This series of blogs is to help my friends and clients that have taken the gamble of renting their current home and purchasing their next home. Being the accidental landlord is not easy, but with some planning and evaluation it can be a fantastic financial move for your future.
As a landlord you need to manage your time and property with a high priority. The first sign of failure is not having contact or spending anytime working the rental and its tenants. I always say, “The last phone call you should make should be a collections call.” and this always rings true. A rental property in many cases is someones 2nd largest asset and it should be treated that way. The income you can potentially make off of your rental property needs to be realized and your time should be allocated accordingly. As a landlord you have several ways that each month you may be profiting from a rental property. First, you are charging rent and anything above your expenses can be profit. Second, increase in equity is overlooked so often. Third, appreciation is a long term play but should not be left out of the monthly scorecard. The first is pretty self explanatory and you should be pretty clear on your regular expenses and be charging rent accordingly. As for your equity, this is where we need to be paying attention. Each month your renter pays you rent and you make that mortgage payment, you are gaining equity. Anything that the tenant pays towards your principle is instant and recognizable return on your investment at the time of a sale. So why wouldn’t you spend some time on the rental? Lets say you gain $200.00 per month towards your principle. You spend 2 hours at the house and that’s a $200.00 per hour pay rate and that’s hard to come by. So spend time on the property and recognize that as you work and pay down the principle, that is time well spent. Next is the appreciation or the rise in current market value. Many landlord are just hoping the tenant takes care and preserves the property or that they just don’t destroy it throughout the lease. WRONG! You need to continually be working to raise the market value on the home. Not only can you grow the value of the asset but you can potentially continue to grow the market rental rate of the home. So keeping up on the maintenance is key. You need to allocate a certain amount of time each month to keep the property in good working order with; a system for regular inspections, a regular exterior maintenance program and ongoing beautification strategies. You will be surprised how much this can pay off.
So the moral of the story is Time. Spending a bit of time and taking pride in your rental property will not only save you unexpected money along the way, it will also help you continue to increase the rental rate and grow the current market value of the property.