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A Great Way to Start Your Portfolio

Renting: A Great Way to Start Your Portfolio

Not sure where to start with investing? Many have started with simply renting out their home or buying a duplex and renting out the other side. Some rent out bedrooms to students or traveling nurses to start their investing journey. Chances are you’ve heard stories from people about evictions, destroyed rentals, and tenants that turn into squatters. You might know a dozen reasons why you shouldn’t rent out your property, and you may not know where to start. For all those reasons there are also reasons that you should consider renting out your property.

Maybe you have been transferred to a different state for work or own more than your house is worth and rental income can cover your mortgage. There are incredible wealth-building opportunities that a rental property can give you for your financial future. Every day, millions of investors rent out houses to good tenants. With planning and preparation, you can minimize your risk and turn your home into a great investment.

Let's make the case for why you should rent out your house.

Your primary home, while a necessity in life, is not typically an asset or investment. An asset makes you money. A liability costs you money. By renting out your home, you transform a liability into an asset. You can hold onto your property while rental income pays down your mortgage. Over time, rental property values (hopefully) will climb and build your wealth. If you can rent out your house for more than your monthly expenses, you will also experience additional monthly cash flow. That’s the goal for all potential investors —and what we at want to help you achieve.

Renting your property could be the first step in a tried-and-true method for building wealth. Many real estate investors start this way—renting out their homes as they upgrade to bigger or better houses. Plus, you retain the possibility of returning to that home. This is especially helpful if you’ve been forced to move quickly because of a temporary job relocation.

When it comes to attracting tenants to rent your house, marketing is key. You will want to reach as many potential tenants as possible, so you have the largest pool to choose from. The following are three uncomplicated ways of marketing a property:

  • Facebook Marketplace. This is one of the internet’s largest resources and easiest places to find tenants. The best part is, it's free. Don’t list the address here, though. Just give a general vicinity (for safety purposes.) You can also place your ad in other online rental submission sites, like Trulia, Zillow, etc.
  • Yard signs. One of the oldest but most useful ways to market your rental is with a simple “For Rent” sign in the yard. The biggest drawback to this is it’s an instant notification of a vacant house to anyone driving by.
  • When you receive a call or message from a prospective tenant, always pre-screen before meeting in person. The easiest way to do this is by asking them to fill out an application. There are companies like Smart Move, where you create a profile for all your properties, and it lists the amount of rent and the duration of the stay. You tell any potential tenant you will email them the application and that there is a $40 dollar fee for this. The application protects them as they can put in their SS# and address and anything else they may not feel comfortable writing down on a paper application. The application then tells you their work history, income, how many payments they have made on time, and criminal background. If they refuse to fill it out, it usually means they have something they don’t want you to see. After they fill out the form you will get an email with all their info, still protected, but you will have all the information you need to make an informed decision. At the bottom of the form, you can click whether they are approved or denied.

While rental agreements vary in length and content, most leases have the following information:

  • Names of rental tenants
  • Address of the rental property
  • Lease agreement term length
  • Monthly rent amount
  • Security deposit amount
  • Late fee definition, penalties, and fees
  • Landlord-tenant laws
  • A move-in condition report
  • Rental policies
  • Provisions for or against pets, utilities, smoking, and more

Go through the lease agreement ahead of time and mark all the areas that require a signature or initials with Post-It Notes or a highlighter. That way, nothing will be forgotten or missed. When you meet with the rental tenant, walk them through the lease, and ask them to sign as you go. This may be time-consuming, but it will help protect you down the road.

Once you have approved a tenant and they are ready to move in, be sure to do a proper inspection. By this time, the monthly rent and security deposit have been paid and the lease agreement has been signed. It’s important to take this one last step before handing over the keys to the renter. This is simply a paper that the tenant signs that documents, in detail, the condition of the rental property upon taking possession.

Allow the renter to take some time walking through the property and inspecting the condition of each room. You can take pictures or a video of the property before giving them the keys. This will be further evidence, when the tenant moves out, of whether something is damaged or broken. It is always good to have proof of how the property was when they took possession. I always require tenants who have an animal of any kind to get renters insurance on top of the insurance I already have on the property. This will protect their belongings from theft and fire damage but also protect you as the homeowner in case they have an animal that may try to hurt another person.

The paperwork may be done, but your journey is just beginning. As a property owner / investor, it is your responsibility to ensure monthly rent is paid on time, late fees are charged when needed, repairs are performed when required, and bookkeeping is kept up to date.

Areas of Review

Takeaway

Big picture takeaway points

  1. Rental properties are a great way to generate wealth and turn a liability into an asset.
  2. There are tried and true ways to minimize your risk.
  3. There are ways to market your property for free.

Reflection

Self-reflection questions to think more about the content

  1. Do I know how to run a background check? Having an application fee and background check are great ways to find a good tenant.
  2. How will I get people to view my property? Showing a property to multiply people at a time creates urgency.
  3. Have I done what I can to reduce my risk? Having a tenant get renters insurance is also a wonderful way to minimize risk.

Legacy’s Building Wealth Club offers you the financial education needed to pursue your goals. Let our education and experience lead the way!

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