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Animal House. So You're Thinking of Becoming a Landlord!

Multi-family or single family investment real estate can bring nice returns to your investment portfolio.  Some investors make it look easy.  Others claim that they will never do it again.   Investment real estate comes with inherent risk that you should be aware of and it’s not the easiest way to make money.   What should you consider before you try your hand at having someone else pay your mortgage?  

Be familiar with State, Federal & Tenant Law

You should be proficient in the Fair Housing Act and the Fair Credit Reporting Act for starters.  Connecticut has it’s own laws governing landlord-tenant relationships which cover everything from pets, safety, maintenance, foreclosure, security deposits, evictions, and things you would not even think of.  It is safe to say that the Connecticut landlord tenant law is generally favorable to the tenant, not the landlord.   

 Document the Condition of the Property

Photos before and after renting are helpful especially if you own several units.  It is difficult to remember which unit had what if you are juggling more than one rental.  You also have proof of condition at the end of the lease if you intend to hold back a security deposit for repairs or damage other than normal wear and tear.  

Vet Your Tenants

Run credit reports on every prospective tenant.  You should also run an eviction history report.  At Home Selling Team  we use SoftScreen.com which runs credit, criminal background and eviction history.  If you rent to someone based solely on your instincts or first impressions  you'll  have only yourself to blame if things go south.  You don't want to end up with a tenant like Michael Keaton in Pacific Heights.  

Consider Buying as An Owner/Occupant

 At least for your first foray into investment real estate.   Not only could you receive a more favorable interest rate and require less money down but you could cover most if not all of your mortgage payment and taxes from your tenant.  Another perk:  You also get to choose your neighbors. 

Hire an Accountant

Rental properties can provide significant tax deductions for insurance, property maintenance, property taxes and more.  Managing rentals can be costly and time consuming —you should get all the deductions you are entitled to.

 

Try to Keep Good Tenants

Minimizing turnover of units is vitally important.  The costs of prepping an apartment every year for a new tenant costs you in labor costs or your own time and in more time marketing the unit and vetting a new tenant.  If you have good tenants, be as attentive to them as you can.  If a tenant calls with a complaint or needs a repair,  make it a priority. Treat your tenants with respect and maybe that respect will be returned.

I know a landlord that has property in a difficult area with long-term paying tenants.  Assuming a rent increase will cause them to look for other housing, he has not raised the rent in an effort to keep turnover low and units occupied.  A small increase in rental income may not be worth rocking the boat especially if it is not a desirable area or home.  

Check Your Attitude

Do you have the temperament to be a landlord?  Will taking calls on evenings, weekends or holidays disturb you?  How about police calls if you are renting to students with a history of partying?  What about non-paying tenants?  This are all issues that can try your patience and create additional expenses.  You can hire a property manager and if you have the cash flow, it may be well worth your while at 10-15 percent   

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