How to Become a Landlord: The Complete Guide

Becoming a landlord is a great way to earn passive income. After initial planning, you can earn a good living from your rental properties with minimal effort. Managing real estate is also incredibly flexible and manageable if you have another career.

However, it’s still a responsibility that requires time and energy as you have to be able to manage your tenants and properties. Read our guide on how to become a landlord for tips on how to get started.

Table of Contents

• Step 1 - Set Reasonable Expectations
• Step 2 - Locate a Suitable Investment Property for Sale
• Step 3 - Acquire Financing
• Step 4 - Fulfill Licensing and Permit Requirements
• Step 5 - Understand Landlord-Tenant Laws
• Step 6 - Obtain Insurance
  • Short-Term Rentals
  • Long-Term Rentals
• Step 7 - Conduct Market Research
• Step 8 - Prepare the Property for Showings
• Step 9 - Advertise the Property
• Step 10 - Schedule Showings
• Step 11 - Conduct Tenant Screening
• Step 12 - Sign a Lease Agreement
• Step 13 - Fulfill Your Landlord Duties
• What Makes a Good Landlord?
  • Communication
  • Clarity
  • Transparency
  • Professionalism
  • Responsiveness
  • Organization
• Summary

Step 1 – Set Reasonable Expectations

Before you pursue your journey to becoming a landlord, you can set yourself up for success by planning accordingly. Understand the investments of money, resources, and time that you must make. Becoming a landlord takes a lot of hard work and patience, so you must have a passion for and commit to learning and perfecting your expected duties.

You should also budget for the following expenses:

• Repair and maintenance costs
• Property and rental income tax
• Mandatory inspection fees
• Rental licensing and annual registration fees
• Landlord insurance
• Mortgage payments
• Utilities (if applicable)
• Advertising and marketing fees
• Accounting and bookkeeping fees (if you hire a professional)
• Lawyer fees (if you have a lawyer review the lease)
• Property management fees (if you don’t manage the property yourself

Step 2 – Locate a Suitable Investment Property for Sale

Once you know you want to become a landlord, you can search for a suitable property for sale. Work with a real estate agent to find properties in your area. If you want to capitalize on another rental market, you may look for for-sale properties outside your immediate city. You can also buy land and use a land lease agreement to rent or lease the land for tenant use.

Consider the following factors when locating a suitable property:

• Property Type: Consider whether you want to buy a multi-unit building, a condo, a single-family home, or another type of property.
• Property Condition: Older buildings in disrepair may be cheaper to purchase initially but will require heavy repairs and renovations. Newer builders are more expensive to purchase outright but require less intervention.
• Location: Consider what’s around your property that would make it a suitable place to rent. If it’s in a quiet neighborhood with close access to shopping centers, major highways, schools, parks, and public transportation systems, it may be more desirable to certain demographics.

Step 3 – Acquire Financing

Acquire financing if you don’t have the funds to purchase the house outright. Visit different lenders’ websites to compare mortgage options. This way, you can find the mortgage payment terms that are most practical for your situation.

You can also consider how much you’d like to put toward your down payment. The average first-time homebuyer puts a down payment of 9%, while the average repeat homebuyer puts a down payment of 18%. [1] If possible, you can put down a high down payment to decrease your monthly payments.

Step 4 – Fulfill Licensing and Permit Requirements

Review the licensing and permit requirements for renting property in your area. Depending on your location, you may have to secure a landlord license, register the property as a rental, and undergo safety inspections. Abide by these laws to avoid legal repercussions, fines, and penalties.

Step 5 – Understand Landlord-Tenant Laws

Learn the local and federal landlord-tenant laws for leasing your property to ensure you don’t break any laws. Landlord-tenant law is grounded in property and common law and is often included in the rental agreement. [2] Some aspects of landlord-tenant law include the following:

• Lease type (month-to-month, standard or fixed-term, etc.)
• Renewal
• Termination
• Covenant of quiet enjoyment
• Security deposits (maximum amount, withholding, returns, etc.)
• Rent control
• Rent increase notices
• Maintenance and repair responsibilities
• Implied warranty of habitability
• Landlord access rights
• Subleasing limitations
• Tenant’s duties
• Eviction procedures

The Fair Housing Act

Another important law you need to know as a landlord is the Fair Housing Act, which was passed by the US Department of Justice. [3] This act ensures you cannot refuse to lease your property or negotiate with any person due to race, color, religion, gender, familial status, or national origin.

For example, consider the 2014 case involving the owners and operators of Woodland Garden Apartments in Fremont, California. They were forced by the Justice Department to pay $80,000 as a settlement for discriminating against families with children. [4]

Step 6 – Obtain Insurance

Ideally, you need to obtain a landlord-specific insurance policy for your property. Unfortunately, these policies are often slightly more expensive than a standard homeowner’s insurance policy, but they should cover you for damages arising from fires, storms, theft, and vandalism.

The type of insurance policy you choose will depend on the lease agreement and the expected length of the tenancies.

Short-Term Rentals

If you plan on renting your home for a single occasion, your existing homeowner’s insurance may be sufficient.

However, if you plan on renting your property in the short term (e.g., in an Airbnb-style scenario), your insurance company may perceive your property as a business. As such, you will need to take out a business-specific policy.

Check with your insurance provider to ensure you are getting the right policy for your situation.

Long-Term Rentals

If the tenants lease the property over a more extended period, e.g., six months or more, you must take out a landlord or rental dwelling policy. Landlord policies cost around 25% more than standard homeowner policies, so keep this in mind when shopping around. [5]

A landlord policy usually covers the following aspects:

1. Structure: Damage caused by fire, wind, lightning.
2. Belongings: Personal property used for maintenance or tenant use, such as household appliances like washing machines, dryers, snow blowers, and lawnmowers.
3. Liability: Legal fees and medical expenses associated with tenant or guest injuries.

Step 7 – Conduct Market Research

Research the rental market in your area. Look at similar properties to determine the average rental prices and analyze the demand for comparable units. Consider these factors when establishing a fair rate:

• Local rental trends
• Your property’s size and layout
• Your property’s amenities, upgrades, and overall condition
• Your property’s neighborhood and proximity to attractive places
• Your property’s property taxes, insurance, and maintenance costs
• The local economy
• Inflation and interest rates
• Rent control laws
• Tenant demand
• Target demographics
• Current vacancy rates
• Seasonality

Once you conduct your research, you may choose to set the starting rental price on the lower end. This way, you’ll remain competitive in your market and be attractive to new tenants. A low starting price can also help you plan to gradually increase the rent depending on market conditions (as long as you abide by rent increase laws).

Step 8 – Prepare the Property for Showings

Before you show the property to prospective tenants, ensure it’s in pristine condition. Address repairs and maintenance issues, conduct a thorough cleaning, and perform renovations or upgrades that may increase the property’s appeal. You can also hire a stager to arrange furniture and style the living space. This touch can further increase the property’s appeal.

Step 9 – Advertise the Property

Advertising your property correctly and effectively is critical in getting tenants suitable for renting your property.

Use free or paid listing services, such as HotPads, Oodle, Trulia, Craigslist, and Rentals.com. Accompany each listing with high-quality photos and an accurate description of the property’s benefits and features.

Furthermore, you can use local property listings, including newspaper classifieds, military housing, and student housing websites that can expose your property to a local market.

Step 10 – Schedule Showings

Once you receive interest from prospective tenants, you can schedule property showings. Be flexible to ensure that every interested tenant can view the property. If you can’t be present at a showing, ensure that a knowledgeable real estate agent or another hired professional is available to show the potential tenants around.

Ask them to prepare answers to questions about the property, provide information about the lease terms and application process, and speak to the property’s unique factors.

Step 11 – Conduct Tenant Screening

One of the key things to ensuring a smooth landlord job is to recruit the right tenant. A good tenant will ideally:

• Pay rent on time
• Be responsible, considerate, and honest
• Keep the property in good condition
• Abide by the lease agreement
• Not cause any trouble with the neighbors or property managers

As any landlord should, you should complete a thorough tenant screening process and conduct a background check to avoid bad tenants. Tenant screening and background checks include:

1. Having a pre-screening process to filter out unsuitable candidates
2. Using a rental application to gather and assess the more nuanced details
3. Performing a thorough background and credit check to ensure the tenant is stable
4. Obtaining an employment verification letter to ensure the tenant’s income and employment
5. Not accepting payment upfront to avoid scams
6. Having your expectations and responsibilities written in a formal agreement
7. Reviewing the eviction history by considering the context and frequency of any evictions

Step 12 – Sign a Lease Agreement

Once you know what tenant you want to work with, you can compose and sign a lease agreement. Ensure the lease covers necessary terms, including the parties’ information, rent payments, security deposit, lease type, lease duration, parties’ expectations and responsibilities, insurance liabilities, utility payments, and late rent fees.

Step 13 – Fulfill Your Landlord Duties

Perform your landlord duties to maintain the property’s condition, ensure a safe living space, and meet all legal obligations. Some of your landlord duties will include the following:

• Perform or seek safety inspections for the property
  • Gas safety
  • Electrical safety
  • Fire safety and escape routes
• Property maintenance
• Tenant management
• Repairs
• Utility management and payment (if applicable)

What Makes a Good Landlord?

Communication

Conveying your needs and wants while considering other people’s perspectives is the key to being an effective communicator.

As a landlord, you will often work with intermediary professionals, including real estate agents and property managers, instead of dealing with tenants directly. Being a clear communicator will make this process much smoother.

Clarity

You must be clear about your goals, whether collecting rent on time or enforcing a certain lease provision.

Also, being clear about what you must communicate with your tenants can improve your relationship and help maintain long-term occupancy of the property.

Transparency

You must be upfront and honest when dealing with your tenants and management companies. If the property has issues, such as maintenance problems or use restrictions, clearly disclose them.

Hiding faults or problems will only create bigger issues later, so remember that honesty is always the best policy.

Professionalism

Tenants generally do not want to be dealing with their landlords regularly. People need their space. Whether you live nearby or far away, calling by phone or dropping by the property to check on it regularly will annoy tenants and infringe on their right to privacy.

Do not invite yourself in or expect an invite so that you can view the property for faults or damages. Issue proper notice and abide by your area’s access laws.

Responsiveness

Your tenants often need you to respond to maintenance issues quickly and effectively. The lease agreement should outline the tenant’s method of raising a maintenance concern. A broken water main, leaking toilet, or electrical problem needs prompt attention to keep your tenants renewing their lease agreements and ensure the continued profitability of your property.

If you have hired a property manager, they often have an online system where tenants can raise maintenance issues. The property manager should also be readily available via phone or email.

Organization

Keep an electronic or manual diary with the dates of rental and mortgage repayments, council rates, bills, etc. You can also send and copy rent receipts to your tenants for a record of payment.

Get a good financial adviser to help you with this to ensure you maximize your repayments and cash flow from properties.

If something goes wrong, e.g., tenants believe they have paid when they have not or claim they didn’t cause property damage, etc., you need to have clear and easy-to-find records.

Summary

Although becoming a landlord and owning rental properties can be incredibly profitable, it’s not an overnight venture. It requires meticulous planning and the right traits to experience progress. Knowing the process to become a landlord can help your property reap sustained profitability over the long term.

Learning the relevant laws, tenant screening processes, lease agreement inclusions, and more will hopefully maximize your success.

Remember, managing your properties takes time and effort, so ensure you are ahead of the game by planning beforehand.