So You Bought Your First Rental Property… Now What?
Those following along will know that my wife and I purchased our first rental duplex in October 2019. There was a complete list of items that needed to get done. There was a lot I wished I knew ahead of time, so I’m going to chronicle as much as I can here so other folks will have a leg up and also so I can selfishly come back to this post and learn from my own mistakes or successes.
Your handed the keys.
Congratulations! If you’ve gone this far you’ve made a huge step towards your own personal financial independence.
First things first:
Start a Spreadsheet
Start a rental spreadsheet. Before you spend another dollar you should be keeping track of everything. You can download the business spreadsheet I use here, or download the rental spreadsheet I also use in keeping track of my tenants and purchases.
Be sure to fill out the Renter information section with their deposit information, names, and when their agreement is up.
Open a Bank Account
You’re going to need a business checking account to put in your monthly deposits and to pay your taxes, bills, and other expenses.
You’re also going to need a place to put those deposits and keep track of the interest on those deposits. I would recommend a savings account for those. The renter we had had a deposit that came with .18 cents of interest earned.
Send a Letter to your Renters
Now is the time to let your renters (if you have any) know where to send the checks and to whom they should be made out.
I suggest using an online account where you can have your tenants automatically deposit the money into your accounts. I’ve been using Cozy.co (no affiliation). I love it. It is a completely free service. They make their money when they help screen future tenants so there is no cost to the landlord for this service.
You also need to send a W9 to your renters for them to fill out! I was unaware of this until the nice manager at the bank informed me that this was needed to open up a tenant-landlord account. These are specific accounts created to hold deposits. This way any interest earned will be taxed to the tenant and keeps the landlord protected by keeping the funds separate and fully traceable and accountable. There are other ways if you have more than 10 doors, but those for 10 or less, this is one of the simplest methods.
To Fix Up or Not Fix Up
Depending on how turn-key your rental unit is, you might be able to rent it right away or it might need some work. I recommend finding a local handyman to help you out. While most of us think we can do it ourselves, and some just might be able, I am not one of them. Not because I am not capable, but because I just don’t have the time. Maybe one day I will become a handyman extraordinaire, but that won’t be today with my current schedule.
Also fixing up your rental, while that is money out – especially after just spending all that money buying it, give you the potential to bring in more monthly income.
Our duplex is under rented for the size, but not for the age of the tile, carpeting, and cabinets. By fixing up the units I should be able to bring in another $200 to $300 a month each.
Time to Fill your Empty Unit
What is the best way? Go it yourself and place a craigslist ad or should you hire someone?
I was lucky with one of our units as it came with a renter already there with good rental history. I didn’t know anything else about them, but a good paying tenant works for me. They’ve already signed on for another year.
I have a friend that has quite a few rentals and just does business via Craigslist. He prices his units slightly above market rent and uses that as his method of keeping out the folks that may not be suitable. I suppose that works. I’m going to put my first unit through a real estate agency. Of course I’m going to pay for that which in turn eats into my profit, but I don’t have time to show it, I’m not down the street from my rental property, and I would also like to purchase more duplex units down the road, so making connections with real estate agents in the area is not a bad thing for me right now.
You’ve got this! You’ve done all the above and now it is time to do it again. Take what you’ve learned from fixing up the first place and put it towards the next one. Each one you buy will become easier and easier. All those worries you once had – after taking your leap of faith in the purchase – should now be gone.