Ready to rent your property? This is the first step to building durable wealth for many Americans. Owning an investment property as a rental is the easiest way to build durable, long-lasting wealth that you can rely on in retirement and pass on to your children.
To help guide you as you prepare your property, here are a few tips to generating a rental income and maximizing your returns.
Set your leases to expire during a part of the year where it is easiest to secure new tenants
Many people who lease their properties default to the one-year lease; however, you may want to consider alternative lease agreements to give you the flexibility to solicit clients during peak moving seasons. Most people move into a rental property between May and September.
Why might you ask? Because that is graduation and back-to-school season for students. Young adults pick up and move, sometimes every year, while in college. Furthermore, parents often use this opportunity to move as well, especially if their last child is leaving the nest and they want to downgrade their residence.
A good trick to take advantage of this season is to end your leases at the end of spring or the beginning of summer. Moreover, since more people are moving, you can take advantage of the market and charge slightly higher rates.
Keep in mind that flexibility is a major selling point for many potential residents, especially younger Millennial renters.
Conduct background and credit checks
Many amateur rental property owners know that they should submit their prospective tenants to a background and credit check. While you may initially intend to follow through on this principle, many property owners end up skipping this step to secure a potential tenant faster.
Skipping the investigation is understandable; it costs money to conduct these checks and time as you force the prospective resident to wait before moving in and signing a lease. But you should always perform a background check, follow-up with references, and submit credit checks. You need to ensure that you are opening your rental property to a responsible resident.
Conducting screening tests
While you are screening residents, you may wonder what factors indicate reliability and trustworthiness? These people are encouraged to inflate their applications to make themselves appear as reliable as possible. How can you tell what matters and what is just fluff?
Many experienced property managers like to rely on the length of employment as an indicator of character. The longer a person holds a job, the more they are likely to be accountable and responsible. One of the best indicators of future behavior is evidence of it in the past. Steady employment indicates that a supervisor finds this person reliable.
Finally, beware of recommendations from prior property owners. If the resident was troublesome, the previous property owner has an incentive to embellish or lie to drop the tenant on you.
Establish screening criteria
One of the significant problems in accepting new residents is that property owners rely too much on emotion or personal connection. Emotions can cloud your judgment and cause you to overlook a fundamental, for example, granting an exception for a large pet or accepting a tenant with intermittent work.
It is far better to establish a criterion and then stick with that criteria. Furthermore, consider that you expose yourself to potential discrimination litigation if you reject a tenant for the wrong reasons. It is far easier to fend off these lawsuits if you have a demonstrated and consistently applied policy.
Inspections are burdensome and add one more thing for you to do, but they are an important part of running a property. Inspections help you identify repair issues and allow you to ensure that your residents are complying with the terms of the lease agreement (e.g. no subleasing or pet restrictions).
Furthermore, inspections enable you to preempt problems. The earlier you catch a repair issue, the sooner and cheaper you can fix it. You can’t rely on tenants alerting you to fix problems because many people tend to put off repairs until they can no longer ignore the problem.
Leasing your first rental property is an exciting first step toward building durable wealth through rental income. Make sure you take that first step seriously and instill procedures that you apply to every subsequent property you lease. Consistency is the best way to drive down costs and increase profits.