Blogger Tess Wicks became a landlord early in life and has a few tips for you prospective landlords out there.
At the ripe old age of 23, I decided I no longer wanted to pay rent. I grew up in an extremely economical family. My oldest brother started investing in the stock market when he was 12, and my parents started putting money away for my siblings’ and my education before we were born.
Between my parents’ generosity and my (pigheaded) discipline to apply for college scholarships and find a few high-paying internships, I was able to graduate college debt-free with a significant savings balance.
I’ve never been a spender, so it was easy to make the decision to put my saved money to work for me. I wanted to invest the money I saved into something that would produce passive cash flow and significantly decrease the cost of living in my new city, Chicago. Within a few months of making my anti-rent decision, I found a two-bedroom, 1,100 square-foot condo about two blocks away from a city train station, and my roommate and I moved in.
Here’s what I learned within the first few years of being a landlord.
Remember: You’re Running a Business
With a roommate renting out my spare bedroom, I was now making a consistent monthly income from my investment property. But with great fortune comes great responsibility. I was now running a business, and I needed to learn the ropes of how to treat this income and manage my cash flow.
Any homeowner will tell you that homeownership comes with a lot of pricey surprises. Within my first month in the condo, I had to replace my downstairs neighbor’s ceiling which had water damage due to a poorly installed bathtub faucet in my tenant’s bathroom.
Unexpected expenses come up regularly and with a home they aren’t always cheap. I needed a cushion–an emergency savings fund–for my new business. I started saving one-third of my roommate’s rent payments in anticipation of the next snafu.
While preparing for and managing the expenses of your business, you’ll also want to keep good records of your income and expenses for taxes. There are certain tax benefits to owning a rental property and running a business out of your home, but meeting with a certified tax professional will ensure you’re abiding by tax laws and reaping all the tax-saving rewards of being a new small business owner.
Be Responsive and Flexible
A few months after the ceiling snafu, my dishwasher was no longer doing its job. This tested my tenant’s patience and made me realize that, as a landlord, I needed to respect her needs and expectations as a renter and be quick to respond to home maintenance issues.
The most eye-opening thing I was struck with upon becoming a landlord was that I didn’t have my own landlord to call when things went wrong. I was the person who had to fix the issue or hire someone to do so—and I had to pay for it.
Being responsive and flexible with your home maintenance and the needs of your tenant is vital to being a successful landlord.
If you have your savings cushion prepared for unexpected expenses, the next step is to build a roster of go-to home repair contacts. Do some research in your area on the most respected plumbers, electricians, handymen, and other home construction contractors, and add them to your speed dial.
Find the Right Tenants
After a wonderful two years with my first long-standing roommate, she became engaged and moved in with her new fiancé. I had found her originally through a conference years before we both moved to Chicago, but now I needed a new plan for securing not only the right tenant, but the perfect roommate.
To find high-quality renters, interview them as if they were going to live with you (whether you live with them or not). I used Craigslist to put my place up for rent; though there are other platforms for finding roommates like Roomster and Zillow, Craigslist has always been successful for me.
After receiving an email about a potential tenant, I’ll respond asking them to tell me a little bit more about themselves and request a link to their LinkedIn or Facebook profiles. I also schedule a brief phone conversation so we can get to know each other better; after all, they’ll want to know if they’d enjoy living with me, too.
Renting out a room in your home or from a separate rental property you own is a great opportunity to earn some extra income. However, being a landlord comes with the challenges of running a business. Have an idea of what to expect when you begin to collect rent. Be thorough in your roommate selection, stay organized, and be a bit frugal to save up a cushion for maintenance and repairs. Finally, sit back and enjoy watching your money go to work for you.
Tess Wicks is a personal finance freelance writer based in Chicago. She is the voice behind her personal finance podcast and blog, dedicated to educating and empowering Millennial women to take control of their finances. Follow her on Instagram and Twitter.
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