So You Think you want to be a Landlord?

I hope you are not looking for a post about to get rich in real estate, because I can't help you there.  However, if you want to know how to break even,keep on reading.

We bought a home in Maryland in 2007, expecting to be there 4-6 years.  When the Air Force decided to move us in 2010, our house had lost 35% of it's value. Without buckets of cash, selling it was simply not an option.  I didn't know where to start to be a landlord and was in a complete panic, but it seemed like a better idea than bankruptcy.  I also thought I'd see if we could rent in on our own w/out a management company to save money and so far so good.  Three years later,  I am still no expert, but here's what I've learned:

HOW TO FIND RENTERS:
We prefer to rent to military members and so have only advertised on militarybyowner ($80 for 180 days) and ahrn.com (free). (Both of our renters have found us through militarybyowner.com).  There are dozens of other sites, but I do not have any experience with them. 

I actually set up a blog about my house (http://6444leopard.blogspot.com/) with as many details as I could think of: neighborhood, schools, room dimensions, commute times etc.
Since I live half-way across the country from our rental home and don't use a realtor, I ask our current tenants to show the house to prospective renters.  I realize this is a hassle, and so I offer to pay them $25 per showing.  
Since finding new renters is such a pain, I actually offer $100 less if they will sign multi-year leases. 

Management companies were looking for about a month's rent to list it for us and additional 10% of the monthly rent to manage it for us, so we planned on using one only as a last resort. We may just be incredibly blessed and I don't think this is normal, but we found our first renters 2 days after listing it and in about 9 days the second time.  

HOW TO SCREEN POTENTIAL RENTERS:

Have them fill out an application (mine's here) and do a credit/ background check. There are several online services.  I use Smart Move.  It's super cheap ($12), but I require the tenants to pay. If the couple isn't married, or there are other adults living there, check out every individual over 18.  Ask for letters of recommendation from former landlords.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

SECURITY DEPOSIT
Require 1 month's rent in security deposit. Unless you're independently wealthy, you can not afford to be nice. (it will be hard-stay strong) Do not listen to people's sob stories on why they can't pay this.  If they struggle to come up w/ the deposit, they may struggle with coming up with rent money each month. 

The deposit is not your money and legally it should be kept in an interest bearing account separate from your other personal accounts. If the tenants fulfill the agreements on the lease be prepared to return %100 plus interest of the deposit.

LEASE
Have all parties sign the lease (especially if it is a friend or family member). It clearly outlines expectations and keeps everyone legally protected. Here's mine.

PETS
They are risky, and I would consider each case individually.   I would require a refundable pet deposit, letters from vets, and previous landlords.  Have a pet addendum to the lease. Check your homeowner's policy-mine prohibits Pit Bulls, Rottweilers, German Shepherds, wolf mixes, and Akitas.

EMERGENCY FUND
If at all possible, have 3-6 months worth of mortgage payments stashed away. Real Estate is risky and you may need to use this emergency fund to cover stuff like broken A/C's (good times) or gaps between renters. 

DON'T BE A SLUMLORD
Promptly make repairs. If there is a serious problem with the house give them a break in the rent.  Our A/C broke, and our poor renters had a few very hot days, and so I gave them a 10% break in the rent for that month.

HANDYMAN
Find a good handyman that the tenants can call if needed.  If he can't handle the repairs, he will know who to refer you to.  I have him bill me directly. 



WHEN THEY MOVE OUT
Have a good check-out list.  Deduct any repairs from the security deposit. Since we don't live there, our handyman actually uses the same check-out list to determine if any repairs need to be done.  Since he will be doing the work, he knows exactly how much it will cost.  
UPDATE:  You need to be there when they move out.  (see why here)

Utilities: Do not return the security deposit until they can show proof that they have paid all bills in full. You will be held responsible for any of their unpaid utility bills. 

TAXES: Keep your receipts because so many expenses are tax deductible-repairs, advertising, and even a trip out to visit the property.  Also you will need to file taxes (even if you are losing money) on the state the property is located in, even if you are military. 

There you have all of my 3 years of knowledge in one blog post, hopefully it will help you avert a panic attack of your very own.  

WHAT TO DO IF RENTERS DESTROY YOUR HOUSE
I am no legal or real estate expert, but here's what we did here.