Landlording (Your Next Investment Step)

Landlording (Your Next Investment Step)

real estate

We’ve all seen the late night real estate infomercials. Some unseen voice over person comes on and makes everything seem so simple, right. You watch and listen to the spoken testimonials of the smiling property owners. And you imagine yourself, if only for a moment, doing something similar. Collecting a series of fat rent payments month-after-month sure would be great, right?

To even consider investing in real estate means you’ve done well. You are gainfully employed. You’re well established in your career. You live in your own residence, have implemented a consistent savings plan, retirement and college fund for your children. In short, you’ve completed the basics.

You’re smart enough to know that real estate is one of the cornerstones of the wealthy. Why not you?

But you have questions. Creating passive income from rental properties is a great investment strategy. However, you want to be well informed on the minefields to avoid in real estate investing. Reading about day-to-day real estate information is a great start, as well as performing your due diligence for important financial questions like rental property tax deductions.

1) Select Quality Tenants.

Astute real estate investors strive to avoid complicated entanglements beforehand. They select, qualify, and only rent to solid tenants beforehand (less headache later). In other words, don’t rent your building to people who haven’t paid their bills on time — no matter how they might appear in person or what they say. This is a hard and fast rule. Think Jack Webb from the old Dragnet series, your only concern are the facts, just the facts ma’am. It’s not personal, it’s just good business.

2) How To Find Good Tenants.

This is not as difficult as you think. Your first go to is to have your prospect-tenants complete a rental application. At the conclusion of your meet-and-greet, don’t waste time. Run their credit. This is paramount. The results are there in black and white and will give you the rest of the story. You want a relatively high credit score. If you’ve done any stock investing, you know good investors follow the numbers. So it is with real estate investing.

  • Place an ad for tenants
  • Check recent rental history
  • Run their criminal history

Afterward, ask yourself, are they the kind of people you would want renting your unit? Are they warm and easy to talk to? Do they seem trustworthy? What was your overall feeling during your conversation? Major corporations hire the right people beforehand. As a business owner, you should be just as shrewd in selecting the people who will live in your building.

3) Should You Add More Rental Property? (The conundrum).

After you’ve done your first deal, many of the more scarier thoughts you had will subside. Thoughts will turn to increasing your monthly income stream. How do you know when or if you should add more rentals to your investment portfolio? Should you increase rents on single or existing properties, or buy additional rentals?

4) Revisit Why You Chose Real Estate.

For most individual investors, it will be for positive cash flow. Passive income will allow an investor to live very comfortably. Here are a couple of options to consider. Do you prefer to have immediate positive income now versus having a larger amount in your later years; let’s say when you’re well into your retirement years?

Look within. What is your personal temperament? Have you earmarked certain monies for now instead of later? To be sure, there are pros and cons for each side. Adding more rentals would throw off enough rent to allow you to hire a property manager, while still giving you a positive income.

5) Talk With Your Financial Advisor.

But these financial decisions don’t have to be decided by you and your spouse. You could tap your financial advisors. Make an appointment and be ready with a list of questions to bounce your ideas on which is best for your family’s situation. Being a good landlord is the same as any other business. Know what you want. Treat people with respect; that means don’t discriminate. For example, let the numbers determine a person’s character.

Keeping your properties well-maintained will go a long way towards keeping your tenants happy. The by-product of all this, of course, is a continuous stream of rental income for years to come. Happy investing!