David Diaz, head of operations at Florida-based property management company Great Jones, talks about some useful tips for people who are thinking about being a landlord of a rental property for the first time.
The wheels are turning in your head: Rent prices in Metro Orlando are rising, and real estate has long been seen as a top investment.
Is it time to take the leap and become a landlord?
"Owning a rental property can be a great source of cash flow and future equity appreciation," said David Diaz, head of operations at Florida property management company Great Jones.
Diaz took a few minutes recently to outline a few tips to succeed as a first-time landlord. Here are five key points:
– Screen tenants, and screen them some more
"Find great residents. The quality of your resident will determine the outcome of your investment more than anything else. Income verifications, criminal background, all those things ... Any gaps and you could find yourself with a problem coming downstream."
– Know your tenants' rights up front – and yours too
"Landlord-tenant law is hugely important. If you're going to individually manage, or if you're going to manage through a property manager, you want to make sure you're always staying up to date. Florida has very strong landlord-tenant laws that are very specific about what a landlord is obligated to. You can get stuck on technicalities. ... There are a lot of forms available online. Make sure they're attorney generated, and that you're doing it right."
– Choose the right money-maker property
"Often people when they individually invest will buy more expensive homes than they potentially should be renting, where the highest and best use of that home is not necessarily a rental property but an end-user home, so they won't see those same margins" of 60-65 percent that a large Wall Street real-estate investment firm generates.
– Expect to spend thousands on maintenance
"Your maintenance and turnover should be budgeted in the $2,000 per year range. If you really include all of the big stuff and what we call amortized turnover, so if somebody moves out every three years, you're going to have costs of painting and those sorts of things that you want to spread across a three-year period when you're figuring out your numbers. I very often see estimates where people have 100 percent occupancy assumption and some really low maintenance number, and then they can't figure out why they're not hitting their expected yield on their investment."
– Improve it while it's empty
"A lot of owners make the mistake of going into a project and saying, 'Oh, I'll do that when somebody moves in.'
"The reality is, it is vastly more efficient to get work done while the property is empty and much more cost efficient and time efficient to get as much done."
– Plan for vacant months but try to avoid them too
"A property that rents for $2,000 a month, if vacant for one month, just lost $166 of effective rent (for each month of the year), so you're now just over $1,800 in effective rent. ... Don't non-renew a resident over a small rent increase when the vacancy is going to cost you more than the rent increase."