Updated: Aug 13, 2020
This subject already has many resources available. Here is our short primer on one of the first steps to financial freedom!
Who this applies to:
Take a look at your largest monthly expense, is it your housing costs?
Are you moving, and thinking of selling or renting your current home?
Do you despise paying rent?
Do you want to retire early?
Do you want to diversify your investments?
Is selling your house going to cost you more money than its worth?
The option usually exists to keep your current home and rent it out. This strategy is how many investors start their venture into real estate investing. Though it can be daunting, here is how we did it:
RESEARCH your market data
First we made sure rental prices in our area supported a positive cashflow on the house:
Zillow: Rent Zestimate
Request a rental comparison (Rental comps) from a Real Estate Agent (REA) of Property Manager (PM)
Next find out what is common for houses like yours:
Who pays utilities, you or the tenant: PM, Rental ads
If the owner pays utilities: how much do you normally spend / month?
COLLECT data for your house
Find all of the data required to analyze your homes financials:
Mortgage information: Balance, Rate, years left on the loan (use your statement)
Property Taxes: Country website, or tax statement
Insurance Premium: Insurance statement
Repairs needed? Get some quotes from local businesses
ANALYZE the property
This is not as simple as Rent – Mortgage = Cashflow. There are more expenses!
Use the Rental Calculator on BiggerPockets (first 5 uses are free)
Use our Rental Calculator!
Find a friend who can help you crunch the numbers
DECIDE if the four pillars of real estate wealth building are worth it for your home
Positive cashflow is always a good sign
Negative cashflow is usually asking for problems (betting on appreciation)
FIX (rent proof) your house
Fix anything that is broken
Ask a PM for a walkthrough to see what the house needs
Going to paint? Label the cans for each room
Going to replace flooring? Go with LVP instead of carpet
Standard pre-sale cleaning
Pros: Reduce stress, reduce time required, professional in the rental business
Cons: Cost 8-12% of rent, no one cares for your property like you do
How to pick?
Ask for referrals, most REA will have a recommendation
Read reviews for all PM’s in your area
Give them a call and ask some questions
- Costs: Monthly rent %, Finder’s fee? Maintenance fee? Baseline fee?
- Process: Walkthrough from start to receiving your first payment
- Maintenance: Walkthrough from mainteance request to completion
- Leases: Review their standard lease, ask about modificaitons
- Applications: What are their criteria and process for recieving
- Communication: Online owner portal? Renter portal? Emails? Calls? Texts?
If you decide on using a PM, you are pretty much done!
PM will schedule pictures
PM will place the rental ad (check for accuracy)
PM will screen applicants (add your requirements)
- We recommend: 600+ credit score, no previous evictions, Income = 3xRent
PM will get the tenants moved in
PM will send you your monthly cashflow!
Pros: Save $, learn the business, more control
Cons: Time commitment, managing from a distance, new to the business, on call with your tenant.
THE BEST RESOURCE FOR THIS IS THE BOOK ON MANAGING RENTAL PROPERTY
Below is a primer, I recommend buying/borrowing the above book if you decide to self-manage
1. Find a lease: Biggerpockets.com, local Real Estate lawyer, local PM, Staples / OfficeDepot
a. Make your personal changes:
i. Lease term: usually 6mo – 1 year
ii. Rent Price: from above analysis
iii. Security Deposit: usually 1 months’ rent
iv. Pets allowed? Here’s some data
b. We recommend running it by a lawyer if it hasn’t been already
2. List your Rental online:
a. Zillow, Trulia, Realtor, Hotpads, Apartments, craigslist
b. Get some professional pictures taken
3. Show your house:
a. Schedule a group showing, individual appointments, or open houses
b. Provide an application “How To” for qualifying tenants:
i. 600+ credit score
ii. Income = 3xRent
iii. No previous evictions
iv. Positive recommendation
4. Review your applications
5. Approve your tenant
b. Schedule a lease signing, collect your hold $ (applied to security deposit)
a. Once the Full Security Deposit and 1st months’ rent is collected give them the keys!
b. Create a rental binder with useful info:
i. How to work the fireplace, sprinklers, remotes, etc
ii. Labeled Keys
iii. Where the fire extinguisher is located
iv. Utility providers and websites
c. Complete a move-in inspection
i. With tenants present
ii. Take pictures
iii. Provide a signed copy to the tenant
a. We recommending having each of the following on call:
iv. HVAC technician
b. Schedule Bi-annual maintenance inspections
8. Collect your monthly rent!
BOOM… You’ve turned your liability into a cash producing asset. Easy day!