landlord holding house keys

Investing in a rental property can be a great way to generate income each month while building your real estate investing portfolio. But in order to become a successful landlord, you need to know the ins and outs of the real estate industry.

It’s important to understand not only the advantages you can gain from being a landlord but also the costs and risks involved. Otherwise, you could end up investing a lot of money and time with little return.

Here, we outline the steps to becoming a landlord and provide a first-time landlord checklist to help guide you through the process. The more you know, the more successful you can be, so read on to find out how to become a landlord in 2024.

What Is a Landlord?

A landlord is an individual or entity that owns property that they lease or rent to other parties. They receive financial compensation in exchange for the rental of the property.

Beyond the collection of rent, landlords take on several responsibilities to ensure that their properties maintain their value over time. These responsibilities include the following:

  • Making sure that the property is ready for occupancy before a new tenant moves in
  • Conducting regular maintenance to keep the property clean and comfortable
  • Facilitating repairs of appliances and other essential components of the property
  • Setting up guidelines for tenants to comply with during their rental period
  • Taking steps to ensure that tenants will be safe from criminal activity
  • Facilitating upgrades wherever feasible so that the value of the rental can increase 

Fulfilling these responsibilities isn’t just a nice thing to do. These are actions you need to take to be a good landlord, have a positive relationship with your tenants, and earn a healthy rental income.

When starting out as a landlord, you’ll notice there are state laws throughout the U.S. that require landlords to comply with essential living standards. It’s up to you to ensure your tenants live in a healthy, safe, and properly functioning home.

The good news is that, for responsible landlords, the rental market can be an excellent investment. 

There has been an upward trend in the average monthly apartment rent in the U.S. over the past six years. In January 2017, the average rent for a 2-bedroom apartment was $1,010 per month, and by January 2023, it was $1,317. 

However, costs have increased, too, which can make it more difficult to bring in a high return on your investment. That’s where smart property management comes in. If you know the market and ensure your property is well managed, you’ll be more likely to attract good tenants and keep them.

Landlords vs. Property Managers

These two roles are different, but it is possible for a property investor to act as both landlord and property manager.

Property managers fulfill responsibilities on behalf of landlords. 

While it’s true that landlords are responsible for maintaining their property’s habitability, they can opt to hire a property manager who can handle maintenance, rent collection, and advertising if the landlord doesn’t want to. 

Additionally, property managers do not own the properties they take care of, while a landlord does. As such, property managers do not receive the monthly rent from tenants. Rather, they perform their tasks for a working fee. 

Landlords, on the other hand, receive income from rent, as they are the owners of the property being rented out.

What Are the Pros and Cons of Becoming a Landlord?

Like any other business or entrepreneurial venture, landlording comes with ups and downs. Fortunately, with the right know-how and some experience under your belt, you’ll maximize the pros and downplay the cons.

Pros of Landlording

Here are the advantages of becoming a landlord:

  • Passive income: By renting out your property, you’ll gain income while putting relatively little work into the venture. 
  • Tax deductions: The expenses associated with your property, such as repairs and upgrades, are considered business expenses. As such, you will receive tax deductions for these things.
  • Diversification: If you’re keen on reducing your overall investment risk, you can diversify your portfolio by purchasing property to rent out. Real estate is stable compared to other investment options.
  • Long-term investment: As a landlord, you’ll likely witness the value of your property rise over the years. In time, you’ll have the opportunity to get some really nice returns.

Cons of Landlording

The disadvantages of landlording include the following:

  • Cost of maintenance and repairs: As the owner of the property, you’ll spend money on maintenance and repairs. This means that you’ll have to be financially equipped if you want to thrive as a landlord.
  • The possibility of vacancies: Prolonged periods of vacancy can result in financial losses.
  • Possible market instability: Real estate markets are volatile. Property values are not always on an upward trend, and you might be hard-pressed to turn a profit with the price you charge for rent.
  • Late payments equal unpredictable income: There are times when tenants, for one reason or another, fail to pay their rent on time. This can hurt your short-term or long-term budget.
  • Possible stress of dealing with problematic tenants: Despite having gone through your screening process, there’s always the possibility that a tenant will cause major problems, whether that’s late monthly rent payments or conflicts with other tenants. In a worst-case scenario, you, as the landlord, will have to make arrangements for that tenant’s eviction.

What Does It Take to Be a Good Landlord?

To be a good landlord, it’s important to have the following traits: 

  • Approachable: Since you own the property in which the tenant lives, you’ll be the person they count on if they run into problems with the dwelling. Establish a good relationship with them by being approachable.
  • Observant: Get familiar with every nook and cranny of your property. Prevent complaints from the tenant by proactively identifying concerns and taking the appropriate steps to remedy them.
  • Meticulous: You’ll need to follow screening best practices to ensure you have good tenants. Screening applicants can help you avoid potential headaches, like late payments and conflicts between multiple tenants.
  • Honest: Be honest whenever you conduct transactions and advertise the property to potential tenants. 

12-Step Checklist on How to Become a Landlord

Below are 12 steps to becoming a landlord, as well as a first-time landlord checklist to help guide you through the process of putting your property up for rent.

1. Determine Whether You Need an LLC for Your Rental Business

Although a limited liability company (LLC) is not required to successfully manage a rental property, it helps limit your personal liability and separate your rental income from your personal income. However, creating an LLC for your rental business comes with both pros and cons, which is important to be fully aware of early on.

Since LLCs are regulated at the state level, the process of creating one will vary depending on where your rental property is located. To further understand how to create an LLC in your state, you can visit your Secretary of State’s website.

If you’ve decided having an LLC would be beneficial for your business, create a separate business bank account to store security deposits, rent payments, pet fees, and more.

2. Purchase a Rental Property

Purchase an investment property that tenants can rent out. Trusted house-hunting websites for first-time homebuyers can help you find nearby properties that not only fall within your budget but can also help you generate income over time. 

There are three main types of properties you can purchase to rent out — a single-family home, a condo, or a multi-unit building. Each varies in terms of the amount of maintenance it’ll require, how much you’ll need to budget for, and how much profit it will generate from rent payments. For landlords just beginning their real estate investing journey, it’s advised to start with a single-family home or condo to gain landlord experience before moving to multi-unit buildings. 

3. Get a Rental Registry

Similar to creating an LLC, certain counties require landlords to register their rental property with the city to begin renting out their property to tenants. Commonly referred to as a rental registry, you may be required to submit information to your city government, such as the property’s address, your name, your contact information, and the operating manager.

Research local rental rules in your area to determine if you need to allocate time to complete this step before listing your rental property.

4. Prepare Your Finances

Managing a rental property means handling sudden maintenance requests and repairing any necessary damage before and after a tenant moves in. There could also be circumstances in which a tenant is unable to make their rent payment, so you’ll want to have money set aside to cover the mortgage payment or any additional fees associated with your property.

Common operating expenses to prepare for include:

  • Mandatory inspections and annual registration fees
  • Property and rental income taxes
  • Landlord insurance
  • Maintenance and repairs
  • Mortgage and utility payments
  • Tenant screening fees

The amount you’ll end up paying each year will vary depending on where your property is located, so it’s recommended that you do some research prior to finding tenants.

Pro tip: Create a budget for your rental property to properly track all generated income, out-of-pocket expenses, and more.

5. Study Landlord-Tenant Laws

The key to avoiding legal situations during the rental process is awareness of local landlord-tenant laws in your area. These laws have been created to protect both landlords and tenants, and they must be followed at all times.

You must also be aware of federal housing laws and local ordinances when finding tenants for your property since failing to comply can also land you in court. 

It’s also important to regularly review local landlord-tenant laws once you’ve launched your rental business to remain up-to-date on any major changes.

Here are important landlord-tenant guidelines from the 1968 Fair Housing Act that you should know:

  • Protection against discrimination: Under the Fair Housing Act, tenants are entitled to protection against discrimination based on sex, race, disability, or any other form of profiling.
  • Acceptance of service animals: Landlords are compelled to accommodate service dogs.
  • Refusal of children: Landlords cannot put a cap on the number of children allowed in a unit or limit children’s use of common areas.
  • Landlord’s ability to choose a tenant: This provision allows landlords to set financial requirements for tenants who will occupy certain units.

Aside from the Fair Housing Act, there are other legal guidelines that landlords should look into. These include the following:

  • The 1970 Fair Credit Reporting Act: This law sets guidelines for landlords to access applicants’ credit reports so that they can determine if those applicants are financially fit to rent a property.
  • The HUD Equal Access Rule: This mandates equal opportunities for individuals who identify as LGBTQ+ to access Housing and Urban Development programs.
  • State-specific laws: At the state level, there are specific laws that cover a wide range of concerns, such as notice periods for repairs, late fees for rent, and mandatory smoke detectors.

6. Invest in Landlord Insurance

Landlord insurance is intended to protect your rental property from structural damage and help cover various associated costs. Check with your current insurance provider for coverage options or find reputable providers that can help cover your investment.

Since landlord insurance only covers your property, tenants should take out renters insurance to ensure their belongings are also protected.

7. Get Your Property Move-in Ready for Tenants

All states require rental properties to be livable and safe for tenants. Before the tenant moves in, it’s important to fix any issues that could impact their renting experience or violate local regulations, such as faulty smoke and carbon monoxide detectors.

Consider hiring a cleaning company to deep clean the property before the tenant moves in. Alternatively, you can clean the property yourself.

8. Determine Your Rent Price

One of the most stressful parts of becoming a landlord is setting a rent price that’s considered fair while still allowing you to generate a profit each month. 

There are two ways to determine your rent price. First, you can search for local rental listings to see how much landlords are charging for similar rentals. Alternatively, you can invest in an Avail Rent Analysis Report to gain comprehensive insights into rental comps. This six-page report includes information on local demand for rentals, comparable for-rent properties with rent prices, and how rent prices have been trending in your area.

Keep in mind the importance of keeping your rent price fair for your area, as too high a price can deter prospective tenants from applying.

9. Streamline the Rental Process With Landlord Software

Being a landlord can be stressful if you decide to handle everything manually or without the help of a property manager. That’s why many landlords prefer to leverage a property management software platform like Avail to streamline various parts of the rental process and save money.

You can complete the following tasks for free with Avail:

  • Advertising your rental: Syndicate rental listings across Zillow, Trulia, HotPads, Zumper, Apartments.com, Realtor.com®, PadMapper, Apartment List, Walk Score, and Doorsteps at once.
  • Screen tenants: For a bundled price, you can have prospective tenants complete an online rental application with a background and credit check. 
  • Custom rental leases: Have your tenant sign a lawyer-approved, state-specific lease agreement that protects both themselves and you, as well as your property.
  • Online lease signing: Landlords and tenants can sign online lease agreements at no additional cost. Ready-to-sign documents can also be uploaded to Avail to collect digital signatures.
  • Online rent collection: Receive rent payments, as well as any additional fees your tenant is responsible for online. You can also store receipts for all received payments to keep everything organized.
  • Rental property accounting: Payments collected through Avail will automatically populate in the rental property accounting dashboard, along with logged maintenance costs. Easily track your rental property income and expenses on the platform for free.
  • Maintenance tracking: Reduce back-and-forth communication with your tenant by handling maintenance tickets through Avail for easy tracking.

You can create an account for free or upgrade to Unlimited Plus to gain access to additional tools that will make renting easier for both you and your tenants.

10. Facilitate Tours of the Property

Despite the advantages of digital marketing, there’s no substitute for a good old-fashioned physical tour. 

Why is this the case? For one, the human element is your strongest asset as you invite tenants to apply for your property. Your voice, body language, and social skills during these on-site tours can impact someone’s decision.

More importantly, potential tenants are more likely to apply if they get the chance to see, touch, and even smell the details of the property firsthand. This will help them decide whether the unit is worth renting.

11. Maintain Your Rental Property

Your rental property will naturally experience wear and tear the more it’s rented out, so it’s important to perform regular maintenance to avoid the need for major repairs. 

Here are some tips for maintaining your property:

  • Complete an occasional general cleaning: Clean the bedrooms, kitchen, bathroom, and common area regularly, including when the property is between tenants. 
  • Make repairs as necessary: Inspect the property’s doors, walls, furniture, and other parts occasionally. Get any necessary repairs done as soon as possible.
  • Check the HVAC units: Make sure that the heating, ventilation, and air conditioning units are functioning properly.

12. Find a Local Community of Landlords

If you’re beginning your journey as a DIY landlord, it’s important to find a local community of landlords who can help answer any questions you may have. 

In addition to helping you manage your rental, Avail offers you the opportunity to connect with nearby landlords on its Community Forum. There, you can see what other landlords are asking for, learn tricks and tips for managing your property, and connect with people near you to establish a community of professionals.

Manage Your Rental With Avail

Knowing how to become a landlord is the first step to starting your rental business. Whether you own one property or multiple — or you’re still in the market for one — Avail can help make renting easier by streamlining time-consuming processes without the need for a property manager.

Create an Avail account today.