You may think that landlords have an easy life, but this is not always true. “Landlord” is a job title, though it doesn’t necessarily sound like one. How to get this job title? By owning rental properties. The word “landlord” has a long history, though. While in the middle ages the landlord used to own only the land worked by the peasants, with no responsibility for their homes, nowadays, landlords own also the buildings attached to the land and must abide by the landlord-tenant rights. You can become a landlord either by choice or by chance. In the first case, you choose to buy a property and rent it. In the second case, you simply inherit real estate, such as your parent’s home or someone else’s property, had you been included in their will.
When you inherit your parent’s house, you face two options. The first one, you have the opportunity to keep the house, especially if your parents managed to pay off the mortgage. If they died without paying the mortgage, you still inherit their house but you will have to make the monthly payments to be able to use the house. Now, since it’s not a smart financial decision to live in two places, you will want to rent the house, thus becoming a landlord. A property that you own and doesn’t generate income is only a pitfall and you don’t want that. We want to be rich, but we also want to spend as little as possible on maintaining our estate’s size.
The second option is to sell the house. When you can’t afford to pay a second mortgage and to look after another property, letting others take care of it is the best bet. As you know, homeownership is quite expensive if you factor in the cost of homeowners insurance and property taxes; not to mention the cost of home maintenance and renovations.
How do you become a landlord?
- Buying rental properties
As you know, real estate is probably among the most expensive assets on this earth, so when you start investing in real estate, you’ve probably managed to stack some savings and are willing to risk them. When you purchase a property, there are closing costs involved, so you have to weigh in for how long do you want to keep that property. Real estate agents listed on RealEstateAgent.com recommend that you didn’t pick an investment property based on your taste or personal preference. These are not properties you have to keep forever and just because you wouldn’t live there it doesn’t mean someone else wouldn’t. This mentality keeps house flipping so attractive! Those who purchase properties affected by natural disasters probably wouldn’t live there, but after a nice makeover, those properties become cash cows.
If you’re going to rent properties, you will need a legal business for that, so you have to pick the right type of enterprise. The good news is that you don’t have to be alone in this business. You shouldn’t be afraid of partnerships if you wanted to succeed in real estate. Joint tenancy and tenancy in common allowing more people to have an interest in a particular property.
- Inheriting real estate
Sooner or later, some of us will inherit our parent’s homes. If they have larger estates, don’t overlook the importance of a will in real estate. Also, if your parents still owe money on their mortgage, help them pay their mortgage faster. It is better to give them a small percentage now than to end up paying the full monthly payment yourself later, to keep the property.
Try to anticipate the future and make the right decisions at the right time. If your parents manage to get rid of any liens on the property in their lifetime, they may also want to help you pay your mortgage faster. It’s a win-win situation and you become a landlord with a very small investment if none at all. So, with full equity in your rental property, you can really say that the rent coming in each month is a passive stream of income.
- Owning a property management company
Well, if you don’t fall into any of the above categories, you can still become a landlord by taking over other landlord’s responsibilities. You will meet with tenants, show the properties available for rent, make sure that the rent is paid on time every month as well as all other utility bills. So, for most tenants you deal with, you are the landlord. In this position, you can test the waters and see if you could become a landlord one day and quit pretending that you are one.
Types of properties for rent
About 85% of all the properties for rent are single units. And as you may guess, 70% of Americans live in a single-family house (although more would like to live in this type of dwelling), while 17% live in apartments and condos, according to The National Association of REALTORS®.
However, with a good credit score, you may stretch your credit and get the maximum loan for a multifamily property, at least a duplex or a property with a rentable basement. How can you tell if a duplex is worth investing in? Take the time to do a SWOT analysis. There are a few indicators and formulas that you need to know. Properties with two to four units are in third place, with about 6,500 units for rent. Single units have the largest market share, with over 19,000 units, followed by the properties with 50 or more units (around 12,700 units).
Mixed use properties are also on the rise and many investors think these are “proven winners”. However, it might be hard to find financing for one. What is a mixed use property? A building or a complex with retail spaces, residential units for sale and for rent and maybe a hotel. This kind of properties could be even more complex, though. But if you don’t want something too complicated, stick with only one type of rental property. After all, the best real estate investments are the ones that you can manage easily.
Certain types of properties are more suitable for a particular type of consumer. When you plan to become a landlord, start by asking yourself who are you willing to rent to?
- Long-term tenants
- Short-term rentals (e.g. holidaymakers)
- Long term commercial renters
- Mixed use properties – commercial + residential
Where should you buy a rental property?
The US Census Bureau has revealed that the vacancy rate among rental properties was the same, at 7%, in both the first quarter of 2018 and the first quarter of 2019. A growing vacancy rate could be seen in the South, while in the Northeast and West, the rental market is doing great, with low vacancy rates of 5%, and 4.6% respectively. By analyzing how the rental market has changed over the years, you could become more confident in your decisions.
Equally helpful would be to look at the homeownership rate in the US, which was 64.2% in the first quarter of 2019, the same as in 2018. But where are more people looking to rent a place? In the West, where the homeownership rate is 59.8%, and in the Northwest, where the homeownership rate is 4% below the national homeownership rate. At 68.2%, those living in the heartland are most likely to own their homes.
1.Invest in the cities with the most expensive real estate:
In areas where prices are high a.k.a. real estate bubbles, there must be more people willing to rent than to buy. If you can afford to buy in an area where very few people dare to, you may immediately find a tenant to cover all or part of your monthly payment.
2. You may also want to become a landlord in the cities with the best housing market.
- Las Vegas
3. Buy properties in the cities with the lowest unemployment rates
When people have plenty of job opportunities, it means that they can afford to pay their bills and the rent. Also, for some landlords, the employment history is important when deciding who they are going to rent to.
According to the Bureau of Labor Statistics, the lowest unemployment rate in April 2019 was in the following cities:
- Ames, IA (1.3%)
- Burlington, VA (1.5%)
- Iowa City, IA (1.5%)
- Midland, TX (1.7%)
- Dubuque, IA (2%)
But, when you want to become a landlord you cannot take only one variable into consideration when choosing the best real estate investments. Looking at these cities, you don’t need a college degree to understand that Iowa is a great place to invest in real estate. However, the state is prone to flooding which has a negative impact on property prices in the affected regions.
Unemployment is a huge problem in some cities in California, like El Centro (16.2%), Merced (9%), Bakersfield (8.4%), so you may want to avoid these areas.
The national unemployment rate for April 2019 was 3.3%. Which states boast the lowest unemployment rates? Vermont, North Dakota, Iowa, New Hampshire, and Hawaii are the top 5 states with the lowest unemployment in April of this year. So there are very high chances of finding the best place to buy investment property.
4. Some of the best real estate investments hide in the cities and resorts with a constant demand for rent (universities, ski resorts, seaside resorts, hot springs). Large employers may influence the demand for housing, too. Let’s not forget what happened when the new Amazon headquarters were announced.
You can never go wrong with a bet on student accommodation. Here are the top 5 largest universities in the US, as revealed by Stilt:
- Liberty University (over 75,000) – Lynchburg, Virginia
- California State University (about 71,000) – Fullerton, California
- Texas A&M University (~67,000) – College Station, Texas
- University of Central Florida (~66,000) – Orlando, Florida
- The Ohio State University (almost 60,000) – Columbus, Ohio
5. Become a landlord by investing in properties with a mountain view. Mountains are beautiful in every season, though some may only think of mountains in the snowy season. Owning a property in the mountains could be a profitable business if you learn how to manage your vacation rental to keep vacancies down to a minimum. One great choice would be Colorado – a state where demand for rental units is growing and real estate investors are welcome.
6. Waterfront properties – another market niche for real estate investors.
Water is magical. And from an economic standpoint, it is quite profitable. When used in creative ways, the water can even increase a property’s value. However, waterfront properties come with an increased risk of flooding and due to high humidity levels, metal structures are more prone to corrosion. You can become a landlord by the sea or by the lake – the former option being more expensive though. With 88,633 miles of shoreline, the US has plenty of seaside resorts to choose from:
- Ocean City, NJ
- Cape Charles, VA
- Vero Beach, FL
- Anna Maria, FL
- Cambria, CA
If you want a more secluded property, in a less busy location, explore America’s Lakes. Your next investment property may be around Lake Tahoe, Lake Champlain or Deep Creek Lake.
7. Become a landlord in the cities where it is too expensive to own a house!
If you look at the cities with the lowest cost of homeownership, you may find that becoming a landlord there is counterproductive as more people choose to own their house instead of renting. From another perspective, though, in the states with a favorable property tax, you can keep more money in your own pocket.
8. Consider the cities with a military base. The military personnel is more open to renting than buying due to the nature of their jobs. The US Army salaries are between $29,688 and $109,699 a year, so while some may not earn big money, they have quite a safe job.
- Invest around Fort Bragg – the largest military base, with more than 200,000 employees is near Fayetteville, North Carolina
- Explore the rental properties around Fort Campbell – you may invest in both Hopkinsville, Kentucky and Clarksville, Tennessee
- Fort Hood Military Base – look for a real estate agent in Killeen, Texas and find the right investment property for you!
- Joint Base Lewis-McChord – the best property investment could be in Tacoma and the nearby suburbs.
- Fort Benning – provides jobs and houses to over 120,000 active-duty military, family members, and civilian employees, though not everybody finds living on base financially convenient. Look for an investment property in Columbus, Georgia and become a landlord!
9. Invest in America’s youngest cities. After you’ll analyze the home buying behavior by generation, you’ll find that Millennials and Gen Zs are more likely to rent in the future. But where are they concentrated? Here are the cities with the youngest population:
- Jacksonville, NC – median age 24.3
- Kalamazoo, MI – median age 25.3
- Iowa City, IA – median age 25.5
- Provo, UT – median age 23.5
- College Station, TX – median age 22.6
As you can see, there are at least 9 criteria for finding the best US city to become a landlord in. It’s up to you to decide when and where. Do you want an Airbnb rental or a long-term tenant? Or would you rather deal with business owners than individuals? Working with people is demanding and as a landlord, you have to read the person in front of you and decide whether it’s worth signing a lease or not. The more you work in this field, the better you become at identifying the market’s needs and filling those gaps. The role of landlord may fit you like a glove. You never know until you try!