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What you Must Know Before Becoming a Landlord

As real estate prices remain low around the country, many people are taking a look around and considering the purchase of investment property. While the idea might sound simple enough, experts warn that becoming a landlord might not seem as simple as you might at first think. Without careful precautions and planning you could find yourself with a tenant that is nothing short of a nightmare. Not only does becoming a successful landlord require common sense, but also business sense.

It should be noted that while not all tenants prove to be problems, it is the small percentage that wreak havoc which one must worry about. The problem is that as a result of the recession, it has become increasingly difficult to locate tenants who are financially able to pay the first month's rent as well as the last month and a security deposit before moving in. An increasing number of landlords are now reporting they must go through literally dozens of rental applicants before they are able to locate one who is qualified.

Furthermore, many landlords are also discovering they must compete with homes that are foreclosed. Due to the fact that the homes are foreclosed, consumers have been able to rent the homes for lower than the regular market price, which has resulted in driving rent prices even lower. While it can be incredibly tempting to purchase a potential investment property at a low price, it is important to carefully consider the property before actually purchasing it. For instance, many people are drawn toward the idea of purchasing a condo unit at a low price and then renting it out; however, you may well find buying a single-family home or even a triplex or small apartment building to be a better idea. With a condo you will always be subject to the regulations of the condo board. The special assessments that are frequently levied by such boards can easily amount to thousands of dollars.

If you can afford to do so, the best option is to pay cash and purchase a multi-dwelling building or unit. You can easily offset the rent by living in one unit and renting out the remainder. Keep in mind that financing can sometimes be a challenge for the purchase of an investment property. Most lenders not only require excellent credit histories, but also larger down payments and cash reserves. This is precisely why the purchase of most investment properties are cash deals.

Regardless of how you ultimately purchase an investment property, the key to long-term success is locating a solid tenant. Taking the time to perform criminal background checks and credit checks is absolutely essential. In most instances, for a small fee, you can receive a criminal background report, which includes searches on terrorists and sex-offenders as well as a credit check. Specialized services for landlords can also provide automated identity verifications. The cost for such checks usually runs about $25 or $30, but is certainly well worth the money spent when you consider the amount of money an eviction can cost. In some areas, the cost to file an eviction can near $200.

Many landlords also go the extra step of collecting a non-refundable application fee, which must be paid fully in cash before they will even show a rental property to a possible tenant. As part of the process, an application must be completed beforehand. Basic rental applications includes a range of details, including why the tenant is moving, whether they work at home, the types of recreational vehicles they own and whether they ever work on their cars at home. Some landlords even ask rental applicants to state whether or not they own a vacuum cleaner. The basic key is to make sure you are never so desperate for a tenant that you will rent to the first person that comes along.

When reviewing rental applications, be sure to carefully consider all of the details and not necessarily rule out prospective tenants just because they have been through a difficult time recently. For instance, even applicants who have recently gone through a foreclosure could still make good tenants; provided you do a credit check and see that everything else is okay.

In the end, your final decision must be one that is based on common sense and good business sense and not on emotion. Most people today are going through a difficult time as a result of the down economy. Being a landlord can still be a lucrative business, but only if you are prepared.



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