Investing in residential real estate and renting it to tenants can be a great way to own assets that create passive income and may gain value over time. But becoming a landlord takes plenty of planning, investment, and patience.
How does someone actually become a landlord? There are a lot of expenses to account for and variables to consider. Follow these steps and you’ll be well on your way to landlord life.
1. Make sure you can lease property in the area
Many homes sit in a community governed by a homeowner’s association (HOA). HOAs often restrict the number of rental properties in a community, how long tenants can stay, and how many tenant turnovers are allowed in a calendar year. They can also enforce specific terms of the lease.
Let’s say an HOA decides to place a 30% rental cap on their community. If 30% of the homes are already rented to tenants, no new renters will be allowed. New landlords are out of luck until an existing renter leaves.
Make this the first thing you check when you consider rental homes in areas within an HOA.
2. Get familiar with state and local landlord-tenant laws
Landlord-tenant laws vary from state to state. These regulations outline the rights and responsibilities of both the landlord and the tenant. Landlord-tenant laws usually cover things like:
- Lease agreement limitations
- Rent payment and increases
- Security deposits
- Health and safety concerns
You’ll also need to be familiar with the Fair Housing Act and comply with it. This federal law “prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, because of race, color, religion, sex (including gender identity, and sexual orientation), familial status, national origin, and disability.”
Some states also have additional Fair Housing laws. Violating any of these regulations can lead to significant penalties.
3. Apply for a rental license (if your state requires them)
A rental license is…