There\u2019s more to it than simply buying a few homes in desirable neighborhoods<\/a> and putting a \u201cfor rent\u201d sign in each window \u2014 if you don\u2019t know what you\u2019re doing, you could lose a lot of money.<\/p>\n To go beyond a Google search and learn more about the realities of life as a landlord, we spoke with Jennifer Seeno Tucker<\/a>, a top real estate agent and rental investor in Elmont<\/a>, New York. We also touched base with a few other rental investors around the country who were eager to share their tips on what it really takes to make money renting houses.<\/p>\n Let\u2019s start from the beginning \u2026<\/p>\n Rather than selling when it\u2019s time to upgrade<\/a> their own home, many investors choose to keep their current house and start using it as a source of income.<\/p>\n One big advantage is a complete familiarity with the property \u2014 you\u2019ll already know the ins and outs of its condition, maintenance history, and any of those little \u201cjiggle the lock up and to the left\u201d quirks.<\/p>\n And, while we\u2019ll get more into property management later on, there\u2019s something to be said for the hands-on nature of renting out a home you\u2019re familiar enough with to potentially manage yourself.<\/p>\n \u201cI\u2019m a big believer in knowing your business inside and out, and that means making mistakes initially,\u201d says Tucker. \u201cI like to go deep and get invested; I\u2019m really hands-on with the all the good, the bad, and the ugly.\u201d<\/p>\n This being said, is it a must to live in your first investment property? Definitely not. If you have plans to eventually own multiple rental homes, trying to personally live in each one before finding a tenant would quickly become impractical.<\/p>\n Becoming familiar with your local market \u2014 at least in the vicinity of your rental home(s) \u2014 is crucial to effectively making money renting houses. Thus, it should come as no surprise that your best bet for a deep dive into learning about home pricing is to work with an experienced real estate professional<\/a>.<\/p>\n An agent, especially one who also dabbles in rentals themselves, can help you find properties that have great potential as investments and help you determine a fair-market rental rate.<\/p>\n Their expert advice can supplement your own findings through internet research and personal experience, but it\u2019s equally important not to fixate purely on purchase price and your monthly mortgage<\/a> costs in relation to potential rents.<\/p>\n \u201cFar too many novice investors just look at the rent and the mortgage payment, but non-mortgage expenses \u2014 repairs and maintenance, vacancy rate, property management fees, property taxes, landlord insurance, and so on \u2014 typically come to around half of the rent payment,\u201d says G. Brian Davis, cofounder of SparkRental<\/a>. \u201cNew investors ignore or underestimate these costs, then wonder why they lose money every year on their rentals.\u201d<\/p>\n It should come as no surprise that a home in a desirable location will rent faster and more reliably than one with little to offer in the way of local amenities.<\/p>\n Access to shopping, dining, entertainment, and transit (which could mean anything from a bus stop to an interstate on-ramp, depending on your locale) tend to be important to prospective tenants. Those with children will surely also be interested in school districts<\/a> and safety<\/a>.<\/p>\n There\u2019s no such thing as one-house-fits-all, but you can give yourself a leg up on your rental business by choosing homes in places where people want to live.<\/p>\n \u201cIf you\u2019re planning to invest in this kind of business, you must always consider buying property located in a healthy community,\u201d advises Charles McMillan, founder of Stand With Main Street<\/a>, noting that most would-be renters are conducting their own research on their potential neighborhood. Ensuring that your rental property is in a favorable location helps to reduce the chances of your property sitting vacant.<\/p>\n \u201cThis is one of my, \u2018what I wish I would have known\u2019 experiences from my first investment,\u201d McMillian says.<\/p>\n Again, no matter how familiar you are with your city, your agent can be a big help in the discovery process when searching for an ideal rental property.<\/p>\n \u201cWe can gather all the information we want on the internet, but it\u2019s a local real estate agent who really understands the market<\/a>,\u201d notes Tucker.<\/p>\n In the midst of contemplating fun legalities such as property taxes (the rates for which are often higher than those on your primary residence), insurance (there\u2019s a difference between homeowner\u2019s and landlord insurance<\/a>), and property management fees (usually 10% of your monthly rental rate), new rental investors may not be thinking about more nuanced expenses.<\/p>\n \u201cThe one thing that kind of tripped me up in the beginning was the landscaping and snow removal,\u201d admits Tucker. \u201cWe had a really bad winter here, and I didn\u2019t realize what kind of expense that was. I\u2019d budgeted $X, and the cost for snow removal turned out to be ten-$X. That was one of the things I didn\u2019t expect.\u201d<\/p>\n Ryne Lambert, cofounder of Sell My House In Wisconsin<\/a>, advises rental investors to budget early for big-ticket items like roofs, windows, and heating-and-cooling equipment.<\/p>\n \u201cThese items can put you in a bind if you don\u2019t have adequate cash reserves saved up,\u201d he says. \u201cBe sure to include budgeting for capital expenditures<\/a> in your analysis of a property \u2014 in addition to repairs and maintenance.\u201d<\/p>\n This means that even if you\u2019re buying a home in near-perfect, move-in ready condition in the most desirable neighborhood in town, you should still be thinking long-term as you put the numbers together. That new HVAC<\/a> won\u2019t always be new, after all.<\/p>\n While your lease agreement can make certain stipulations about who is responsible for what around the home, maintenance and upkeep can be a major grey area.<\/p>\n Some instances are fairly cut-and-dried: If the roof starts leaking, if the dishwasher stops working, or if the garage door gets stuck halfway up, you can bet that your tenant will be picking up the phone.<\/p>\n Other matters aren\u2019t as clear.<\/p>\n If your tenant is the one on the hook for mowing the lawn<\/a> at regular intervals, for example, are you going to provide the mower? If it\u2019s gas-powered, who pays for the gasoline? What are the repercussions if your tenant doesn\u2019t mow according to schedule?<\/p>\n This is where it can be helpful to work with a property management company (let them field the Saturday-afternoon call asking about who replaces the light bulb in the downstairs bathroom), but if you\u2019re going at it on your own, it\u2019s a good idea to have an expert at the ready.<\/p>\n \u201cOne thing that\u2019s really helpful is having a handyman who is kind of on-call,\u201d says Tucker.<\/p>\n \u201cSomeone who can go over [to the house] within maybe 48 hours and fix something for a tenant that might not be working. I\u2019d say that has been my greatest asset so far.\u201d<\/p><\/blockquote>\n Buying a fixer-upper<\/a> can be a great way to score a rental property at a great price \u2014 as long as you know what you\u2019re getting into with necessary renovations<\/a>.<\/p>\n Tenants generally expect to move into a home that is clean and properly functioning. While everyone\u2019s preferences are different, it\u2019s hard to go wrong with prioritizing upgrades to the kitchen<\/a>, bathrooms<\/a>, and flooring<\/a>.<\/p>\n For her rental properties, Tucker prefers to buy homes that aren\u2019t completely run-down, but she\u2019s fine with making some updates.<\/p>\n \u201cI like a house with the majors \u2014 windows, roofing, heating \u2014 in place and in working condition, but maybe it just needs a good amount of updating. I can come in a little lower [on the purchase price], and depending on the terms of the financing and how long it\u2019ll take me to close, I can really get a good deal,\u201d says Tucker.<\/p>\n If you do choose to take on a project home as your first rental, whether you go the DIY route or hire professional contractors<\/a> will depend on your skill set and budget. In either case, you\u2019ll want to put on your accountant hat and track every penny.<\/p>\n \u201cYou should budget for these remodels and track all the costs, invoices, receipts, and so on,\u201d says John Bodrozic, cofounder of HomeZada<\/a>. \u201cThis will be helpful for insurance purposes, as well as for tax and future resale purposes.\u201d<\/p>\n While some rental investors (like Tucker) enjoy a hands-on approach, many do prefer to use the services of a property management company.<\/p>\n As mentioned earlier, management companies typically keep 10% of the monthly fee, but the day-to-day responsibility is removed from your plate. Property managers also handle the major aspects of landlord tasks, such as marketing your home, vetting your tenants, and carrying out all of the contract-signing, security-deposit-collecting, property-walkthroughs, and so on without you having to do anything other than agree to initial terms.<\/p>\n When a tenant has a maintenance<\/a> issue, they call the property manager. There is usually an agreed-upon monetary amount to which the manager can act without involving you \u2014 which means you won\u2019t be bothered with approval requests for a $50 toilet repair in the middle of the workday.<\/p>\n \u201cI\u2019m a firm believer in doing it right the first time,\u201d says Lambert. \u201cIf you plan on having multiple rental properties, run your portfolio like a business, and hire a good property manager \u2014 starting with your very first rental.\u201d<\/p>\n Lambert notes that a reputable property management company maximizes value by finding qualified tenants more quickly than you likely can on your own. Furthermore, they often have established relationships with contractors, which can mean repair savings that are passed on to you as their client.<\/p>\n Conversely, if you\u2019re familiar with the real estate industry or a handy with a hammer yourself \u2014 or, if you want full immersion into the property rental business \u2014 it\u2019s absolutely doable to manage your rental(s) yourself.<\/p>\n \u201cFrom my experience, [managing yourself] is the only way to truly learn the business; and that\u2019s still critical if you decide to take a more hands-off approach and work with a property manager in the future,\u201d says Andy Madden, general partner of McIntosh Management<\/a>.<\/p>\n Madden recommends breaking your management strategy into three categories: advertising, maintenance, and bookkeeping.<\/p>\n We\u2019ve already talked about the importance of keeping detailed records and navigating maintenance, and with countless platforms available to list your property for rent, as long as you can take great photos<\/a> and write up a snappy listing, you can feasibly put the home on the market yourself, too.<\/p>\n Remember, if you manage your own rental for a year and decide it\u2019s not the project for you, you can always choose to outsource to a property management company!<\/p>\n As exciting as it may be to receive an email or phone call from a prospective tenant, it\u2019s important to thoroughly understand this person \u2014 in accordance with the Fair Housing Act<\/a> \u2014 before you let them move into your home.<\/p>\n \u201cAt this time I\u2019m doing the screening myself,\u201d says Tucker. \u201cIt\u2019s a full application based upon where [the potential tenant] lives now, how many people are moving in, and what their resources are to pay for the unit. I take an application for all adults who are moving in, whether they\u2019re married or not.\u201d<\/p>\n Tucker asks for a full credit history, proof of funds, and references. If everything checks out with the paperwork, she invites the applicant for a meet-and-greet so both parties have a chance to size up the other and see if it\u2019s a good fit. From there, it\u2019s time to sign the lease, collect the security deposit, and inspect the property together before handing over the keys.<\/p>\n Mike Laurenzi, owner of Take Flight Home Buyers<\/a>, made his foray into renting houses by purchasing a quadplex with his wife. All four units were already occupied by tenants, and while this may sound like an ideal scenario for a rental investor, it can be tricky when someone else has done the screening.<\/p>\n \u201cThe No. 1 tip I can give to anybody looking to rent out a property is to do a full and proper screening of applicants,\u201d says Laurenzi. He adds that \u201c99% of all other problems will be solved ahead of time if you get the right tenant.\u201d<\/p>\n He suggests a thorough background check with parameters for what you will and won\u2019t accept. \u201cMinor drug possession charge 10 years ago? Not a big deal. Assault, theft, arson, murder, sex offender chargers? Dealbreaker.\u201d<\/p>\n Laurenzi also advises vigilance with checking references and employment history. \u201cDon\u2019t just call the numbers they give you for their work; look up the company and make sure you call that number. Sometimes they\u2019ll give you a friend\u2019s number who will pretend to be their current or former boss.\u201d<\/p>\n Finally, don\u2019t forget to trust your gut. If you meet a potential tenant and something just doesn\u2019t feel right, move on to the next application.<\/p>\n Now that you\u2019ve learned how to research neighborhoods, you\u2019ve determined how you\u2019d like to manage your properties, and your first rental is equipped with a great tenant, you might be wondering how you can repeat the process.<\/p>\n The sky’s the limit, as they say! Or, in this case, perhaps your budget is your limit; but as your cash flow increases, so can your buying power. As with any growing business, you\u2019re well-advised to create a business plan<\/a> for your rental investments.<\/p>\n \u201cI think everything is a learning process,\u201d says Tucker. \u201cI\u2019m never an over-analyzer with anything, so I just jumped in head-first. I\u2019m willing to make mistakes along the way, but having a business plan as an investor has really helped me achieve my goals.\u201d<\/p>\n Continuing to buy properties in your area is undoubtedly the easiest option due to access, but as you gain more experience and sniff out opportunities in other locales, you may decide to add a distant home or two to your portfolio. In these long-distance cases, you\u2019ll likely want to work with a property management company (it\u2019s tough to be an on-call landlord from afar) and establish a relationship with a real estate agent in the area.<\/p>\n If you\u2019ve purchased a house in a prime location, you\u2019ll ideally have no trouble keeping it occupied \u2014 but understand that vacancies can happen.<\/p>\n \u201cIt\u2019s the risk that we take as landlords,\u201d says Tucker. \u201cI\u2019ve been fortunate enough that [my houses] have never been vacant for more than three months, but there\u2019s always a non-occupancy percentage that should be included in your business plan.\u201d<\/p>\n If you do run into trouble renting out your house to a conventional long-term tenant, you could try short-term renting through platforms like Airbnb<\/a> or VRBO<\/a> to fill the gaps.<\/p>\n As far as how much money you\u2019ll need to get started with renting houses? This is an unhelpful answer, but it really depends on local market conditions and how much money you have available, whether through cash or your ability to secure financing.<\/p>\n![\"This](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/how-to-make-money-renting-houses-neighborhood-666x381.png\")
<\/a>Should I live in my first investment property before renting it out?<\/h2>\n
How should I research home prices and rent prices?<\/h2>\n
How should I research neighborhoods?<\/h2>\n
What expenses do first-timers tend to forget?<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/how-to-make-money-renting-houses-tools-666x381.png\")
<\/a>Can we talk more about maintenance and who\u2019s responsible?<\/h2>\n
OK, so what about rental home upgrades?<\/h2>\n
I\u2019m ready to rent. Should I hire a property manager?<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/how-to-make-money-renting-houses-tenant-666x381.png\")
<\/a>I\u2019ll try self-managing for now. How should I screen my tenants?<\/h2>\n
How should I grow my rental portfolio?<\/h2>\n
What about unplanned vacancies? How much money do I really need to rent houses?<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/04\/how-to-make-money-renting-houses-money-666x381.png\")
<\/a>