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Becoming a Landlord as a Way of Earning Passive Income

  • March 2, 2022
  • 1.7K views
  • 4 minute read
  • Rene
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Becoming a landlord is one of the best ways to turn a profit with the property. Earning passive income as a landlord means that you can earn money without a regular daily investment of time. Creating a passive income stream from rental income means you will have to put in the work upfront, but you can gain financially for years to come. Once you have one tenant paying you, the additional income creates the opportunity for you to build up a property portfolio over time.

Do Your Research

Buying-to-let offers a great way to earn passive income, but before you buy, you will need to do some research. Take a look at what rent units are currently charging in an area so you know what you can reasonably charge in rent. Property size, amenities, and location will all affect how much you can charge.

States have many laws about what landlords can and cannot do. You will need to find out more about these laws because violating them could cause legal problems for you. For example, each state has laws about when you can enter a tenant’s property and how you need to communicate with tenants if disputes occur. Signing up for a local class on landlord-tenant laws can be helpful.

This can also help you to decide if you are ready to make the commitment to owning a rental property.

Consider outsourcing the running of your rental property to a management company if you want to make your passive income truly passive. The Atlanta modernized property management approach taken by Evernest, Home 365, Mynd, and other services will deliver you a steady and reliable return on your investment.

 Find the Right Property

When you have completed your research into the local property market and landlord-tenant laws, you are ready to choose a property. You will have to look for a property you can afford, but that will offer you enough rent to make it a good investment for you.

You need to factor in all the risks and costs if you want to make the right decision on a property. It can take some time before you make a profit. You may have to cover some costs for a few years to supplement your rental income as your property appreciates in value.

Calculate Total Monthly and Annual Expenses

Remember that you are responsible for property taxes even if you don’t live on the property. It is also worth taking out landlord insurance to protect your property when you have long-term tenants. It offers many of the same benefits as homeowners insurance, with the added tenant risks making it more expensive.

As a landlord, you need to maintain your property and make sure all systems are running properly. You usually have to pay about 1% of the total value of your property every year for maintenance. Calculating your total monthly and annual expenses will give you more of an idea of what you need to charge in rent.

Secure a Mortgage

If you can’t pay in cash, you will need to secure a mortgage. If you’re going to take out a mortgage, consider the interest rates you will have to pay.

Investment property loans are usually considered to be more of a risk than loans on a primary residence. To qualify, you may have to put down a decent deposit and face more scrutiny. You will need a good credit score, a low debt-to-income ratio, and a cash reserve. Most lenders want your credit score to preferably be above about 740, a DTI below about 36%, and about six months of mortgage payments in reserve.

Select the Right Tenants

Selecting the right tenants is one of the most important factors if you want to make passive income from rentals. Many states have strong tenants’ rights laws, so you need to choose tenants you can trust to pay the rent in full and on time.

As a landlord, you have discretion over the tenants you choose as long as you comply with the Fair Housing Act, which prohibits discrimination based on specified characteristics like race, gender, or ethnicity. Before choosing a tenant, you will need to perform a credit check, contact previous landlords, and verify income information.

Get a Signed Lease Agreement

A lease agreement will state all the terms and conditions, such as the monthly rent and dates for moving in and out. Your responsibilities and the tenant’s obligations will be spelled out. It should also state what utilities tenants must cover. The agreement is legally binding and must be signed by the tenant and the landlord.

If you use a property management company, they will do many tasks for you, such as conducting background checks on tenants, drawing up lease agreements, doing regular property inspections, and making sure tenants abide by the lease agreement.

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