Having managed rental units and rented out numerous others over the past five years, I am able to boil down being a successful landlord into two parts. One will be maintaining your rental unit and maximizing your potential rental income. The other is picking the right tenant. By mastering these two skills you will be able to enjoy the “passive income” that is often associated with being a landlord. By the end of this article you will be able to do both!
Now that you have your rental unit it is time to get it ready for the rental market. As a landlord you MUST have your unit appeal to the masses. This will ensure a large pool of applicants and increase the speed by which you fill your vacant apartment. I hope this goes without saying but you MUST CLEAN; this is going to be a common theme that you see in this blog. If you head over to my first blog post “Increasing The Value Of Your Home” you will see some tips in there that will help you maintain your rental. If you are interested in improving your rental you should consider the following:
-Offering parking (if possible)
By adding a dishwasher and washer/dryer you will greatly increase the demand for your unit. Now you are thinking to yourself “financially, will this make sense?” Your water bill will most likely go up an about extra $100-$200 a quarter, however, your rental price should increase about $200-$300 per month. Do the math. Sounds like a good deal to me! Besides the increased monthly rent this should also allow you to rent out your unit faster because there will be more interested renters.
Vacancy is the enemy of the landlord. You should review as many applications as possible so that you can pick a great tenant. You don’t want to lose another month’s rent with a vacant apartment.
The idea of opportunity cost should ALWAYS be your main focus! Let’s break this down and apply it to your rental unit: if your property has the potential rental income of $2000 a month and it goes vacant for one month, you have lost $2000! Of course, upon transition to a new tenant, the landlord often has one month of vacancy but there should never be 2+ months of vacancy. The listed rental price should be around market value this way your time vacancy will be limited. For example, if your rental has an estimated market rent of $2400-$2500, it would be in your best interest to market at the bottom of the range. For you to price your property at $2700 so that you may “leave room to negotiate” you are only hurting yourself. Personally, I would market my rental at $2350 and have many different applicants to choose from. If it takes you 3 months to rent your unit at $2700 when you could have rented it in one month at $2500, you lost $5000 of potential rent by holding out for an extra $200 a month. It will take you 2 years and a month to make back the money you lost while waiting for that extra $200 a month! I believe this is an idea worth considering.
The common practice with rental properties in New York is the real estate agent is usually compensated by the applicant. With that being said it is in the landlords best interest to have a real estate agent help the with the rental of their property. Whether you are renting out your apartment yourself or if you have a real estate brokerage firm renting it, you should still be able to review a tenants application yourself. There a two main things to focus on: credit report and income.
Credit reports should not be limited to only looking at the score. By reading the whole report you can get a full picture of spending habits and repayment history. Look to see if the applicant has any amounts with a delinquent balance; this is a major red flag. With a borderline score (Lower than 700) find out what is hurting their score; is it something from the past or present? Many renters today are burdened with student loan debt that pulls down their credit score. If that is the only issue with their credit report, I often overlook it.
In summary, always remember that vacancy is the enemy of the landlord but you never want to accept a tenant that you feel will not be able to pay rent. An applicant’s credit report, past rental history and current income will determine ability to pay the rent.