Every now and then a real estate investor will think about becoming a landlord.  Is it worth it?

Many real estate investors will think about becoming a landlord, with your own rental property, from time to time.  It seems like an easy way to bring in a regular monthly income on a long-term basis.  Plus, you don’t have to spend a lot of time each week looking for new properties to invest in. 

However, a lot of investors will caution you to avoid the tenant business.  It’s got a lot of drawbacks and can actually raise your blood pressure!

Holding Costs are High!
When you become a buy and hold landlord your holding costs skyrocket.  Many landlords end up waiting between 3-6 months for a new tenant to move in.  So in that time while they are waiting for the tenant, the landlord has to keep up the property and pay the electric, gas, and other utilities. 

Re-renting Fix-up Costs are High!
As a typical landlord you also end up paying a lot to get the apartment or home ready for a new tenant when the old one moves out.  This means you’ll be paying to get new carpet, paint the walls and so on to make that place look good for a new renter.  A deposit won’t cover the costs to get that done.  In any case, you aren’t supposed to use the security deposit each tenant brings in, to cover the costs of regular wear and tear on the rental between tenants.

Short Leases Equal High Turnover!
A typical lease agreement between the landlord and a tenant lasts about a year.  A good number of your tenants will end up moving at the end of that year instead of renewing the lease with you.  Not all of them, but more than a few.  This high rate of turnover increases your costs as a landlord because you’ll have more holding costs between tenants and you’ll have to prepare that rental for new tenants each year. 

Lots of Complaints from Tenants!
A part of being the typical landlord involves getting complaints from your tenants.  Most often this concerns maintenance issues.  The drains get clogged, the air conditioner conks out, or the garbage disposal stops working.  These are all the landlord’s responsibility to maintain so the tenant has a livable home.  You would have to deal with getting the tenant complaints fixed in a timely manner and absorbing the cost of fixing problems with the rental property.

The Solution!
You can own rental property after a manner by leasing out the properties instead.  A lease with the option to buy the property can have many benefits.  You’ll be able to put the responsibility for fixing-up and maintaining the property into the hands of the lessee.  Leasing property also means you can place the tenants in the property for an extended amount of time.   The length of your average lease can be about 3 years or even 5 years.  So, you’ll have a lower rate of turn over and few holding costs on that lease property. 

You’ve got a property available for lease, but aren’t sure how to find the tenants to get into the lease property.  It’s not too hard as long as you have the local newspaper!

Want the easiest way to bring in lease tenants when leasing a property? Put an ad in the paper!  Getting a lease tenant is just the same as getting a rental property tenant.  You can place an ad in the papers saying property for lease and giving your phone number.

A lot of real estate investors forget that the goal of an ad is to get a phone call.  You’ll notice this in the ads of investors with 6 or 7 lines of text that describe the property.  Those are trying to sell the property in the ad, when all you need to do is get the phone call.

What to Say in the Ad
Basically, just tell the readers that you’ve got a lease rental or rentals and provide a phone number for them to call in order to get information.  You may also wish to state whether this is a house, duplex or apartment and give the number of bedrooms to let the caller know what you have available.

It’s very important to keep your costs down as a buy and hold investor.  Many newspapers charge by the line for ads in their classifieds sections.  So the more detailed you get with your ads, the longer they’ll be and the more money you’ll end up paying each month in advertising.  If you can achieve the same number of calls that the other investor gets with his longer ads, you’ll be maximizing your results with less investment!

When to Show the Property
The phone number that you include in that advertisement for your lease property should ideally go to voice mail or have voice mail capabilities.  To save yourself further time fielding calls from people who see the ad, let all the calls go to voice mail.  Anyone who is interested will leave their name and information for you to call back. 

Pick a day when you’ll be showing the rental you have available.  For instance, Sunday is one of the best days to have a house showing.  People have a lot of free time and want to get out of the house. 

The day before your Sunday showing call all of the people who left a message on your voice mail and talk with them about the property.  Also let them know that you just happen to be having an open house the next day if they are interested in leasing the property they can just drop on by. 

Pick a certain set of hours that the lease property is going to be open and let your potential renters know.  You’ll save yourself time in getting all of those appointments to show the property out of the way and you’ll be creating competition for the property.  If people see that others are interested in the lease rental you have available they will be more likely to stay and fill out an application for approval.

Picking out the perfect lease tenant for your lease property is a cinch if you know what to look for.  Someone who is turning a corner financially is always best.

You’ve had your open house for that available lease rental property and you’ve gotten 3 or 4 good applications from people interested in leasing that property.  Now, how do you choose the right tenant for your property?

Know What Kind of Tenants You are Attracting
One thing to understand with lease purchases in real estate investment is that you are dealing with potential lessees who can’t quite get into a home mortgage.  Many will have bad credit, lost jobs or even lost a house in the past.  So, you’ll want to look out for people who have just turned a corner financially.  They’ll have a good rental period for say the last 6 months.  They have a regular job and even though they may have bad credit, you’ll be able to see that they are taking care of the important things like student loan payments and car payments.

It’s okay if they’ve had problems making mortgage payments in the past as long as it’s far enough in the past that you can see the potential lessee is making an effort to improve their financial position. 

Are They Going to Buy?
You may also wish to inquire with each applicant to see how certain they feel about purchasing the property eventually.  In leasing property, you can just lease out the property until it falls apart if that’s what the tenant wants to do, but every lease agreement includes the option for the tenant to buy the property whenever they wish.  So, if you have a potential tenant who really wants to own the property they are leasing from you, you’ll have a higher chance of selling that property for a nice profit in a few years.

The Gut Check
Another thing to keep in mind is the simple gut feeling.  You may just have a good feeling about a certain candidate for the lease property.  This person may not have as good a looking application as the next potential lessee, but you feel fairly certain that he or she will work harder to make sure payments are consistent and on time with the property.  Ask yourself if you want to risk the time and effort involved in working with each applicant for the lease rental.  A good old-fashioned gut check works wonders when deciding between two equally good candidates.