12 Things New Landlords Need To Know When Renting Out A House For The First Time

Renting out a property for the first time can be a daunting prospect. But, if everything goes to plan you’ll create a new revenue stream...

Renting out a property for the first time can be a daunting prospect. If everything goes according to plan you’ll be able to create a new revenue stream while simultaneously building equity in an appreciating asset. However, becoming a landlord comes with a variety of challenges, challenges that can quickly escalate to become costly threats to your new business enterprise. These risks can range from unexpected maintenance costs to poor tenants and potential evictions.

This is why it’s important to make sure you are knowledgeable about the rental property scene and all the potential issues that might arise and need to be overcome. In order to maximize your profits and achieve your financial goals by renting out a property for the first time, you need to be aware of common mistakes and pitfalls to set up stress-free tenancies and protect your investment.

Must-know tips to help you become an expert landlord

Know salient laws and regulations

Being a landlord comes with responsibilities. As a landlord, you need to be aware of all the legal ramifications of renting out your house.

For example, the Fair Housing Act stipulates that you cannot discriminate against tenants based on color, race, disability, religion, family status, or sex. Doing so or appearing to do so, even without intent, can land you in some serious hot water. Additionally, the rental property must be well maintained to ensure it remains habitable and safe.

There are also laws surrounding other rental issues like setting rental rates, tenant eviction, and assistance animals that you should abide by. Not researching the local, federal, and state Fair Housing Laws can be a costly mistake when renting out a house for the first time. Take your time to learn the landlord-tenant laws. You may want to consult with an attorney who specializes in housing laws.

Attract the best tenants

There are a few things that you need to know in order to attract the very best tenants. The first is how to create a good listing and where to advertise your property. Try including a short video tour of the property and a floorplan to help people visualize the space and entice them to enquire further.

Your rental property should be well maintained and clean. A fresh lick of paint between tenancies is a good cheap way to refresh the look of a property and make it look and feel well looked after.

Consider staging your property to help create a homely environment for prospective tenants. And you can also boost curb appeal with a few simple touches such as planting flowers in front of the building and maintaining and well-kept lawn.

Screen tenants thoroughly

It’s important when selecting a tenant from all of your tenant applicants to carefully screen each applicant. Bad tenants can cause thousands of dollars worth of damage to a property and may skip rent payments. In a worst-case scenario, you may have to pursue an eviction to remove a tenant from your property. A process that could cost thousands more and take months. All of this is time and money which you may not ever be able to reclaim. Tenant screening allows you to find tenants that are responsible, have a good track record of renting and are likely to look after your property.

Make sure to pre-screen prospective tenants, and then for those that meet your minimum criteria you will want to run a tenant screening report to check their criminal history, rental and evictions history, credit report, and run an income check to ensure they are low risk and can afford the asking rent. Be sure to contact a potential tenant’s past landlords as references. On a final note, keep a record of the reasons why you reject any tenants and make sure you do not ask any questions that conflict with the fair housing protected classes outline in point one of this article.

Set the right rent and deposit amounts

Setting a rent amount that’s too low will mean leaving money on the table, but setting a rent amount that is too high will put off potentially great tenants who will look for more affordable accommodation which could lead to extended vacancy periods. To set the right rent amount you will want to analyze similar rental properties in the area.

Related: How Much Rent Should You Be Charging?

Have a professional lease

Before renting out your property for the first time you need to get a professional lease drafted up. The lease agreement outlines the responsibilities of both parties and is an important document to protect the rights of both landlords and tenants. A poorly written lease could end up costing you in the long run, so if you are renting a property for the first time it could be worth getting a professional to help draft up the document to ensure it is valid and legally binding.

A few key things to highlight in the lease include, the lease start and end dates, the address, the rent amount, due date and frequency, who is responsible for property maintenance, smoking and pet policies, security deposit amount, and terms.

Follow accounting best practices

Your rental property is a business and you need to treat it as such. You will want to keep accurate books following best accounting practices. Open a separate bank account for all your rental business transactions. Regularly update your accounts. Utilize software to stay on top of your accounts and gain deep financial insights into your accounts. This will allow you to gain granular insight into your rental business’s finances so that you can maximize cash flow and profitability.

Keep accurate up-to-date books

When looking for software solutions to allow you to keep accurate books there are a few features that you should be looking for that will improve your property management workflow.

  • Connect your bank account

You need to be able to connect your bank account to view and reconcile transactions in real-time through your bookkeeping software. This removes the need for manual data entry meaning a faster more accurate income and expense tracking process.

  • Update accounts in real-time

If you leave your accounts to the 11th hour and only then decide to go through your paper receipts and bank statements the chances are you will either forget to include some expenses or be unable to claim them because you don’t remember exactly what the expense for or where the receipt is. These missed expenses can very quickly add up.

  • Easily digitize receipts

There is no reason to be keeping paper receipts. Paper receipts fade and can easily become lost. Instead, find a solution that allows you to easily digitize and upload your receipts to secure cloud storage.

  • Professional reporting

Professional reporting will help you to both files an accurate tax return and gain deeper insights into your real estate portfolio’s finances. This is vital if you want to run a profitable scaleable business.

  • Insights dashboard

A financial dashboard should give you essential insights into the performance of your portfolio and help you better understand the numbers so that you can make informed decisions to improve your cash flow.

  • Property management features

Property management features include the ability to collect rent, run tenant screening reports, manage tenant communications, and track property and lease details.

By following accounting best practices and pairing that with a quality bookkeeping solution to allow you to update your books in real-time you will never miss a deductible expense which could save you thousands of dollars at tax time.

Regular property inspections

Your rental property needs to be well maintained so that it remains safe and habitable and to reduce potential maintenance expenses. However, as you will not be living there in order to ensure that maintenance needs are caught early before they become a more serious problem you will want to regularly inspect your property.

At a minimum, you should do a thorough inspection before your tenant moves in making sure to mark any maintenance needs at the time, and then do a final inspection upon move-out. These inspections should be carefully recorded so that any relevant maintenance costs can be charged to the tenant.

Have a good rent collection system

As a landlord renting out a property for the first time you need to make sure you have a good rent collection system in place. There are numerous ways to collect rent from your tenants. Some landlords still allow cash and check payments. However, these methods are slow and insecure. Instead, you should be looking for an online rent collection solution that will allow tenants to transfer their rent payments securely directly into your bank account.

With Landlord Studio your tenants can automate their rent payments, the money will be transferred securely into your connected bank account, and the income automatically tracked in our award-winning income and expense tracking system.

Know who to call for maintenance emergencies

Maintenance emergencies do happen. This could be anything from a burst pipe to damage caused by a natural disaster. As the landlord, you are responsible for getting this fixed as quickly as possible to make sure the property remains habitable. Your tenant needs to be able to get hold of you in the case of an emergency, even outside of business hours, and you need to be able to resolve the issue as quickly as possible. It’s a good idea to have established contacts with contractors who you can call in the case of one of these emergencies.

Have a reserve fund

As we have said already. Emergencies happen, unexpected costs do arise, vacancy periods might drag on. You should keep a reserve fund in place to deal with these situations if or when they should occur. A good baseline is to have a minimum of equal to three to six months of mortgage payments in reserve.

Get landlord insurance

Landlords insurance is not the same as homeowners insurance. Typically Landlord Insurance just covers the building. Basic coverage will cover common damages from events like fire, storms, or smoke whereas more expensive coverage will even cover loss of rental income in case your tenant has to move out following an insured event.

There are often options of adding cover for items and content of the property that is owned by the landlord at an additional cost.

Learn more about Landlord Insurance

Renting Out A For The First Time: The Bottom Line

Rentals can be an incredible way to create additional revenue and build wealth for the future. However, you need to make sure you are aware of the ins and outs of being a landlord to ensure your rental property business is the success you want it to be.

Make sure to maintain good open communications with your tenants so that you can stay on top of property maintenance and make sure you find good software that will allow you to keep accurate up-to-date books and save you both time and money.

Learn how you can streamline your rental accounting and management with Landlord Studio →