I’m going to make the plunge into renting, but I need to know what the basic items I need upfront are. I know that I need to buy a property at a decent price that will have a positive cashflow (I believe this is the hardest step in becoming a landlord), but what else do I need?
Renting applications/agreements - Should I buy at a office supply store?
How do I screen tenants?
Is it best to hire a property manager at first and pay 10% of gross rental?
When should you find an attorney?
Sorry if this sounds very elementary, but this is my biggest stumbling block. Thanks for your help.
Sounds like you have some reading to do. There are a lot of posts answering your questions in the “Rehabbing and Landlording” forum. Try going there first I think you will find a lot of answers.
If you can not find what you looking for Mike or Danny will be along shortly to help you out. They seem to be the landlording gurus here. Oh, there is also a poster, I can not recall his name who has some experience it seems and all three of them have some very good posts on this site.
I get my documents rental application, leases etc off the shelf from OfficeMax. I screen my tenants using http://www.ntnnet.com/index2.html and I do my own management after you get the place leased, it is really a lot of hands off, just go to the mailbox and pick up a check take the check home pay the PITI and take your wife out to dinner with the rest of it. Drive by once a month to make sure they don’t have a car across the front yard with the engine hanging from the tree.
What I do to lease my properties is I put an ad in the paper. That ad has everything about the property (bedrooms bathrooms garage, rent address and a phone number to an answering service with only the outgoing message). That message talks about what is in the house the rent and directions on how to get to the house. (Note they still can’t contact me) In the windows of the house I put a flyer giving the things in the house (new carpet new paint appliances etc.) the price and my phone number. After they have driven to the house past the neighborhood schools and pool, and they see the park down the street and they have looked through the windows and have seen the price they call me. The only time my telephone rings the person has seen enough to want to get the house. I showed my last house 2 times both put applications in and one of them got it. I bet 10,000 people looked at the ad and maybe only 50 actually drove over to it and were either too lazy to go over and look at it or the rent was too high or they didn’t like the neighbors, but I was not bothered by any of them, I only heard from people who were already sold on the house. So instead of getting depressed that all these thousands of people keep telling me what is wrong with my house or my price, as far as I can tell 100% of the people that looked at my house loved it.
Don’t get ahead of yourself. You’ve got some work to do before you start needing forms. The very first thing you need to do is learn the basics of the rental property business. Most importantly, you should thoroughly understand how to calculate cash flow and maximum purchase price for a potential property. With rentals, your fate is sealed when you purchase. Purchase right and you will build equity and have income for life. Purchase wrong and you will soon be joining the vast majority of new landlords who fail in a short period of time.
After you understand the basics, then develop a realistic plan to get from where you are now to where you want to be. Be sure to include a time-line in your plan. A proper plan will virtually insure you success.
Then, start working the plan and build your business. It is at this point that you will need the forms.
Bluemoon - Great Idea with the passive leasing plan. It sounds like you value your time and know how to work the system. Thank you.
Mike, you mentioned a realistic plan. Can you help me with this a little? I live in Michigan where the economy is very poor and the employment in nearby cities has really downsized due to the auto industry. How much should I take this into consideration when buying rental properties? It seems to me this is a huge factor, but should I buy properties at 70% of retail (that still have a pos. cash flow) or is it the time for a beginner to sit on the sidelines and just observe until the market corrects itself (but I have the motivation to hit the ground running…but I don’t want to be a motivated idiot losing his butt).
monnchew - I actually use forms I got from an agent who put my first tenant ever in one of my properties. Been using them ever since. Very detailed, and since it came from a agent, I know it has all the legalize for the state laws.
Obviously you should consider whether there is demand for rental properties. In addition, you MUST do a cash flow analysis to be sure that the property will cash flow using real world numbers. If there is demand and if you can buy properties that will cash flow, then I would get started. They key in any market is to buy at a discount.
Here’s a question to think about. If you don’t buy in the current market, what market WOULD you buy in? It is easier to get good deals in a depressed market than a booming market. Would you wait until the market is booming and then have to pay a very high price for a property that would not cash flow? You see, that is the problem. There is no perfect market. Starting a REI Business takes a LOT of work in any market. What kind of market would you wait for and how would you ever know that today is the day that the market is just right? And if you waited for the day that there is a perfect market, how many rentals could you buy on that day?
Here in my little corner of Ohio, the successful local investors said that this past summer was the worst rental market in 20 years. We all survived and in fact profited because all of the successful investors bought right. If I lived in an area heavily influenced by the auto industry, I would really concentrate on finding great (cheap) deals, because the worst does not appear to be over (i.e. Ford losing $12 billion dollars!)
monnchew,
propertymanager, as always, has good advice. First, develop your strategy and learn about real estate finance. Do not buy until you have a strategy for your market AND multiple exit strategies, for example: sell at a profit, rent and hold, refinance.
I would not buy forms at office max or office depot; in my experience these forms suck and do not protect you from the legal pitfalls of landlording. The national apartment association has a website; I would get my forms and training from their references. There may be a local branch of this organization that offers classes in property management and references to screening services.
Robert Kiyosaki recommends managing your own properties for the first year, at least. I believe that this is good advice. How can you tell a good property manager from a bad one if you don’t know anything about what they are supposed to do and not supposed to do?
I personally don’t plan on ever hiring a management company, if I can’t handle my own units I won’t own them. The farthest I would go is setting up my own management company with employees to help manage my buildings but I would want someone on my payroll that I control directly. Handing the reins over to someone else opens up too many cans of worms in my opinion.