A landlord is a person or organization that leases real estate they own to another individual or organization in exchange for rent. Renters or tenants can be referred to as lessees, and landlords are referred to as lessors.
When it comes to renting, landlords must adhere to specific standards to collect rent and ensure the rental stays up to date with state or county codes.
In most states and cities, a standard called the implied warranty of habitability requires that a landlord must provide a rental unit that’s safe and livable for their tenant.
So, what exactly is considered habitable, and what responsibilities fall on the landlord versus the tenant? We’ll discuss the ups and downs of being a landlord, including the pros, cons, and responsibilities.
So, what is a landlord? A landlord allows a person or organization to lease their property. Whether or not the landlord chooses to rent out to a person or organization is up to them; however, the responsibilities tend to stay the same.
A landlord’s initial budget includes the purchase of the rental property, property taxes, cost of maintenance, and any future expenses. By future expenses, I mean things like a new roof or windows.
For a rental property budget, landlords tend to leave some wiggle room just in case anything pops up, like an eviction or unpaid rent.
Like any business, it’s important to keep track of your expenses, so that come tax time, you can take full advantage of any incentives.
Each state has its own set of rules related to a lease or rental agreement. These rules include limits on security deposit amounts and any explanations for discrimination against tenants. As a landlord, you must have the necessary precautions in place.
Related: How to Make a Lease Agreement
For landlords just starting out, it’s easy to find a lease agreement template online to customize. However, you may want to run your customized lease template by a legal professional to ensure all is up to code.
Maintenance of a rental property is more than just keeping up with the lawn or cleaning the gutters. Smoke detector testing, appliance tune-ups, and more may require your attention. Remember, a well-maintained rental property is more than just pretty.
This can make or break a landlord. Tenant screening is a lot of work! Often, a landlord hires a property management company mid-process because they can’t take the heat of tenant screening. But some landlords do it every day, so try to go into it with a positive attitude.
First, you need to find a tenant. Many landlords turn to Facebook to post a rental listing, or even Zillow.
Once your rental listing ad is up, prepare yourself to receive several applications. This is where tenant screening skills come into play. Your goal? Secure a good tenant.
When tenant screening, determine what the tenant’s rental history looks like, including whether they paid their rent payments on time.
An eviction can be costly to property owners, so take your time to ensure you get the best tenant in your property.
Understanding the law
Landlord-tenant law differs in every state, so study those that apply to you to avoid unnecessary legal conflict. The state stipulations may change your mind about whether you even want to be a landlord.
Certain landlord-tenant laws could change how your rental properties’ lease agreements are set up, how tenants pay rent, and more. A lot of things come down to the law.
To find tenants, tenants also need to find you. Who would have thought that being a landlord would involve marketing?
Zillow and Facebook are great places to start attracting renters. You can upload pictures of your rental property to help give prospective tenants a visual of where they will live.
Many rental listing sites are free, so take advantage. Also, make sure you take quality pictures to impress potential tenants.
There are dos and don’ts that a landlord may not be aware of before getting into the industry. Let’s dive into these as you consider becoming a landlord.
It’s important to ensure your rental property is being taken care of. For rental inspections, make sure you give your tenant notice. Many states require a 24-hour notice before inspecting the rental property.
Create habitable conditions
Let’s say you do the inspection and find a plug halfway out of the wall or a ceiling fan five inches from falling. These put not only your own property value but your renter at risk. So your best bet is to fix these before any accidents happen. Complying with codes, be it state or local, is extremely important.
With anything, it’s essential to be a good communicator. If you’re a landlord who checks in five months down the line from renting, you may have some issues.
But if you’re a landlord who checks in every few weeks to ensure your tenant is happy and everything is up to par or even schedules an inspection every month, it gives your tenant more accountability and a landlord enough satisfaction that a property is being taken care of.
Paying attention to the Fair Housing Act and other fair housing laws is important because these prohibit landlords from denying a lease to someone based on race, color, sexual orientation, familial status, disability, or gender. It seems straightforward, but sometimes landlords go off the rails with this by purposely discriminating.
Give proper notice
Remember to give tenants proper notice to check out their rental unit. The law varies by state, but you’ll often find a 24-hour notice is required.
Oftentimes, there is an exception in property law for an emergency such as a fire or leak, where landlords must give proper notice before entering a property. Again, laws vary by state, but many require at least 24-hour notice. Check your state laws for compliance.
A landlord may evict a tenant for several reasons. If you decide to evict, make sure you always go through proper legal channels. Failure to do so could cause an unnecessary headache down the line—as well as a ton of legal expenses if things get out of control.
Careful with rent raises
Think twice before raising that rent. Despite market trends, it’s essential to consider all the factors. Have you had loyal tenants for three years? Perhaps you could give them a break on rent. After all, you could have nonpaying tenants if you decide to be too greedy.
Landlords must give ample notice before increasing a tenant’s rent. Depending on local and state laws, rent control laws might prevent landlords from raising rents above a specific limit.
Is a Landlord the Same as a Property Manager?
If you’re a landlord, you technically own the property but are not necessarily the one that has to lease or maintain the property or manage any landlord-tenant relationship.
Often, that can end up in the property manager’s lap. You’ll retain the right to property ownership as a landlord, but you can pass off the responsibility to a property manager for practically everything else.
A property owner may hire a manager to find and manage tenants. However, expect to pay a management fee as a percentage of the overall rental payments.
Remember, while a landlord is the property owner, they are typically not referred to as the property manager, since property managers only manage the rental process of a given rental unit and do not own it. But if a landlord is just self-managing a few properties, I’d consider them a property manager.
Pros of Being a Landlord
Ready to become a landlord? By owning a rental property, you should be able to generate some passive income to help with your current primary residence’s mortgage or even contribute to retirement. Often, real estate will appreciate, making the investment worth it in the long run.
Buying another investment property with rental income might be attractive once a rental property is profitable enough to cover its mortgage payments and maintenance costs. The more experience you have renting out units, the easier it becomes to spot and retain great tenants.
Cons of Being a Landlord
If you’re running a rental business, it’s precisely like running any other business. With any business comes responsibilities for keeping track of expenses, laws, and more.
With any rental property, evictions, and even squatters, are possible. Think of investing in a rental as you would an investment in the stock market: Despite your research on recent trends, all could fail. It sounds scary, but it’s worth the risk sometimes.
Evictions are costly. It’s important that no matter what, you bring a sense of professionalism to every interaction with your tenant to try and maintain a professional relationship. If all else fails and an eviction happens, prepare for what will come.
How to Become a Landlord
So where do you even start in becoming a landlord? Here are a few steps to get you going:
- Purchase an investment property
- Get the property ready for tenants
- Find the best tenant
- Finalize a lease agreement
We went over these steps, but in a nutshell, this is the process when becoming a landlord.
Ready to Be a Landlord?
Real estate investors are not the same thing as landlords. I’m a short-term flipper, but that doesn’t mean I’m a full-term landlord—or even want to be.
For those involved in landlording, the goal is to make money by collecting rent. When a landlord is starting out, they might choose to self-manage a property rather than hire a property management company, which is perfectly OK.
By adhering to state landlord-tenant laws, customizing a lease agreement to a state or county’s specifications, and ensuring that you are putting in every effort to be the best property owner, I do not doubt that you’ll be successful as a landlord.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.