Skip to content

Becoming a Landlord: 8 Tips for Property Owners

a for rent sign signifying a landlord renting own home

Thinking of transitioning your home to a rental? We’re offering 8 tips for becoming a landlord.

Author: Martin Lundgren

Becoming a landlord can be both exciting and daunting. We’re all fans of passive income, but it’s not without a few challenges. If you’re new to this role, it’s critical to understand the various financial and managerial aspects that accompany property rental. 

Below, I’ve compiled a list of tips to help you navigate becoming a landlord. This article focuses on what to know when turning your existing home into a rental.

1. Understand Your Mortgage: Fixed vs. Variable Rates

The first step in preparing your property for rental is understanding the type of mortgage you have. A fixed-rate mortgage means your interest rate remains the same for the life of the loan, providing stability in your monthly payments. Whereas, a variable-rate mortgage fluctuates with market conditions, which can lead to varying monthly payments. 

If you have a variable-rate mortgage, assessing the potential impact of rate increases on your finances is wise, and you should consider refinancing to a fixed-rate mortgage before turning your home into a rental property. Refinancing can help lock in lower rates (and make your property more profitable in the long run).

2. Timing is Key if Refinancing Your Mortgage

To be strategic, refinance (if rates are lower) before you leave your home, and it becomes a rental property. Mortgage lenders are often more favorable for primary residences than secondary or investment properties. Refinancing while you still live in the home can secure better rates and terms. This reduces your monthly expenses and increases your potential rental income. Once classified as a rental, refinancing can become more complex and expensive. Refinancing a rental property often requires stricter qualifications than the original mortgage.

3. Think of Your Home as a Business

Transitioning your home into a rental property requires a shift in mindset from a personal to a business perspective. This means treating your property as an investment. And, making decisions based on financial returns rather than emotional attachment. You’ll want to make sure you:

  • Keep detailed financial records
  • Understand tax implications
  • Are prepared to handle tenant issues professionally

4. Plan for Property Management

One of the significant decisions you’ll face as a landlord is whether to manage the property yourself or hire a property manager. Self-management can save you the monthly 8–10% fee property managers typically charge. However, it requires a significant time commitment and the ability to handle various responsibilities, from maintenance to tenant relations. 

Hiring a property manager might be the better option if you prefer a hands-off approach or live far from your rental. A good property manager can handle everything from finding and vetting tenants to managing repairs and ensuring compliance with local laws.

5. The Importance of a Trustworthy Handyperson

Whether you manage yourself or hire a property manager, having reliable contractors and handypersons is essential. Building a network of trustworthy professionals ensures that maintenance and repairs are handled promptly and efficiently. After all, you want to prioritize maintaining the property’s value and keeping tenants satisfied. 

When looking for handypersons, seek recommendations from other landlords and read reviews: Google reviews or Angi’s list are a few places to start. Once you think you’ve found one, perhaps begin with smaller tasks to test their reliability and quality of work.

6. Obtain Legal Protection Via an LLC

Consider placing your rental property into a Limited Liability Company (LLC) to protect yourself from potential legal liabilities. An LLC can shield your personal assets from lawsuits related to the rental property. This is particularly important if your property is in a different state, where managing legal issues can be more complicated. Forming an LLC adds a layer of security and professionalism to your rental business.

7. Familiarize Yourself with Local Regulations

If your rental property is in Seattle, you must be especially vigilant about local regulations and tenant rights. Seattle has stringent laws governing rental properties, including how to raise rent, eviction procedures, and tenant screening processes. Ensure that your lease agreements are clear and comply with local ordinances. Keeping abreast of local regulations helps avoid legal complications and fosters a positive relationship with your tenants.

8. Write a Clear Lease Agreement

A well-drafted lease agreement is the cornerstone of a successful landlord-tenant relationship. It should clearly outline the terms of the rental, including: 

  • rent amount and due dates
  • security deposit details
  • maintenance responsibilities
  • policies on pets, smoking, and subletting
  • whether or not you require renters to have renter insurance 

Clarity in the lease agreement helps prevent disputes and sets clear expectations for both parties.

Ask your financial advisor about becoming a landlord

Becoming a landlord is a significant endeavor that requires careful planning and management. By understanding your mortgage options, approaching it with a business mindset, and adhering to local regulations, you can navigate the challenges and reap the rewards of rental property ownership. 

Not only are proper preparation and informed decision-making key to a successful and profitable landlord experience, but we’ve been there ourselves. Reach out today to learn how to accommodate becoming a landlord into your financial planning.

 

Northern Lights Advisors is a fiduciary, fee-only, Registered Investment Advisor (RIA) firm based in Seattle, Washington. The information in this article is not intended as tax, accounting, or legal advice. Read the full disclaimer here.

RECOMMENDED POSTS