What to Know About Being a Landlord

Investing in Real Estate Series — Week 3

Have you ever thought about owning an investment property? Then this series is for you! I’m covering everything to know when it comes to investing in real estate, including the different options out there and how to make it happen.

You’ll also get a complete rundown on why investing in a rental property can boost your finances, the tax benefits, plus what you need to know about being a landlord, how you can best flip the right property for a profit, an investment strategy for move-up homeowners, and how you can save money when it comes time to sell an investment property.

Last week this series covered how to buy a rental property — Buying a Rental Property 101 — and now we’ll focus on the steps you’ll need to take once you’re a landlord. And don’t miss the bonus guide on specific laws and regulations for landlords throughout Michigan.

You’ve purchased a rental property and are now ready to move forward with being a landlord.

Becoming a landlord requires various responsibilities from start to finish. You want to make sure your investment property is profitable, so finding and keeping good tenants should be a priority.

You also want to make sure your property is well maintained to preserve its value and avoid costly repairs caused by a lack of timely maintenance.

And someone’s got to manage this investment—you or a property manager/company.

Property Management Company – Yes or No?

What’s the best choice for you—should you hire a company, handle everything yourself, or use a combination of services?

You could have a management company handle everything, including finding tenants, collecting rent, maintenance, and dealing with day-to-day issues or emergencies when they arise.

Or, you can find a suitable tenant yourself and then work with a company to handle the lease and property management from that point on.

To help make your decision, consider your particular situation and these key factors:

• Don’t live near your rental property or you travel frequently. You want to keep a close eye on your property and be available for last-minute emergencies. A property management company can take many of these responsibilities off your plate.
• Don’t want to deal with tenants or the stress of being a landlord. If your tolerance is low, a company can handle a wide range of situations—late payments, emergency calls, enforcement of lease requirements, property inspections, and damage. They bring a level of professionalism that can make tenant interactions easier.
• Don’t have the time or proper skills to screen potential tenants. It’s time consuming to field calls, conduct screenings, show your property, and check references. Management companies have experience with the process and can help you follow fair-housing requirements.
• Can afford the cost of a property management company. Management fees vary depending on the services provided, so be sure to understand exactly what you’re paying for. Determine if the cost still allows your rental property to meet your investment goals.
• Don’t want to handle maintenance and repairs. Things will break unexpectedly, and every rental property experiences normal wear and tear. A company can coordinate reliable contractors and handle repair requests for you.
• Can’t keep up with tenant laws. It’s important to protect yourself from lawsuits or liability as a landlord. A qualified property manager and real estate attorney can help you understand Michigan requirements, safety standards, fair-housing laws, and other applicable regulations.
• Not comfortable confronting tenants with eviction or other legal issues. A professional property manager can help coordinate the proper process and work with legal professionals when necessary.
• Don’t mind relinquishing some control. You’re comfortable being more hands-off with your investment property. Just make sure you choose a reputable company you can trust.

If you are going the property management route, reach out to me. I don’t personally manage rental properties, but I have some great suggestions and referrals to offer.

Being a Hands-on Landlord

If you decide that a property management company is not the way you want to go, then you’ll need to prepare yourself as a landlord.

Now you’ll be responsible for a wide range of duties, from rent collection to being on call for emergencies. You may still want to outsource some services, such as maintenance and repairs or legal advice from a qualified real estate attorney.

• Decide what to charge for monthly rent. To get an idea of what similar homes are renting for in your local market, reach out to me. Whether you’re looking at a rental in Flint, Grand Blanc, Fenton, Howell, Brighton, Novi, or Waterford, I can help you understand the local market.
• Set up bank accounts specifically for this property. Keep your rental income and expenses separate from your personal finances and consider setting aside money regularly for future repairs and maintenance.
• Come up with a set of tenant rules and policies. Have written policies for how rent should be paid and when, occupancy, late fees, pets, maintenance requests, and other important expectations.
• Create a rental application. Use a professional application and obtain the appropriate authorization for credit and background screenings.
• Get your rental in order. You want to attract stable tenants, so your home should reflect what renters expect in your local market. Don’t go overboard with expensive upgrades that won’t provide a return.
• Ensure a safe environment. Install required smoke and carbon monoxide detectors and provide appropriate fire-safety equipment. Make sure the property meets applicable Michigan and local requirements before renting it.
• Familiarize yourself with local tenant laws and landlord requirements. A real estate attorney can help clarify Michigan laws and local requirements. You also need to follow equal-housing opportunity laws throughout the tenant-selection process.
• Determine if your condo association has rental restrictions. You should know this before purchasing, but some associations limit the number of rentals or have specific requirements for landlords.
• Get proper insurance. You’ll need appropriate dwelling coverage for property damage and liability protection if someone is injured on your property. Discuss your specific needs with an insurance professional.

If you are planning on managing the property yourself, reach out to me. I can offer guidance on some of these steps and connect you with trusted local resources when appropriate.

Dealing with Potential Tenants

Consider these steps below so that you can establish a professional and positive landlord-tenant relationship. Remember, how you act and appear as a landlord will reflect on how a potential tenant views you and your property.

• Find tenants through reputable online sites, social media, neighborhood groups, or referrals from friends and colleagues. You’ll need good photos of your home and should have your rental application and policies ready.
• Decide whether you will rent to family or friends. You don’t want to jeopardize important relationships, so written policies and professionalism are essential.
• Run appropriate credit and background screenings. Have applicants sign the proper authorization. You may also request references from previous landlords and verify employment and income, following applicable laws.
• Determine if they have ever been evicted. Review information available through appropriate public records and screening services, while making sure your process complies with applicable laws.
• Make sure you have the required security deposit and first month’s rent BEFORE they move in. Follow Michigan requirements regarding security deposits, including required notices, documentation, and handling of deposits.
• Sign the lease. Use a professionally prepared lease appropriate for Michigan and make sure it addresses the terms that are important to you, such as maintenance responsibilities, pets, cleaning requirements, and other property rules.
• Tenant Walk-through. Upon move-in, walk through the property together and document the condition in writing and with photos. This creates a clear record of the property’s condition and can be extremely helpful when it’s time to address the security deposit.