Landlording in a Bad Real Estate Market

Here's the question on every beginner real estate investor's mind: "They say the market's slow right now, they say it's a good time to buy investment property, but... I know nothing about being a landlord. How do I start?"

For one thing, ignore the horror stories. You know, the people that don't have rentals or had them and quit landlording. Those broken plumbing stories? Turn a deaf ear to them. What? You haven't heard any? Ooops! Just ignore the last few lines then.

What follows are the five most important things you need to do to become a great landlord. This is absolutely the right time to buy investment property because the negative cashflow (rent minus mortgage payments and maintenance) is likely to be lower than in a hot market. If this number is zero or a positive one, you my friend have hit upon an excellent rental. It would however still be wise to do some research into the past real estate trends of the neighborhood or the city you live in.

Oh, another thing to remember: a bad sales real estate market is an excellent rental real estate market. If you have picked a neighborhood with record foreclosures, good for you (provided it's not headed downhill in general or has a certain reputation for unsavory things) because the people who have had their homes foreclosed will probably want to rent for a while and your house might be one they consider.

So without further ado, let's go over the five most important things a landlord needs to do:

1. The rental must be in good condition. Everything must work - the air, heat, gas, and all appliances. If it is broken, fix it. The place must be freshly painted inside and out or appear freshly painted. The fences must be up.

2. Plan on about 3 - 4 weeks of advertising to get a tenant. In my experience a rental ad in a newspaper doesn't help as much as a sign in front of the home and just simple word-of-mouth. Go talk to the neighbors, knock on a few doors, leave flyers around the neighborhood.

3. When you do get inquiries, show the home first, then ask questions. You might decide the credit score or income of the people that inquire doesn't match what you're looking for, but always ask the questions later. And ask them on an application. There is no substitute for a credit check and employment verification. And have the applicants pay for the credit check.

4. Get a security deposit and don't let the tenants use it in lieu of the last month's rent. If you think they might, get a first month's rent, last month's rent and security deposit.

5. This is the ugly one. Get ready to do lots and lots of paperwork and keep track of all income and expenses. Change your homeowner's insurance to landlord's insurance and file everything.

This should get you started! Good luck in building your real estate empire!