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How to Think Like an Investor

If you own rental property, it’s time you start thinking like an investor. These tips can help you transition from a first-time landlord to a successful real estate investor.

If you’re an accidental landlord, it might be hard to view yourself as a property investor. Accidental landlords are those who acquired a property but were not planning to, i.e. they likely inherited a family property. While owning rental real estate might not have been your plan, there are a few easy steps you can take to start thinking like an investor and consider growing your real estate portfolio.

Property Turnover

The property turnover is the stage where you prepare your home for new tenants. It can be a challenge to manage this effectively if you’re new to owning rental property. One of the best things you can do is set aside money for each turnover. Turnovers can cost a couple thousand dollars, so being prepared for this will help you start out on the right foot.

When preparing your home for the market for the first time, keep in mind how you would expect a home to look and function if you were moving in. A lot of homes have unique quirks (to get the oven to turn off, just kick it once and press off!) but these are usually off-putting to tenants and can make it difficult to get your home rented. Anything that is not easily usable or accessible should be replaced or fixed.

Listen to the Market

Be flexible on your asking price and listen to what the market is saying. If you’ve priced your unit at $2,000 a month but it’s been over a week and you have no applications, the market is telling you that you’re overpriced (whether it be for your neighborhood or what your home offers). Decreasing the asking price down to $1,900 or $1,800 will save you big time in vacancy costs.

Tenant Selection

The leasing phase is perhaps the most important phase of renting a property. Placing tenants that need to be evicted or that destroy the house are a landlord’s worst nightmare. Take the time to find the right tenants for your property or consider hiring a property management company. Be sure that you are complying with all Fair Housing laws and that you are running proper background checks (credit, landlord references, etc.).

Be Prepared for Maintenance Costs

A big problem that we’ve run into at Good Life is owners not being prepared for maintenance issues. Even though that water heater or dishwasher was working when you lived there, things happen and they might need to be replaced during or in between tenancies. Set aside 5-10% of the monthly rent for these future repairs and vacancy costs. This ensures you are prepared in the event of a maintenance issue or hefty turnover.

Hire a Property Manager

Once landlords begin transitioning into the investor mindset, it’s common for them to consider hiring a property manager. Hiring a management company allows you to free up your time while also having confidence that your home will be taken care of. They are especially helpful if you have a multifamily unit or multiple properties.

Tax Implications

Tax implications differ for rental properties and primary residences. Even if you are familiar with taxation, it is highly recommended that you consult your CPA to ensure that you are following proper filing procedure and utilizing all rental property tax write-offs.

Struggling to find good tenants for your property? Check out our blog below.

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Further Reading

Short-term Rental vs. Long-term Rental: 12 Things to Know

Olivia

Content Marketing Manager at Good Life Property Management

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There are many reasons why you might become a first-time landlord in San Diego. You could be moved for a job, you need a bigger house for your family, or you might even be deployed overseas. Whatever the reason is, good life wants to help you shift your mindset from an accidental landlord to investment property owner. You move out of the property, the first thing you need to do is set it aside at least a few thousand dollars to focus on the turnover or the make ready of the property to get it ready for the rental market. Now it’s very important that you invest in this stage of the vacancy so you can minimize the time that it sits vacant during the turnover as well as on the market before tenants move in. While the property is on the rental market, you need to be flexible and responsive based on the showing feedback and activity that you’re receiving. For example, if you’re on the rental market for two thousand dollars a month and after a week or so you’ve only had a handful of showings with no applications received, the market is clearly telling you that you’re overpriced for either the time of year or the features and condition of your property. So after a week or so you need to adjust your rental rate down to around 1900 or even 1800 based on comparables in the area. Remember, you need to think of your properties performance over the course of a year rather than short term on a monthly basis. So maximizing your rental income and getting as much as you think it should get really will hurt you in the long term if you don’t reduce your market rent and concede a little bit per month to net you the most over the course of the year by avoiding an extended vacancy. Properly leasing out your properties is absolutely crucial to its long term performance. If you place unqualified tenants into the property that end up needing a victim or that thrash it or if you don’t have a watertight lease document that covers all issues it might arise, you could find yourself in a landlord’s nightmare. Because there’s so many potential pitfalls during the leasing of a property, this is the step that we most highly recommend that you use a professional management company to help you out with. They have tried and true processes and forms that should cover you for any situation that might arise. Once a property is occupied and you have monthly income being produced from the property, your job as an investor is not done yet. Treating the property like a business you need to be proactive and set aside a certain percentage of the income for future repairs and vacancy costs. We recommend at least 5 to 10% of the monthly rent be set aside every month so that you can prepare for these known costs. Lastly, you should consult your CPA to see the different tax implications for your rental property as opposed to when it was your primary residence. Good Life is committed to helping shift landlords’ mindsets into that of an investor’s. We’re always available as a resource to help you grow your net worth and your investment portfolio. For more, please subscribe to our channel and check out our blog.