There I was, standing in front of what used to be MY kitchen, MY living room, MY bedroom – but suddenly, it felt foreign. ‘Home sweet home’ had a new ring to it. It was now home sweet… business opportunity? Here’s how I went from being a proud homeowner to a slightly befuddled, often surprised, but eventually proud first time landlord.
The emotional transition: Picture this. You’ve laughed in that living room, cried in that bedroom, and probably spilled something in that kitchen. Your children’s first words and steps happened in that hallway. And now, you’re about to hand over the keys to a stranger.
To you, it’s not just bricks and mortar; it’s memories.
A decade earlier, I had entered into the world of homeownership for the first time. Those four walls weren’t just bricks and beams; they were the tangible results of hard work, culminating in a treasure chest of memories.
Then life threw its curveballs, and soon, I found myself staring at those very walls, wondering if they could generate some additional income.
Yep, the universe had another plan for me: becoming a landlord.
The thing is, this wasn’t just about adjusting emotionally. Oh no. Suddenly, I was thrust into the vast sea of property management, and boy, did I need a life jacket. I wasn’t just a homeowner anymore; I was a business owner, and I had to get educated, and fast.
This post is my best attempts to cram the last 6 years of managing a rental into 3000 words or less. While I am far from an expert, I have been fairly successful in this journey. I only hope that I can not only help you avoid some hard lessons, but more importantly, motivate you to jump into the arena.
The Emotional Rollercoaster of Renting Out Your Former Home
There’s something sacred about personal space. Our homes, they aren’t just shelters. They’re the backdrop to family dinners, the silent witnesses to first steps and first heartbreaks, and the sanctuary where you can be unapologetically you.
So when the decision to rent out my home materialized, I won’t lie – it felt like handing over a piece of my soul to strangers. I was no longer the only one making memories in this cherished space. Others would laugh, cry, and grow within these walls.
I remember the first time I decided to pay a visit after renting it out. Maybe it was nostalgia or just sheer curiosity, but I wanted to see the place again. I had informed my tenants a a few days in advance (always respect privacy, folks!). When I walked in, what I saw was…well, not MY home.
The lavender walls of the bedroom? Now a muted gray.
The living room, where I had strategically placed the TV and couch? Redesigned.
It was familiar, yet foreign. I felt like an intruder in my own domain. That day, the reality hit hard: this was no longer just ‘my’ space.
Embracing the New Role: From Homeowner to Business Owner
This journey wasn’t merely about detaching emotionally from my home; it was also about gearing up for a new role. The home that once echoed with personal memories was now a business venture, and I was the CEO. This shift wasn’t just about renting out a space; it was about being responsible, ensuring that everything ran smoothly, and importantly, ensuring it remained a desirable property for tenants.
While the sentimental part of me missed the memories I had created there, the budding entrepreneur in me was excited about this new venture. I began to see it as an opportunity to grow, both financially and personally.
As days turned into months, I realized that the future was about making wise business decisions, building relationships with tenants, and ensuring this asset brought value to both parties.
My home had given me so much already, and now, as a rental, it was time for it to give to others.
Cash Flow Analysis: Does it Even Make Financial Sense?
Turning your home into a rental property isn’t merely an emotional adventure; it’s a financial ballet, and one that requires meticulous calculation.
To determine my potential rental income, I turned to online tools and platforms. Services like Rentometer to provided a good gauge of what properties similar to mine were renting for in the vicinity. I didn’t stop there. Zillow and Trulia were great platforms to cross-reference the going rates.
Here’s a breakdown of the numbers I was working with:
– Projected Monthly Rent: After comparing similar listings on all platforms, the average going rate in my area for a property like mine was $1800 per month.
– Monthly Mortgage Payment: After refinancing into lower rates and a smaller principle, my monthly commitment to the bank (including insurance) was $1000.
– Maintenance and Repairs Fund: As a rule of thumb, I set aside 10% of the monthly rent for repairs and maintenance. That’s $180 off the top.
– Property Management Costs: I also considered getting a property manager to handle the day-to-day. They typically charge about 10% of the monthly rent in my area, so subtract another $180. I eventually chose to manage the property myself because I live close by.
– Miscellaneous Expenses: There are always “other” monthly costs – like utilities if they are included, homeowners association fees, or potential advertising costs. I provided trash service during my first year as a landlord. Take away another $50.
– Variable Expense Fund: Finally, I stash away 5% of rent for future vacancies and another 5% for capital expenditures (i.e. to replace big things in the future). That is another $180.
Now the math:
Projected Monthly Rent ($1,800) – [Mortgage and Insurance ($1,000) + Maintenance and Repairs Fund ($180) + Miscellaneous Expenses ($50) + Variable Expense Fund ($180)] = $390 in positive monthly cash flow.
A good rule of thumb for single family rentals is to net at least $200/month in positive cashflow. Box checked.
Another rule of thumb is to expect 50% of your gross rental income (less the mortgage payment) to go towards the above expenses. Anything left over is considered positive cashflow. Box checked.
Planning for What-ifs: Costs, Risks, and Potentials
Now, the above looks rosy, but remember, potential risks can greatly affect your projected income. Vacancies are the silent cash flow killers. Even if the property were vacant for just one month, that’s a month without income, but with all the outgoings still present.
Also, while tools like Rentometer, Zillow, and Trulia give a good starting point, it’s essential to monitor them regularly. Rental markets can be as volatile as stock markets, influenced by a multitude of factors.
The surprises – the unexpected repair or sudden appliance replacement. This is why having a maintenance fund and capital expenditure fund, is crucial.
In conclusion, diving into the numbers and analyzing them is not just a one-time affair. It’s a continuous process of monitoring, adjusting, and preparing. Making an informed decision isn’t about predicting the future accurately. It’s about preparing for it intelligently.
To Renovate or Not: Making the Property Rent-Ready
Stepping back and objectively analyzing your future rental can feel like trying to judge a beloved pet in a talent show. Every inch holds a memory. But memories don’t pay rent, and potential renters don’t share your history. Instead, they’re looking for a space to create their own stories.
Every penny counts with your renovation decisions. You need to enhance the place enough to make it appealing to renters but without overspending on improvements that won’t provide a substantial return. This is a business now.
1. Kitchen & Bath: As ever, these remain the twin pillars of property appeal. A modern, functioning kitchen and bathroom are worth their weight in gold. But it’s not about opulence; it’s about functionality combined with style.
2. Floors (LVP for the Win): Old carpets hold years of foot traffic and, let’s be honest, a fair share of spills. The upgrade to Luxury Vinyl Plank (LVP) was a no-brainer for me. It offers the beauty of a hardwood look, the durability to withstand daily wear, and is more water-resistant than its natural counterpart. Renters love the look, and from a landlord perspective, it’s the kind of low-maintenance choice that pays off in the long term.
3. Curb Appeal: It’s astonishing how transformative a lick of paint and some well-thought-out landscaping can be. The exterior is the first handshake between your property and potential renters. Fresh paint offers a clean slate, and strategic landscaping not only beautifies but can also minimize future maintenance.
4. The Flex Space Magic: I had an oversized bonus room crying out for a transformation. By adding a closet, it morphed into a versatile “flex space.” By marketing it cleverly, potential renters could see it as an office for their work-from-home needs, a cozy TV room, or even a fourth bedroom. Look for other differentiators that your home may have and think outside the box to market them.
Understanding the Insurance Game: Protecting Your Asset
Insurance isn’t just about disasters and freak accidents; it’s your safety net, and the buffer that stands between your investment and potential financial calamity. When transitioning from a homeowner to a landlord, your insurance needs change dramatically.
1. Dwelling Coverage: Both types of policies offer this, but landlord insurance typically provides for a broader range of damage types, especially those that might arise due to tenants.
2. Liability Coverage: While homeowners insurance might cover injuries that occur on the property, landlord insurance ramps up this coverage, acknowledging the increased risk that comes with renters.
3. Loss of Rental Income: This is where landlord insurance shines. If your property becomes uninhabitable due to a covered event, this helps offset lost rent. Most homeowners’ policies don’t touch this aspect.
Rent Analysis 101
Setting the rent isn’t about plucking a number out of thin air or just covering your mortgage (reference the math above again). It’s about understanding the local market, the demand, and the competition.
– Research Tools: Enter Zillow, Trulia, and Rentometer. These platforms offer a wealth of data on rental rates in your area. Dive deep, compare properties similar to yours, and note their amenities and condition. If you are using a property manager, they can help provide some value at this stage.
With research in hand, it’s about calibration. Too high, and your property might languish empty. Too low, and you’re leaving money on the table.
1. Competitive Analysis: Where does your property stand in the local landscape? Are you offering a newly renovated space in an up-and-coming area? Or is it a cozy, older space perfect for those on a budget?
2. Profit Consideration: It’s not just about covering costs. Ensure you’re factoring in potential repairs, vacancies, and overall ROI. Your rent should not only cover the mortgage but also the ongoing costs of being a landlord.
In the end, setting the right rent is part art, part science, and wholly essential for your success as a landlord.
Marketing Your Property: Attracting Quality Tenants
The age-old saying goes, “a picture is worth a thousand words.” If DIY marketing your rental property, it might as well be, “a good picture is worth a thousand tenants.”
Here’s the thing: your potential tenants are looking at countless listings. To make yours stand out, invest in high-quality photos that showcase the property’s best features. Think well-lit, spacious shots that give a true feel of the place.
The Right Platforms: Where Digital Meets Tenant
When I first started out, I scattered my listing everywhere, thinking it would cast the widest net. But not all platforms are created equal. Some might give you quantity, but what you want is quality.
For myself, sites like Zillow and Apartments.com proved fruitful. The more specialized the platform, the better quality of leads I got. The “backpage” type of advertising options may waste your time with the wrong type of tenant.
Contracts & Paperwork: Navigating the Legal Labyrinth of Being a Landlord
For me, the thought of diving into legal documents and property agreements was daunting. Thankfully, today’s digital age has made things a touch easier. I personally chose to use Avail as my go-to software. Not only did it help me to create a vetted lease for my state, but it managed the marketing, applications, and background checks as well.
Now, while Avail worked wonders for me (and I have zero financial incentive to share this), the market is brimming with other worthy options. The key is finding a platform that aligns with your needs and level of expertise.
Pre-Screening: Setting the Bar High
From the start, I decided I’d rather have my property sit vacant for a month or two than rent to a problematic tenant. So, I set hard and fast rules. Every potential tenant had to undergo a rigorous screening process.
1. Credit Checks: This isn’t about being elitist. Financial responsibility often translates to rental responsibility. I set a minimum credit score requirement. No exceptions.
2. Income Verification: I mean, can they even afford to live here? I always request pay stubs for at least the past three months. It’s not just about the money; it’s about job stability.
3. Rental History: Did they leave their last place looking like a war zone? Or do they have a track record of skipping out on rent? Past behavior is often the best predictor of future behavior.
The Rulebook: Because Boundaries Matter
As a landlord, it’s essential to be kind and understanding but being too lenient can backfire. Setting clear rules and sticking to them is paramount. For instance:
– Maintenance and Repairs: Is the tenant responsible for minor repairs? Define ‘minor’.
– Early Termination: What if they want to bail before the lease ends? Set clear penalties.
– Pets: Yay or nay? If it’s a yay, any restrictions? Any additional funds deposit? I allow small dogs, but double the security deposit and charge a small non-refundable pet fee. Almost everyone has a pet these days, so I wasn’t willing to chop my customer base to 10% of the market. Remember the “LVP is more rental friendly than carpet” opinion above? This is one reason why.
– Rent: When and how will it increase? And under what conditions is a renewal possible?
At its core, being a landlord is more than just collecting a check every month. It’s about providing a home, maintaining a property, and fostering a mutually respectful relationship with your tenant. With meticulous planning, rigorous screening, and a touch of compassion, the landlord journey can be smooth and lucrative.
If this seems like a firehose of information you, my friend, are not alone. Take is slow, learn as you go, take copious notes, and make decisions with a business eye. For my template forms for all things landlord, see this page. This will give you the framework to start that I never had.
Reflections: Top Lessons from Year One as a Landlord
Detachment: This isn’t Personal; It’s Business
The most pivotal realization I had was accepting that the home I once lived in is now a business asset. I had to compartmentalize personal memories and emotions tied to that space, treating it as a commodity. This detachment didn’t mean a lack of care, but instead paved the way for objective decision-making.
Adaptability: The Only Constant is Change
In the rental market, there are seasons of plenty and times of drought. Tenants come and go, and the real estate climate isn’t static. Embracing flexibility, staying updated with market trends, and being responsive to tenant needs has been instrumental in navigating the unpredictable waters of property leasing.
Preparation: The Antidote to Most Problems
They say the best defense is a good offense. By this logic, preventative maintenance, regular inspections, and an emergency fund are the shields and armors of landlords. Staying proactive and anticipating potential issues before they balloon into larger problems is paramount.
Respect: The Cornerstone of All Interactions
While the property was once my personal space, it’s now someone else’s home. Honoring this shift meant respecting my tenants’ privacy and rights. Also, taking good care of the property was not just a point of pride but a statement of respect towards the tenants, the neighborhood, and the community at large.
Business Acumen: Balancing Heart and Numbers
Last but not least, the rental industry is a perfect blend of human interaction and numbers. While empathy and understanding can smooth over many tenant interactions, a clear understanding of finances, contracts, and market dynamics is equally vital. Having a sharp business sense doesn’t equate to being cold or calculating. Instead, it ensures that my investment remains sustainable and profitable, all while providing quality housing.
Conclusion
Becoming a landlord is akin to adopting a dual personality. On one side, you’ve got the seasoned business professional who’s all about the numbers, ROI, and tenant agreements. On the flip side, there’s that nostalgic homeowner who remembers the first time they stepped into the property and thought, “This is home.” Straddling both worlds might seem impossible, but I promise, it’s a challenge that comes with its own set of unparalleled rewards.
As you embrace this challenge, remember, it’s not just about spreadsheets and ledgers; it’s about understanding that every brick and wall of that house that has a personal memory is now giving the same gift to a new family. Provide a great home and remain a positive figure in the background of your tenant’s lives.
If you do this, the venture can pave the way for some financial success.
Read, Relate, and Reinvent
To those setting sail in the vast rental sea, I’ve been there, and I’ve got some navigational tools to share. Here’s a list of reads and resources that were my compass during turbulent times:
1. “The Book on Rental Property Investing” by Brandon Turner – If there’s a single compass you need on this journey, it’s this one. Turner’s insights are invaluable, his tips, tried and tested.
2. “Every Landlord’s Tax Deduction Guide” – Taxes can be a maze. This guide helps you find those hidden tax treasures you didn’t know existed, ensuring you’re not leaving money on the table.
3. Bigger Pockets Podcast – It’s like having a mentor whispering in your ear, except there are many and they’re all real estate pros. Whether you’re driving, jogging, or just lounging, pop an episode on and get a dose of actionable insights and experiences.
4. “Landlording on AutoPilot” by Mike Butler – For those looking to streamline the process and make it as hands-off as possible, Butler’s book is a goldmine.
May these resources be the wind beneath your wings as you soar into the expansive skies of landlording. Here’s to new chapters, lessons learned, and the thrill of the rental game. Cheers!