My husband I manage a collection of apartment buildings in Chicago, Ill. We have been landlords to a handful of tenants throughout our three years of managing five units. Here are the tips to consider when contemplating becoming a landlord.
Identify a trustworthy team.
Because we live more than an hour away from our properties, it was important for us to identify a local, reliable property manager to manage the day-to-day activities at our property. My husband interviewed a few candidates and decided to go with a local property manager recommended by one of his colleagues. The major determining factors were references, proximity to the property and network. Our property manager knows local plumbers, painters and handymen who help get work done in a timely fashion.
Build in a contingency budget.
Whether you are looking at a long-term investment or a short-term money maker, it is essential to have a back-up contingency fund for when things go wrong. With the cold Chicago winter, we recently had a pipe burst in the basement of one of our buildings. While it only cost $1,000 to fix, not having a contingency budget in place would have caused us serious financial troubles.
Plan for unrented time.
Similar to the contingency budget, it’s important to account for some time when your unit will not be rented. Sometimes you have a tenant who falls behind on the rent, or you may have a few months in between tenants. We like to account for at least two months of rent in the bank for these instances.
Move-in fee or security deposit; which makes sense?
Depending on the laws of your city, it sometimes is easier for the landlord to charge a non-refundable move-in fee instead of a security deposit. For example, in the City of Chicago, regulations require landlords to hold a security deposit in an interest-bearing account for the tenant. Instead of dealing with the financials of a different account for each tenant, my husband decided to charge our tenants a one-time, non-refundable move-in fee, which equaled the same amount of the security fee we would have charged.
Don’t expect to get rich quick.
Real estate investment is just that, an investment. It is not guaranteed money, and it has its ups and downs. Setting realistic expectations about your investment in the beginning will help eliminate a lot of disappointment in the end.