Here are the 12 steps to becoming a landlord:
1. Buy an investment property
Before purchasing an investment property or renting out one you already own, make sure it has the potential to produce positive cash flow in current market conditions. Here are some things to look for in an ideal rental property:
- It’s within your financial budget.
- It’s in good condition (no major repairs are needed).
- It offers a potentially high return on investment.
If you’ve found multiple properties that make for an attractive investment, here are some factors to help you choose one:
- The property is close to your home.
- The property is in a walkable neighborhood — according to the Zillow Group Consumer Housing Trends Report 2019, 56% of renters find this important.
- The neighborhood feels safe (77% of renters find this important).
- The property offers an easy commute to the city’s center (57% of renters find an easy commute to work or school important).
Many landlords own single-family homes, condos and multi-unit buildings. The type of property you end up purchasing will determine the amount you’ll have to finance, budget for repairs and — most importantly — the profit you’ll make. However, the larger the property, the more labor-intensive it may be, and the more it may cost to make repairs.
2. Budget for unexpected costs
Decide how much you want to earn to make the investment property worth your time and effort. Budget out any financial projections for the property, and prepare for surprise expenses and missed rental payments. This is especially important for a first-time landlord who may be using a chunk of their life savings to purchase an investment property.
Common expenses for a rental property:
- Landlord insurance for accidents, sudden loss and liability
- Maintenance and repair costs
- Rental licensing, mandatory inspections and annual registration fees
- Property and rental income tax
Expenses to pay even if your rental sits vacant:
- Mortgage payments
- Utilities
- Property taxes
- Marketing or advertising fees
Additional expenses to budget for:
- Bookkeeping or accounting fees (if you don’t do them yourself)
- Property management fees (if you choose to hire a property manager)
- Legal fees for lease review and in the event of an eviction
3. Understand landlord-tenant laws
One of the most important steps to become a landlord is understanding landlord-tenant laws. These landlord requirements are set by states, so they vary across the country. Familiarize yourself with your state’s landlord-tenant laws to prevent unnecessary litigation or extra paperwork.
4. Purchase landlord insurance
Landlord insurance will protect your property from accidents and sudden loss and protect you and your financial assets in the event of a liability claim. If you’re a first-time landlord, check with your insurance agency to see what type of coverage you need — it will likely be different than the coverage required if you lived on the property. Landlord insurance typically covers:
- Your property’s structure
- Legal costs associated with your property
- Medical expenses associated with your property
- Loss of rental income if repairs are needed
One important thing to note is that a landlord is typically not responsible for a tenant’s belongings — so always encourage your tenants to purchase renters insurance.
5. Get your property move-in ready
Your rental needs to be livable— at the very least — but in good condition ideally. Make sure you fix any known issues and install any upgrades that make the rental more attractive and comfortable to renters. Here are some tips to prepare your rental property:
Clean the property. Vacuum or sweep the floors and wipe down all floorboards, walls, counters and cabinets. Eliminate any bad odors, and landscape the yard if it’s in rough condition.
Ensure the property is up to code. Test smoke and carbon monoxide detectors and have the electrical system professionally checked. Make sure all doors, windows and gates function and latch properly.
Make any needed repairs. Fix any broken fixtures, railings, stairs, holes or water leaks. You’ll also want to make sure all appliances are working, and replace any damaged or worn flooring.
6. Determine how much rent to charge
It’s important to charge a reasonable amount of rent. Set the rent too low and you’ll miss out on potential profit, but too high and you won’t attract renters. Fortunately, figuring out how much rent to charge isn’t too hard. Get started by checking the cost of similar rentals in your area then factor in utilities and budget for repairs. Make sure to stay on top of changing market conditions, and work with a legal professional to be sure you give the appropriate amount of notice for any rent increases.
Did you know that 58% of renters say they want to pay their rent online, but only 36% are given that option? Aside from being a preferred option by renters, online rent collection makes it easy to keep track of your rental income — and you can even set up automatic payments.
7. Market the rental property
One of the steps to becoming a landlord is listing and marketing the property. You’re responsible for filling vacancies by posting ads, hosting open houses and using other methods to attract renters. However, since most rental property marketing can be done online, this step is easier than you might think.
Advertise the property for rent
With Zillow Rental Manager, you can create one property listing that gets posted across Zillow, Trulia and HotPads. All you need to do is:
- Take high-quality photos of the interior and exterior.
- Write a rental ad that highlights policies, features and upgrades.
Host a rental open house
In addition to online listings, you may choose to host an open house for prospective renters. If you do, it’s a good idea to:
Stage the property. This lets potential tenants picture themselves living there and gives them an idea of how much furniture can fit in each room.
Have rental applications handy. Set up a tablet with internet access in the living room or kitchen so interested renters can complete an application.
Hand out flyers. Give potential tenants something to take with them — include a couple photos and features of the property, along with instructions on how to apply.
8. Screen prospective tenants
The screening process is where you determine if a renter will be a reliable tenant. You’ll collect rental applications and run credit and background checks on each prospective tenant over the age of 18. As a landlord, you must comply with all applicable fair housing laws throughout this process.
Considering many renters live with others, you should be prepared to review and screen multiple tenants for your property. Rental applications provide you with a renter’s background and history, including:
- Personal information like their name, phone number and email address
- Household information like additional occupants and pets
- Current and previous residences
- Employment and income
- Prior evictions or bankruptcies
If an applicant meets your basic requirements, you can proceed to run a background and credit check to verify the information in a prospective tenant’s application.
9. Sign tenants to a lease agreement
The lease agreement sets rules and expectations for both the tenant and the landlord. It’s important to ensure your lease complies with all applicable laws. Here’s our recommended process for finalizing lease agreements:
- Customize your lease.
- Run the lease by a legal professional.
- Review the lease with your tenant.
- Have you and your tenant sign and date the lease.
- Provide your tenant with a copy of the lease, and store your copy securely.
You can use a tool like Zillow Rental Manager to build a custom lease online, or you can hire a property manager to handle the lease agreement. Either way, there are standard policies and terms that all leases should have.
10. Maintain the property
Maintaining the property not only keeps your tenants happy, but it ensures you’ll be able to keep renting to future tenants without having to do major upgrades or repairs. Consider performing these tasks regularly:
- Pest control
- Cleaning gutters
- Servicing HVAC units
- Property walkthroughs
- Confirming and updating your landlord insurance
It’s a good idea to set a portion of your rent aside for maintenance and repair tasks. Many landlords use the 50% rule, where they set aside 50% of their rental income for repairs, maintenance, taxes and insurance. For example, if you charge $1,200 each month for rent, set $600 of that money aside to cover the above costs. Over the course of a year, you should expect to spend around 1% of the property’s value on maintenance.
11. Stay organized
Managing a rental property is a lot of work — especially for a first-time landlord. It’s one thing to figure out how to start renting property and another to stay organized and turn a profit. Here are some tips:
- Document all communication with tenants, maintenance people, and anyone else who uses or works on the property.
- Securely store all rental applications, lease agreements, repair bills and insurance documents.
- Create receipts for rent payments and security deposits.
- Create a filing system for receipts from advertising costs, tenant reimbursements and utility bills.
- Keep digital and printed copies of all your documents.
If you have a method for organization and stick to it, you’ll find it easier to list deductions and file taxes. You’ll also be able to settle any financial disputes between you and your tenant or contractor.
12. Decide if you want to hire a property manager
If you’re looking to avoid many of the issues that landlords must deal with, you can hire a property manager to handle the entire rental process or just a part of it.
If you plan on professional management from the start, you can negotiate your property purchases and rents to cover the added cost. It will cost you a percentage of the rent — in many cases 8% to 10% — but it could be well worth it. Plus, it’s a deductible expense.
