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Home Resources Real Estate How to Become a Landlord

How to Become a Landlord: The Complete Guide

Becoming a landlord is easier than you think. Follow these instructions to secure your property investment and see financial success.

Updated July 21, 2022 | Written by Susan Chai, Esq.

Real estate is one of the best ways to become wealthy. As a form of passive income, it’s an appealing way to make money as it can be both flexible and manageable when you have a day job.

However, it’s still a responsibility that requires time and energy as you have to be able to manage your tenants and properties.

Being a landlord is a great way to bring in additional cash flow if done correctly and prudently.

Table of Contents
  • A Step-by-step guide to leasing your property
  • What Makes a Good Landlord?
  • Summary

A Step-by-step guide to leasing your property

Step 1 – Inform Interested Parties

Mortgage providers

If you are currently paying off your mortgage, you will need to inform your mortgage provider of the details of your lease agreement.

This could be of benefit as there may be ways you can improve your mortgage repayments based on the terms of your lease.

Licenses

You will require a rental license to lease your property in some states.

This will depend on your state and district, as well as the type of occupancy and ownership of your property. Some states may require you to license your property as a small business.

Check with your local city council offices for more information regarding the type of license you need.

Step 2 – Know the Law

It is essential to know what laws surround the leasing of your property to ensure you and your tenants aren’t breaking any laws.

Landlord-tenant law

The landlord-tenant law is grounded in property and contract law, often included in the lease agreement.

Aspects of the landlord-tenant law include:

  • The landlord-tenant relationship and the covenant of quiet enjoyment ensure landlords do not disturb tenants (giving them space).
  • The agreed length of tenancy and termination procedures
  • Limits imposed on the tenant in subleasing or possessing the property
  • The tenant’s duty to pay rent and the consequences incurred if unpaid
  • The correct eviction process.
    Knowing which laws are relevant in your state can help prevent future issues, so check with your Property Manager or Real Estate Agent about which laws apply to you.

The Fair Housing Act

Another important law you need to know about as a landlord is the Fair Housing Act, set out by the US Department of Justice.

This ensures you cannot refuse to lease your property or negotiate with any person due to race, color, religion, gender, familial status, or national origin.

In 2014 the owners and operators of Woodland Garden Apartments in Fremont, California were forced to pay $80,000 by the justice department when they lost in a discrimination lawsuit filed by tenant families with children.

As Federal law guarantees families with children the right to equal access to housing, the law found the owners of the housing complex were in breach of these laws and were required to pay up.

So landlords, beware! Ensure you are not discriminating against your tenants and are keeping within federal and state law.

There are essential steps to take if you believe your tenants might be acting illegally (for example, setting up a drug lab or selling drugs from your property).

Consult this guide from the Department of Justice if you believe there may be illegal activity occurring on your property.

You can also read our article about how marijuana legalization affects landlords and lease agreements.

Implied Warranty of Habitability

This warranty is written into the lease agreement and requires landlords to keep their property ‘habitable.’

It ensures both parties are doing their duty; the landlord by maintaining a habitable space and the tenants paying the rent by the due date.

Step 3 – Take Precautions and 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 homeowners 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 length of your tenancy.

Homeowners Insurance vs. Landlords Insurance

Short-term rentals/ Primary Residence: Business Policy

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/ Second Home: Landlord Policy

If the tenants lease the property over a more extended period, e.g., six months or more, you will need to take out a landlord or rental dwelling policy.

Beware, landlord policies cost 10 – 20% more than standard homeowner policies.

A landlord policy usually covers structure, belonging, and liability.

  1. Damage caused by fire, wind, lightning, hail, ice, or snow
  2. Personal property used for maintenance or tenant use, such as household appliances like washing machines, dryers, snow blowers, and lawn mowers.
  3. Liability: If a tenant or guest is injured on the property, including legal fees and medical expenses

TIP

Your landlord policy does not cover your tenant’s personal property, so be sure to inform your tenants to invest in their insurance before signing the lease to protect themselves if something goes wrong.

Step 4 – Advertise Your Property

Advertising your property correctly and effectively is critical in ensuring you get the tenants you want.

Rental Listing Platforms

Free Internet Listing Services: HotPads, Oodle, Trulia, and Vast. There are many easily accessible rental listings on the internet.

Your ad may compete against other listings in the area, but the platforms are usually reliable in catering to the desired location for recruiting tenants.

Craigslist is a free classified listing service and a popular medium for users to buy and sell items, and it’s one of the many places potential tenants will utilize for their house-hunting.

Paid Internet Listing Services: Lovely, Trulia Pro, Rentals.com

Services like these require fees, but there are benefits to them.

The marketing for these paid platforms tends to be more competitive, leading to better exposure for a better quality of potential tenants.

Local Property Listings

Local property listings include newspaper classifieds, military housing, student housing websites, and others exist that can expose your property to a local market.

Some cities might have specific local sites that are more popular in that area.

Since they are localized listings, tenants tend to be from the area and can view the property more readily.

Step 5 – Screen Tenants

One of the key things to ensuring a smooth landlord job is to recruit the right tenant.

What makes a good tenant?

A good tenant will ideally:

  • Pay rent on time
  • Be responsible, considerate, and honest
  • Will not damage the property and keeps it in good condition
  • Abide by the lease agreement
  • Not cause any trouble with the neighbors or agents

As any landlord should, you should undergo a tenant screening process and conduct a background check to avoid bad tenants.

Tenant screening and background check include:

1. Having a pre-screening process to filter out unsuitable candidates
2. Using a rental application, gather and assess the more nuanced details
3. Performing a thorough background and credit check to ensure the tenant is stable
4. Ensuring landlords do not accept any payment upfront due to scams
5. Insisting on a face-to-face meeting to confirm their stated identity
6. Having your expectations and responsibilities written in a formal agreement.

Step 6 – Lease the Property

Lease Agreements

Lease Agreements are essential for the tenant and landlord in ensuring a pleasant rental and leasing experience for both parties.

Critical components a lease agreement should cover but are not limited to:

    • What the premises are
    • Who the landlord is
    • Who the tenant is
    • The amount of rent
    • The security deposit
    • The term of the tenant’s stay
    • Expectations and responsibilities
    • Fees & payments
    • Attorney fees should there be a disagreement
    • Insurance liabilities
    • Late rent fee
    • Utility Payments

Security Deposit

Having a security deposit from your tenants is essential in protecting your rental.

A security deposit is a one-time refundable fee you collect along with their first month’s rent.

How much should you ask for?

While the maximum amount of security you can request depends on your rental property, each state allows you to collect a security deposit.

Some states have no limit, while others do, so research accordingly.

Collecting the security deposit in a lump sum is always advisable before the tenant moves in. That way, it proves the tenant’s financial capability and covers any liability costs or damages that may occur after moving in.

As a landlord, this will provide security should anything happen to the property or lease agreement.

Unless the security deposit covers the costs of damages, the amount itself is supposed to be refundable.

Each state has a specific time for when you must return the deposit upon termination of the lease. Likewise, specific laws state if and when you are legally allowed to keep this security deposit.

Property Safety and Inspections

As a landlord, you must maintain the property for safety and health reasons. You need to ensure the property is kept in optimal leasing condition as you are responsible for a range of liabilities.

Remember that these rules and regulations differ state by state and by local area, so be sure to do additional research on what may apply to you.

Gas Safety

Required gas safety obligations include:

  • Ensure and check that gas pipework, flues, and appliances are in safe and sound condition
  • Conduct an annual gas safety check on each appliance flue
  • Make sure you have a record of each safety check

Electrical Safety

Required electrical safety obligations include:

  • Ensuring you maintain all electrical installations in a safe condition, especially for the duration of the tenancy
  • Any appliances you provide must be safe and certified
  • A registered electrician must carry out periodic inspections and test

Fire Safety

Required fire safety obligations include:

  • Follow fire safety regulations to ensure tenants have access to escape routes at all times
  • Ensure all furniture and furnishings supplied are not flammable
  • Provide and install fire alarms, carbon monoxide detectors, and extinguishers

Maintenance and Management

Although lease payments are passive income and not a typical “day job,” regular property maintenance and management of tenants will be required.

Property maintenance can include but is not limited to: mowing the lawn, shoveling the snow, lawn maintenance

Tenant management can consist of but is not limited to:

  • Handling phone calls or emails from tenants at any time of day
  • Dealing with any issues that may arise
  • Addressing tenant problems and possibly using out-of-pocket money to cover costs (e.g., fixing the sewage)

Utility Management and Payment

As a landlord, you can decide whether the utilities should be part of the rent or have the tenant take care of it.

There are pros and cons to paying utilities yourself, and utilities can include gas, electricity, sewer, water, and trash.

When it comes to deciding which utilities you want to include or not, be sure to take into consideration your finances and management.

For example, gas bills may have more significant fluctuations throughout the seasons; hence gas may not be a utility you want to include in the rent.

On the other hand, including utilities in the rent may seem enticing to prospective tenants.

TIP

Overall, you want to make a timely decision for you that makes both property and tenant management more effortless in the long term.

You can include a clause in your lease agreement regarding the utility payment and which ones the tenant is responsible for.

What Makes a Good Landlord?

Take a look at some basics of becoming a landlord after making financial commitments.

Additionally, remember that tenants have rights so you must act according to federal and state laws when dealing with renters.

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 need to ensure you are clear about your goals, whether timely payments, collecting arrears, or maintenance due to damages.

Also, being clear about what you need to communicate with your tenants will enhance the relationship and keep the property rented for longer.

Transparency

You must be upfront and honest when dealing with your tenants and agencies.

As much as we’d like to think this trait would be a given, it often arises as an issue, particularly in times of financial turmoil.

If there are issues with the property, such as maintenance issues, local permits required, or restrictions, clearly state this, mainly when letting the property and finding potential tenants.

Hiding faults or problems with the property will only come back to haunt you at a later stage so remember, honesty, at all times, really is the best policy.

Ensure you communicate with your tenants or property managers regularly by phone or email where possible so that messages are conveyed clearly without creating conflict or destroying trust.

Keep Your Distance

Tenants generally do not want to be dealing with their landlords regularly. People need their space.

Whether you live nearby, next door, or on the other side of the world, calling by phone or dropping by the property to check on it regularly will not only annoy them but 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. Leave this up to the real estate agent or Property Manager.

Although you are keeping your distance, be sure to be available should they need to contact you by phone or email.

Trust

It would help if you learned to trust the tenants and property managers who look after your property.

Perhaps this is your first investment property, something you have spent a long time saving for, or maybe you own a few by now.

Either way, you need to trust real estate professionals and leave them to do their job (that’s what you’re paying for, really).

Like any business, trust is a crucial component of relationship building, not only you trusting in others, but others being able to trust in you as a landlord.

You can create sustainable and profitable relationships that mutually benefit both parties by being transparent, clear, and showing kindness now and then.

Respond Promptly

Your tenants will often need you to respond to maintenance issues quickly and effectively.

The tenant’s method to raise a maintenance concern, alongside the average response time, should be outlined in the lease agreement.

If you have hired a property manager, they will often have an online system by which tenants can raise maintenance issues.

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.

Get Organized

Keep an electronic or manual diary with the dates of rental and mortgage repayments, council rates, bills, etc.

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 damages to the property, etc., you need to have clear and easy-to-find records.

Ensure you:

  • Keep all documentation in organized files
  • Organize all emails in folders
  • Store physical documentation, such as invoices and receipts, in one place and label them

Summary

Although the notion of becoming a landlord appears to be a novel idea, it is essential to note that a variety of requirements and qualities are needed to ensure your property’s sustainability and profitability.

Knowing who you need to inform, laws, insurance, tenant screening, and Lease Agreement inclusions will hopefully prevent your property from misuse or damage.

Being a good landlord requires you to research, organize, and keep communication clear and straightforward to ensure a smooth leasing process with your tenants.

Remember, managing your properties takes time and effort, so ensure you are ahead of the game by keeping your investment and, ultimately, your cash flow in check.

Susan Chai, Esq.

Legal Counsel

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  • Lease vs. Rent: What is the Difference?
  • How to Sublease an Apartment: 5 Steps for Subletting
  • What is Subletting and How Does it Work?

In This Article

  • A Step-by-step guide to leasing your property
  • What Makes a Good Landlord?
  • Summary

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