Story by Christine Maxwell | Her Money Moves
Military families know two things for certain: We will move, and we will move frequently. Each time we move, we have three choices: live in military installation housing, rent a house off base, or buy a home. For those of us that become homeowners on purpose, we often also become landlords accidentally. However, even though we might be accidental landlords, becoming a successful landlord is no accident.
To qualify myself as someone who can speak about being a successful landlord, I have to disclose that I’ve also been an unsuccessful landlord and a lucky landlord. Hard lessons learned have helped me to become a successful landlord during the ten years my husband and I have owned properties. We’ve purchased four houses, currently, own two rental properties, and will be converting a third house into a rental property this summer. From my experiences, I can tell you this is what a successful landlord knows.
Know their home is a business
The golden rule of landlording. Successful landlords don’t think about their house as a home, they think about it as a business, which, in fact, it is. That means the actions they take regarding their property are thought out, professional, and have the best interest of their business in mind.
That means time well spent on reading contracts and keeping good financial records. Spending money on upgrades that will attract tenants instead of choosing what you personally prefer. Likewise, hastily made decisions usually turn out poorly. Like that one time, I needed a property manager and hired the first person I interviewed. I chose to ignore her numerous horrible ratings, as well as her Better Business Bureau’s D rating, and I paid for it.
Know not to rent to friends, family, or co-workers
Friends and family sound like the ideal tenants at first glance. You already know them and trust them to take good care of your investment. It works out great for everyone until there’s an issue. Now you’re mixing friends, money, and your business. Holding back deposits for damage, needing to raise the rent, enforcing your pet policy…these are all just quick examples of how it can get weird fast if you choose to rent to people you know.
Know their cash flow
Successful landlords know that it takes more than just covering their mortgage payment to make a profit. Insurance, property taxes, HOA fees, repairs and maintenance, vacancy losses, and property manager fees are all examples of costs that work against your profit.
People are often surprised when I tell them that the least expensive property (and cheapest rent) I own makes me the most profit. I love this article from Rich on Money that shows you exactly how to calculate your rental property profits like the professional you are!
Know when to get professional help
I have property managers for 100% of my rental properties. I realize that I’m giving up 8-10% of my rental income each month to have my property professionally managed. However, I think of it as paying for peace of mind, convenience, and protection.
I’m not saying you won’t be successful without a property manager, but OCONUS moves, extreme schedules, and having trustworthy friends to help you have boots on the ground can quickly wear on even the most prepared landlord.
Whether getting professional help means hiring a full-service property manager, an agent to find and screen tenants, a CPA to handle your taxes or a dedicated person to help you with on the spot repairs, know what you need into order to keep your property (and investment) running smoothly.
Know how to protect themselves and their assets
Owning a home is obviously a huge investment and often a way to improve your net worth in the long run. Take time to make sure you have the appropriate levels of homeowner’s insurance and iron-clad leases. Depending on how much you own in rental property, you might even want to consider buying an umbrella insurance policy to protect you from devastating liability claims.
Keep in mind that “you don’t know what you don’t know”. I love using the private Facebook group from the site, The Reluctant Landlord as a sounding board whenever I have questions and I’m not exactly sure where to start. Elizabeth Colegrove, a fellow military spouse, runs this group for other military landlords. This group has taught me more than I ever wanted to know on things such as depreciation recapture taxes, SCRA-related problems, and even how open and close my sprinkler system.
Know to build up a rental property emergency fund
Do you know about Murphy’s Law? Well, it’s a thing. Check it out. Just when everything seems to be going your way, Murphy’s Law will sneak in through the back door. It’s the perfect tenant, who just received orders to deploy in the middle of the year, and now needs to break their lease. Or maybe it’s your air conditioning unit that breaks in the middle of a mid-summer heat streak.
Even with regular maintenance and meticulous upkeep of your rental property, unknown and sometimes costly incidents will pop up. It’s never fun to spend your hard earned dollars on things like broken dishwashers, air conditioning unit replacements, or covering the costs of a few unleased months. However, successful landlords know that Murphy’s Law and its costly aftermath are just a part of being a landlord, and always have an emergency fund to cover it.
Turning the corner from being an accidentally (sometimes) lucky landlord to a successful landlord meant putting the right measures in place to manage my properties like a business. I don’t worry about middle of the night repair phone calls, HOA complaints, or my property sitting vacant. Instead, I look forward to the first of the month, collect my rents, and keep planning for the future.