Are you wondering how to become a successful real estate investor?
Becoming a real estate investor is a great idea as there’s potential for a passive stream of income and long-term growth. However, if you want to enjoy success, it’s important to learn about and understand all the basics before purchasing a rental property.
You want to know what you’re getting yourself into so that you aren’t surprised by the overwhelming duties and responsibilities that you will be subject to. The good news is, once you purchase an investment property, JMAX can handle all of the duties and responsibilities on your behalf. We can even help you find an investment property.
In this post, we’re going over the basic concepts and procedures you need to know to become a successful real estate investor.
#1: Proper Lease Agreements
This is the document that regulates the relationship with your tenants, so it can’t be overlooked.
Commonly, new real estate investors craft lease agreements that lack depth. This is problematic. You want to make sure to cover as much ground as you can so that you can lower the chance of disputes with your renters.
Here’s a brief overview of the major questions you should ask yourself when proofing the lease agreement:
- Is your investment property going to be pet-friendly? If yes, have you put restrictions in place? How many and which types of pets are allowed?
- What is the monthly rent amount? When and how should it be paid?
- Is it a non-smoking property?
- What are your tenant’s responsibilities? What are your duties as a landlord?
- Will you put strict late payment fees in place?
At the same time, you need to ensure that all of the clauses in your lease agreements are legal. You need to check for compliance on numerous levels, including local, state, and federal laws. When you create a completely new agreement (which is not recommended), ask for an opinion from a qualified legal expert.
#2: Minimize Your Tenant Turnover Rate
You want to avoid having a high tenant turnover rate because vacant units mean no rental income. A good way to encourage your tenants to renew their lease and stay long-term is to form a solid landlord- tenant relationship.
One of the best ways to do so is to establish great communication. You want to be responsive to your renters’ phone calls and messages. Whenever you get an inquiry, look into it as soon as possible. Tenants appreciate landlords who take care of their issues and show genuine interest in their well-being inside the rental property.
Finally, offering incentives to keep good tenants is an effective approach to boost your tenant retention rates. Although there are many things you can give, offering improvements to the property (that benefit you as an owner) as an incentive for renewal is a win-win for both parties involved.
#3: Require a Security Deposit
As a landlord, you aren’t required to ask for a security deposit, but it makes sense to demand one as part of your lease agreement.
Studies show that security deposits may prevent against tenant negligence and damages. Some experts recommend asking for a slightly higher security deposit than the market average if your property is in top-notch condition. Just remember that ordinary wear and tear can’t be covered by the security deposit.
#4: Conduct Comprehensive Background Checks
Applicant screening is a vital procedure for anyone looking to have quality tenants in their rental properties. Quality renters will follow the rental rules, pay rent on time, and treat the property and their neighbors with the utmost respect.
A strict screening process can weed out most unqualifying applicants from your shortlist. Make sure to follow all the protocols as this will ensure you save money on damages and legal fees in the long run.
Here are some questions you can consider asking prospective tenants during tenant screening:
- Have you been evicted before? If yes, what was the reason?
- What is your credit score?
- Do you have verified employment status?
- What’s your level of income?
- Can you provide me with some references?
- Do you have criminal records?
Additionally, every single screening procedure needs to comply with the Federal Fair Housing Act (the FHA). This federal statute counters housing market discrimination. For example, you need to make sure that no discrimination takes place due to your applicant’s religion, familial status, source of income, national origin, race, sex, color, or disability.
In a Nutshell: Being a Successful Real Estate Investor
In order to be a successful real estate investing, you need to do more than just purchase a rental property. Screening your tenants, minimizing the renter turnover rate, asking for a security deposit and drafting top-quality lease agreements are among the myriad of things you should do!
If this feels overwhelming, consider hiring a property management company. At JMAX Property Management, we can help you! Contact us today.