LOCAL REAL ESTATE Q&A: Ups & downs of being a landlord
Q: I am looking many years ahead to retirement so I want to learn about becoming a rental property owner. Can you tell me a few of the upside and downside aspects to being a landlord?
For starters, let me suggest you come check out our local Real Estate Investors Network (REIN). Members there are great about sharing their knowledge and experience. Many new GJ investors have gotten started at REIN in the past year of the group’s existence.
To begin with, you probably want to evaluate your tolerance for “risk.” A few possible risks to consider with rental real estate may include:
Initial purchase price: Prices are favorable now for real estate investing. Our market probably bottomed out last year and in some property types, prices are trending gently upward. So “buy now” is the advice if you want to pay “best price” for initially getting into a rental property.
Vacancy and vacancy rate: After you have a property and a tenant, if they move out how well will you weather both the emotional and financial situation if the property sits vacant for one, two or even three months with no rental income?
What if something breaks: Are you the kind of person who has the skills, tools, time and personality to replace that decrepit water heater, re-shingle the roof, and patch sheet rock holes when the renter moves out? Or will you have to hire these tasks out?
Financial commitment: Everything mentioned above all adds up to more or less positive cash flow; or negative cash flow in some circumstances. Positive cash flow is the mantra of the rental property owner, but what looks like a positive cash flow property at the time of purchase can change faces on you with a decline in market rents, unexpected repairs, unusually long vacancy rates or other unforeseen expenses.
After you evaluate the risks, here are just a few other points to consider after buying your first property:
Do your best to have a renter ready to move in as soon as you close on the purchase. In some circles this may be referred to as “lead with revenue”; don’t get behind the cash flow curve right off the bat by owning a vacant property.
Advice from the landlord-tenant affairs counselor at the Mesa County court system includes: When you get that renter, be sure to have a lease you and the tenant go over together. Have them initial key paragraphs then sign the whole document. Enforce the lease from day one to the day they move out. At the time of signing the lease, collect your initial rent and deposit right then and there.
Do a thorough background check on any serious renter candidates. Court records can be searched for a renter’s history including: any civil judgments filed, criminal charges, previous evictions and many other elements of past history. The Mesa County Sheriff’s Office will do an extensive background check for about $18.
Property managers use checklists to account for property condition at the start and end of a rental period. You should use one too; and, document everything with date-stamped photographs.
One element landlords often overlook in a lease is requiring the occupant to have renters’ insurance and to list you as an “additional insured” party. Require in your lease a show of proof of having this insurance at the time the lease is signed.
If you ask 10 people who have in the past or currently own rentals if they like owning, you’ll probably get at least seven different answers. These points were put forth to help you see the rental property process is not always a pot of gold but at the same time, done diligently and systematically it can be a satisfying and profitable venture.
Doug Van Etten is a local Realtor with Keller Williams Colorado West Realty. He is also founder and organizer of the Real Estate Investors Network of Western Colorado (www.REIN-WesCO.org). For information about buying or selling a home, contact Doug at 970-433-4312 or DougVE@kw.com.
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