Steps to Renting: Becoming a Landlord

If you remember my previous post about generating additional income, it was quite a long time ago in which I wrote:

My wife and I have talked about renting out our current apartment to generate additional income. But we encountered three problems that have so far prevented us from making any success on this:

  • 1. we like it here and we don’t want to move yet;
  • 2. we still wouldn’t make any residual profit from renting our house out without paying off part of the mortgage principal (something we don’t have enough cash yet to do); and
  • 3. we can’t decide where we’d like to live other than here. Contribution $0. Potential contribution estimated at $100.

So if you like a rental income property (and who doesn’t?), what do you need to get started? Mmm… it’s hardly like we’ve made a start. So let me list the things that I think I would need:

1. Renovation:

We seriously need to do the tiling work in several rooms: the bathroom, where the tiling is beginning to separate from the walls due to the contraction and expansion of the concrete in summer/winter, and the poor workmanship when the place was finished. I also suspect that we need to replace one of the air conditioners in the study.

2. Redecoration:

We’ve got walls painted in a variety of colors, and it’s been a few years. It’s likely that our tastes aren’t exactly the same as our renters. So we’ve probably got a bit of painting to do, as well as other minor repairs.

3. Insurance:

Not sure how to handle that. I know that you can get landlord’s insurance… but what happens if the tenant absconds or worse? Can that be claimed?

4. Finances:

Since our property is mortgaged, the yields are just not very attractive since rents are fairly low in this neck of the woods. We know that we would have some gross profit, but there’s also a landlord’s tax of 10% on the income. So not sure how that would work. I think the only solution would be to pay off some or a lot of the principle. Still a good return on money invested.

5. Renting:

Finding good tenants would be a priority. The neighboring landlord rents his apartment, the tenants there have been anything but reliable. Dirty, filthy,… with problems paying rent. I think tenant screening would be essential to prevent this, even if it meant the apartment being empty longer.

With a sound plan, it might work. Still a few kinks to work out. I do know that the area is very desirable, with lots of chances to find tenants. Of course, that means we’d have to move! A chance to find a new area.

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2 thoughts on “Steps to Renting: Becoming a Landlord

  1. Philo

    1) A property manager.
    We rented out our townhouse when we moved, and used a property management company. We got references and went with a local franchise of a national chain. I think we pay 10% of the monthly rent, but they help us set the rent, post ads, find a tenant, do the background checks and interviews, etc. They inspect the property from the outside once a month and do walkthroughs once a year. They are the ones that the tenant calls at 2am when the toilet is overflowing, and they get quotes on any repairs for us to approve.

    They have also chased down the tenant when the rent was late, all the way to having the sheriff post the notice on the door one time when it got VERY late.

    Their monthly fee has been a no-brainer for the 14 years they’ve been running the place.

    Honestly – for your first property, especially with the misgivings your exhibiting, look into getting a property management company. It will probably end up saving you money.

  2. InvestorBlogger Post author

    Thanks, Philo, for the comment. If you don’t live in the area of your rental, then I’d second that suggestion. A property manager makes great sense! And the money would be well spent.

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