How to Be a Landlord
I've had a slow but steady stream of friends ask me for any tips for renting out a property as they look to buy a rental or move from their first house and rent their old.
I've had 2 rental properties for 9 years now (I'm getting old) and this is what I've learned.
Think of It Like an Annoying 401k
Unless you get lucky (i.e. bought before 2021) it's pretty hard to cash flow houses to the point where they matter in your income. But if you can get them to at least pay for their own mortgage (or have line of sight toward that) it's a great investment vehicle. You get an asset that:
- Appreciates if you buy in a growing area.
- Doesn't get inflated away in value.
- Has crazy tax benefits.
With that increased upside comes some increased pain. My rule of thumb is that I can expect things to be quiet with the exception of 2-3 weeks a year where things blow up and I have to spend a bunch of time dealing with it. Some things that come up include: drama with renters, maintenance issues, city license issues, etc. Keeping this in mind will help you not be driven crazy when it happens.
No Exceptions
Every exception I've ever made for a tenant has bitten me down the road. Hard. There's a reason landlords are known as being jerks and it's because dealing with a subset of humanity will make you that way over time. My advice is to:
- Set contractual and process rules
- Never, ever deviate.
Examples:
- Always require a background check and credit check and stick to high standards (720+ credit, generous income buffer from rent, and no late payments). Even if you know the person, or they seem nice, or you are in a hurry make no exceptions. I made an exception three times: one ended up threatening to take me to court and fixing his motorcycle in the living room, one chewed tobacco and caused serious stink issues, and the third attempted suicide resulting in a full remodel of his room (he was ok). Be hard-core in enforcing your rules.
- Always enforce late fees. It's not personal it's just life. I didn't do this at one point and we had a 9 month journey of payback and still lost money.
Overall just be hard core. If you're not you will eventually regret it.
Managing
Use Avail
Some people question whether you need to hire a property management company. My advice would be to not, just use Avail. Things included are:
- Advertising your listing. You can create your listing and have it syndicated across several major sites and see applications all in one spot.
- Managing Contracts.
- Managing payments. With Avail you can do this all in one spot.
Utilities
This will be obvious to anyone smarter than me but for a long time I charged utilities in exact amounts. This required my time to go calculate utilities each month and often resulted in me sending utilities charges to renters late. This was insanely dumb. Just charge a flat rate for utilities and move on.
Separate Bank & Credit Card
Again obvious for people smarter than but having a separate bank and credit card for the house makes end of year accounting a breeze.
Maintenance
Outside of the renter management items above the other time suck is maintenance. For this using Thumbtack has worked great. Submit a project from your phone, view multiple bids, get someone there the next day or two. Hasn't failed me yet. Would also strongly recommend setting aside the majority of your cashflow (if you cashflow at all) as a rainy day/maintenance fund for the house.
Aggressive Tax Accountant
Doing taxes with a house with Turbotax left me like $1,000 of a refund. Doing the same taxes the following year with an accountant gave me a $5,000 refund. Once you own a house and rent it you own a business and you can do all sorts of deductions on the house through that business. Do not do the taxes yourself and do not use a conservative accountant.
Wrapping Up
Overall owning a house has been a tremendous blessing. Take it with a grain of salt because I bought when interest rates are low. But if you can make rent cover the mortgage I highly recommend buying a house and renting it.