, gutters cleared, smoked detectors active, and the regular TLC your property (and tenants) deserve.
Running a rental property business isn’t for everyone. But if it’s a venture you’d like to explore, start with these five steps and soon you can be on your way to signing your first lease!