The buzz is building around income property once again, and for good reason: The economy continues to recover, mortgage rates remain low, homes are appreciating and legions of baby boomers are downsizing and scouting post-retirement income opportunities.
Jill Wente, a Realtor with Gary Greene Real Estate near Houston, says those leaning toward becoming a landlord fall into two categories.
“Typically, they’re either thinking about renting their own place or acquiring another home and turning their current residence into a rental,” she explains. “Some simply want to hold on to their current home in an up market.”
When wannabes ask Wente whether she thinks they’re landlord material, she replies with a short quiz of her own.
“First, I ask them if they’d mind getting a call on a Saturday morning with a toilet emergency. Or at 11 o’clock at night because the air conditioning isn’t working. Or when they’re out of town,” she says. “Even if they say ‘no,’ I still recommend a management company. I’ve had clients try to do without, and it just becomes too much.”
Patrick “PJ” Chapman, the owner of Chapman Properties in Boise, Idaho, and a regional vice president of the National Association of Residential Property Managers, frequently sees solo fliers go down in flames, especially long-distance landlords.
“It’s mostly people who have a house in Boise, they live in California, and they don’t have the means to do the background checks,” he says. “They just throw tenants in there and it turns out to be a nightmare. Those are the ones who run, not walk, to us.”
Wente advises would-be landlords to consider the following before jumping in:
Once you’ve determined you can afford to become a landlord, the next step is to weigh whether you’re up to the task. Pondering these questions will help:
Chapman says the landlord-tenant dynamic tends to thin the landlord herd fairly quickly.
“This business is about managing people and managing conflict,” he says. “Finding the right tenants, screening them, dealing with the different personalities and having to fight to get rent or deal with collections — most people just aren’t cut out for that.”
For an 8% fee, Chapman takes over the entire rental process, from running criminal background and credit checks on applicants to evicting delinquent tenants. Elsewhere in the nation, property managers charge as much as 10% or more, and often take a month’s rent to place new tenants.
“We just take the reins and assume a fiduciary role on their property,” Chapman says. “It’s worth it to them versus the headaches of trying to do it on your own with no knowledge of how to do it.”
Wente agrees. “A management company can handle all of those headaches for you,” she says. “Even as a Realtor, I wouldn’t attempt it myself.”
If, after careful reflection, you still want to try on “landlordship” single-handedly, there’s help available at the National Association of Independent Landlords, or NAIL. The California-based organization of landlords, property managers and leasing agents provides application and eviction forms, credit and criminal background reports, state landlord-tenant and federal Fair Housing Act guidelines, and electronic payment processing and monitoring to help landlords succeed.
“The most time-consuming part of being a landlord happens at the beginning and end of the lease,” says NAIL general manager Brittney Benson. “If you do your due diligence and identify good tenants, you’ll hopefully only hear from them once a year or if there’s a maintenance issue.”
NAIL plans to offer full-service eviction services in the near future to remove that stress from their landlords’ shoulders.
“It’s a hard business to be in for some people,” Benson admits. “But if they’re prepared and perform their due diligence, it can be very easy as well.”