How to Transition from Accidental Landlord to Active Investor

Key Takeaways

• While many landlords plan in advance for their rental property acquisition, many others end up owning their rental property through accidental means.
• Even if you’ve come into ownership of it by mistake, operating a rental property can be a lucrative investment opportunity.
• The best way to maximize success as a rental owner is to partner with a property management team.

For most landlords, becoming a real estate investor was a dream they nurtured for a long time and over the course of many years they built the capital and know-how to make those aspirations come true. For others, the choice to become a landlord came as a result of unavoidable events. Some people inherited a family home, others relocated but couldn’t sell their old home, and some experienced a change in their relationship status.

For these second group of landlords, regardless of how they came to own a rental property, there is a quality that separates them from landlords who became property investors by choice. Most of these accidental landlords are happy to stick with just their one rental property. That’s because many accidental landlords, after seeing the opportunities in real estate investing, decide to segue from being landlords by accident to investing in properties by choice. If you are one of such accidental landlords trying to make this transition, this article by Action Properties Inc. is for you.

10 Strategies To Help You Transform From Accidental Landlord To Active Investor

There are many effective strategies you can employ to make the transition smooth and profitable. Here are our top ten.

1. Treat Your Property Like A Real Business

This begins with reviewing the ownership structure for your rental. Instead of holding the property in your personal name, you should create a legal entity just for the asset. From the perspective of taxes; asset protection and liability exposure, the best ownership structure for your property is an LLC . Additionally, think of setting annual performance goals for your property and make plans to review your finances every quarter.

2. Create A Solid Financial Basis

The first step is knowing the property’s current financial position. These are things you didn’t know mattered as an accidental landlord; cash flow, net operating income, etc. To build a sound financial future for the rental, separate business finances from personal finances. Have separate bank accounts and credit cards for each. To give yourself the tools to make data-based financial decisions, document rental income and expenses. Automate savings from your monthly income into an account for maintenance and emergencies.

3. Build Formal Structures And Scalable Systems

You need a standardized lease agreement to set the terms of the lease and outline the rights, roles and responsibilities of your tenants. You also need systems for marketing, tenant screening , communications and maintenance. An online portal where you and the tenants can communicate, view details of repair requests or lease and respond to various issues will make your job easier. You also need a list of vendors for different services - plumbers, electricians, cleaners, etc.

4. Understand Key Property Investment Metrics

To become a true property investor you must speak the language of real estate investing, not as fancy words to throw around but as practical tools that help you succeed. Examples of the metrics you should master include; Cash-on-Cash Return, Cap Rate, Internal Rate of Return (IRR), Gross Rent Multiplier (GRM), and Debt Service Coverage Ratio (DSCR). These metrics help you assess the viability of a new property investment.

5. Optimize Rental Income

Instead of setting the rent amount based on what you “feel” is fair, research the rental market in your area to know what other landlords are charging. The standard method for estimating the rental rate for a property is based on 1% of the current market value of the property. But this method does not always yield accurate results. Instead look at the rental rate for homes in your location that are similar to your property. This will lead to more accurate rental pricing .

6. Improve Your Existing Property

To charge a higher rent for your rental, offer more value to renters. One way to do this is by improving the property. Upgrading your rental does not have to be complicated and costly. Simple upgrades that improve the aesthetics and functionality of the property should be your goal. For instance, energy saving/stylish indoor & outdoor lighting, a fresh coat of interior & exterior paint, additional storage spaces, eco-friendly plumbing systems and modern plumbing, door & cabinet hardware.

7. Define Your Real Estate Investment Strategy

What kind of property investor do you want to be? Do you want to focus on residential or commercial properties? Do you prefer a long-term investment strategy or is a short-term strategy more fitting for your needs? Based on your capital, expertise, time, risk appetite and investment horizon should you focus on rental properties or employ a strategy like BRRRR , house flipping, etc? Your chosen strategy should align with your abilities and objectives.

8. Build A Team Of Diverse Professionals

Every step of rental property ownership involves at least one professional. Consider finding:

• A Real Estate Agent: To help you understand the property market.
• A Mortgage Broker: To secure the best financing terms.
• An Attorney: To help you ensure legal compliance and avoid legal trouble.
• An Accountant: To organize your finances and help streamline your taxes.
• A Contractor: To take care of repairs.
• A Trusted Property Manager : To oversee the property and give you more freedom.

9. Learn How To Track Your Property’s Performance

As you take steps to improve the performance of your rental, you need mechanisms to provide feedback on the impact of your decisions. Without this you have no way of knowing if measures are effective. Some of the things you should look at to track the performance of your property are cash flow, occupancy rates, tenant turnover and maintenance costs. You can also get direct feedback from tenants to gauge the level of their satisfaction.

10. Understand Different Options For Growing Your Portfolio

Ultimately, you will want to grow beyond that initial rental property. This requires you to master the different options for financing an investment property. Savvy property investors know they cannot rely solely on their ability to save money for the down payment on a new property. They use strategies like mortgage refinancing, owner occupancy, BRRRR to accelerate the growth of their portfolio of investment properties. Learning these and other strategies will fast-track your success.

Bottom Line

Finally, you cannot stop learning and growing. The rental property investment landscape is always changing. To survive and thrive, you must keep pace with these changes, constantly reinventing yourself to meet the challenges of the day and seize any emerging opportunities. Contact Action Properties Inc. today to get started with professional property management to guarantee success for your rental property.