Build a Solid Foundation for Your Landlording Business – The Exact 30-Step Process
Hi, I’m JJ Pawlowski, and I can’t wait to help you better manage your investment properties. Landlording is hard, but I’ve got more than a decade of experience managing my own properties as well as those of many of my investor clients, and I’m going to share what I do in my own landlording business so that you can avoid mistakes and solve problems when they come up (which they inevitably will).
This guide has been written as an advanced continuation of my original Real Estate Investor Road Map. If you haven’t received that free guide to building the foundation of your investing business please make sure you download and review it before taking some of these next steps. You can get it here for free.
For consistency throughout this guide I am going to use the word “landlord” to collectively refer to property managers, investors, landlords, and anyone else involved in the rental property business. You will know where you fit in. If you don’t yet know where you fit in, perhaps you will learn as you continue through this guide.
Note: The steps in this guide are listed in the order you will probably see them in your landlording business. Some may be done simultaneously. The steps in this guide are for your information, but nothing will take the place of actual real world experience. Also, the steps in this guide shouldn’t be considered the only steps you might take in your landlording business, rather suggestions to help keep you going along in your business.
Let’s get started…
Step #1 – THE LANDLORD-TENANT LAW
First things first, you must know your state’s landlord-tenant law. There is no reason to be landlord if you don’t know and follow the law. You should be able to quickly find information on your state landlord-tenant law by doing an internet search (learn more about various online resources).
Step #2 – THE LOCAL LAW
In addition to your state’s landlord-tenant laws, most cities or local areas have their own rental property rules or codes. Again, you have to know what your local area requires for landlords and rental property. If you are an out of state investor you need to know the rules and laws of the location of your rental property (view example).
Step #3 – IT’S A BUSINESS
This is your business. Most investors are for profit, right? I don’t think you will be doing this for practice. This is a business and needs to be treated and run as such. Running a business means you take it seriously, you do what you need to do, you learn what you need to know, and you handle things professionally (see how this applies to LLC formation, etc).
Step #4 – YOU DON’T HAVE TO BE BOTH
You can be a landlord. You can be a rental property owner. You can be both, but you do not have to be. You might be a rental property owner and hire a property management company to handle the ongoing management of your property (learn more about what you should consider when you make this decision).
Step #5 – TO LICENSE OR NOT TO LICENSE
Do you need a real estate license in order to have a landlording business? The answer is it depends, and the answer will vary more depending on who you ask (learn more about these variables).
Step #6 – DO NOT DISCRIMINATE
Federal law is very clear, you cannot discriminate against the protected classes. Currently there are seven protected classes, but most seasoned investors believe there will be an eighth protected class sooner than later. The federally protected classes as of the writing of this guide are race, color, religion, sex, disability, familial status, and national origin (as well as another class that may be granted protection soon).
Step #7 – FINANCING YOUR RENTAL PROPERTY
Financing is one of the major hurdles many investors face in their landlording business. If you are an investor seeking financing for your rental property you will want to plan ahead and understand investment financing is much different than owner occupied financing (learn more about these differences).
Step #8 – CASH ON HAND
You need to have some cash on hand or in reserves to properly handle your landlording business. There are several reasons for this. One, you may need cash to put down on your investment loan as we discussed in the prior section. Two, you may need cash when your property has… (learn more about the many reasons you need cash on hand).
Step #9 – RENTAL PROPERTY ANALYSIS
I talked in my prior Road Map guide about different ways to analyze property. The numbers work differently in different markets. For example, the numbers in Kansas City are going to be different than the numbers in New York. While the numbers are different, the key to investing is the same (learn more about property analysis and the “#1 Rule” for investing).
Step #10 – THE RIGHT PROPERTY
I want to mention some important points to consider when looking at property for your landlording business. First you need to become familiar with the “sweet spots” in your local market (or the market your rental property is located in). Sweet spots are the price ranges most tenants are looking to rent in or where most of the average rent ranges are (view my example and learn more about other considerations).
Step #11 – THE HIDDEN EXPENSES
There are many overlooked and unforeseen expenses with rental property. Many investors simply don’t know of these, and therefore run into cash flow problems sooner or later. Some of the routine, more obvious expenses, include property taxes, property insurance, management fees… (learn more about hidden expenses).
Step #12 – MARKETING YOUR RENTALS
How are you going to market your vacant rental property? In this day of technology many prospective applicants are looking online for rental property. I use… (learn more about the resources I use).
Step #13 – SAVE YOUR TIME
There are a number of time saving things you can do in your landlording business. Your time is valuable so do what you can to make your landlording business as efficient as possible. Creating a good detailed ad with photos online or having your flyer box with photos at the property is a great time saver for you (learn more about how you can save time as a landlord).
Step #14 – THE APPLICATION PROCESS
I want you to remember the word “consistency” in your application process. It doesn’t matter if you own 1 rental property or 100 rental properties you must have consistency in your application process in your landlording business (learn why).
Step #15 – DON’T TRUST (VERIFY EVERYTHING)
I know it sounds serious, and it is! This is your landlording business. You need to verify everything. This can also be called “screening” the applicant. Thorough screening is key to trying to prevent tenant problems later. I use the word “try” because you will never be able to fully mitigate every problem from happening. However, good consistent screening upfront will help you avert some disasters later (get more details).
Step #16 – THE SECURITY DEPOSIT
Most state’s landlord-tenant laws will provide specific instructions on how to handle a security deposit. In fact many will even indicate the maximum allowable deposit a landlord can charge. You can see how it is done in Missouri by… (view my example and more information).
Step #17 – YOUR LEASE AGREEMENT
A solid and professionally written (or at least professionally reviewed) lease agreement is an absolute must in your landlording business. Where do you get a lease agreement? I started long ago by having my attorney draft one for me. Sure, there are professional costs associated with doing so but I also was comfortable I would have a solid agreement for when the bad things would happen (tenant doesn’t pay rent, eviction, etc). By the way, the only reason I even knew to have my attorney draft my lease is because… (learn more about lease agreements).
Step #18 – DOCUMENTATION IS A MUST
Earlier in Step #3 I discussed the importance of treating your landlording business as a business. Documentation is a key component to doing this. I just talked about the lease agreement, which will probably the most important document in your landlording business (learn about other important documents you’ll need).
Step #19 – A PICTURE IS WORTH A THOUSAND WORDS
Do you have photos or video documentation of your rental property? If you don’t, you should. You need (a lot of) photos of the exterior and interior of the property before the tenant moves in. You also need the same photos of the exterior and interior of the property when the tenant moves out (learn why).
Step #20 – THE LATE FEE
You should have a late fee, and you should consistently use it for tenants who pay late. Remember consistency. If you give a late paying tenant a pass on the late fee much of the time you’ll be sitting there the next month scratching your head asking yourself why the tenant is paying late again, but… (learn about extenuating circumstances).
Step #21 – MANAGEMENT IS THE SECRET TO LONG TERM RENTAL PROPERTY SUCCESS (OR A CAUSE OF DEATH OF YOUR LANDLORDING BUSINESS)
It doesn’t matter how great the deal is. It doesn’t matter how much this property cash flows. It doesn’t matter how wonderful the tenant is. None of this matters if you have poor management in place. Poor property management will annihilate your landlording business. Seriously (learn more about the dangers of poor management).
Step # 22 – SAFETY AND HEALTH
In your landlording business there should be nothing more important than the safety and health of your tenants. Safety might mean having good deadbolt locks on all of the solid core exterior doors. Maybe your rental property has an alarm system. Some landlords install exterior lights to illuminate dark areas. Working smoke detectors are a must, the more the better. Or maybe you install a carbon monoxide detector in your rental. While tenant safety isn’t only the landlord’s responsibility, it should be a big consideration in your landlording business (see more examples).
Step #23 – TENANT PROBLEMS
The longer you are in the landlording business, the more tenant problems you will certainly experience. Some problems might include a tenant causing damage to your rental property, a tenant getting a pet when no pets are allowed, a tenant allowing someone else to move in or spend many nights in your rental property without your consent, a tenant… (see more examples and solutions).
Step #24 – TOO EMOTIONAL
You can be empathetic, but you cannot be overly emotional in your landlording business. If you are overly emotional you need to either get out of the landlording business or hire a good property manager to handle the day to day business. A good manager is a good emotional buffer (learn what this means).
Step #25 – REPAIRS
Repairs and maintenance are a usual expense in your landlording business. There are two mistakes I see landlords make in dealing with repairs. One mistake is they simply ignore the repair need. The landlord doesn’t want to deal with it, doesn’t want to be bothered, or may not want the expense. The other mistake is trying to bandaid a severed artery. This means instead of replacing the furnace the landlord simply tries to keep it going for a few more months (for learn more).
Step #26 – MOVE IN / MOVE OUT INSPECTIONS
Many states have specific requirements for move in and move out inspections. For example, in Kansas I need to make sure to do a move in inspection with the new tenant within 5 days of the tenant moving in. This is part of the landlord-tenant law in Kansas (learn more).
Step #27 – “SECTION 8 IS GUARANTEED RENT”
There are no guarantees in real estate investing. While section 8 might be considered a more consistent rental income, all you have to do is fail an initial inspection, or an annual inspection, or have your tenant move out unexpectedly, or have your tenant removed from the program, or any number of other things that can happen, and you’ll find out that Section 8 is not guaranteed (learn more).
Step #28 – YOU DON’T HAVE THE CASH UNTIL IT IS IN THE BANK (AND LEAVE IT THERE!)
Too many landlords anxiously anticipate the cash flow each month. Many have already spent the money on a new car loan, the next vacation, Christmas, or a number of other expenses. But what happens if and when the tenant doesn’t pay? What about an unforeseen repair? What about… (read other examples and important cash flow info).
Step #29 – UTILITIES
I encourage landlords to buy rental property where the utility cost can be paid by the tenants. Some apartment buildings and multifamily properties will have common water service which the landlord typically pays for, but hopefully the electric and gas are all on separate meters (learn why this is so important).
Step #30 – THE DO-IT-YOURSELFER
Many landlords try to handle everything themselves. They are the repairman. They are the marketing department. They mow the grass. They screen the applicants. They handle the eviction. They know it all, they do it all (learn why this can be a costly mistake).
THE REALITY OF THE LANDLORDING BUSINESS
The reality of the landlording business is it hard and often takes time, sometimes years, in order to see a financial benefit for you the investor. It is this reason I set up my own landlording business up as a long term investment (I have been in the landlording business more than 10 years now).
If you don’t learn something new every day, you probably aren’t doing enough or making mistakes. Just when you think you know or have seen everything, you are surprised yet again. Each and every day seems to bring a new experience in my landlording business.
Download my Advanced Landlording Road Map for More Insights from My 10+ Years of Experience*
*Includes a special bonus just for you.
Let’s talk soon!
– JJ Pawlowski
