WHAT TO LOOK FOR WHEN BUYING A RENTAL PROPERTY
If you’re considering entering the rental game and adding “landlord” to your title, then you’ll want to educate yourself on the various pros and cons of this business endeavor. Becoming a quality landlord as well as a successful one who actually sees a return on their investment, takes quite a deal of patience, effort, and savviness. Avoid mistakes when purchasing a rental property that may end up costing you more than you bargained for. Turn to these tips of what to look for when buying a property to help give you an advantage when shopping around.
DON’T: LOOK FOR A FIXER-UPPER
All of those popular home improvement reality shows make buying a rundown home look so glamorous and fun. Beware of signs that the fixer-upper you’re being shown is a mistake. Buying a fixer-upper may be cheap in the beginning, but transforming it into a gorgeous and livable home isn’t a project for the inexperienced. Unless you’re particularly blessed with an ability to perfectly execute large scale home improvement projects, you’re going to need to rely on professionals, which will add up and gradually deplete the value of your return.
DO: LOOK FOR A HOUSE WITH MINIMAL REPAIRS
This type of house may be more than your traditional fixer-upper, but you won’t have to worry about investing in a handful of expensive repairs. If the property needs some tlc, look for a home that is priced under the average market price to still feel as though you’re getting a deal with your investment.
DON’T: LOOK WITHOUT CONSIDERING LOCATION
Even if you find the perfect house to invest in- it’s affordable, below market price, has minimal issues- you could be left struggling to fill it with tenants if it’s located in an undesirable location. No matter the amount of effort that you put into a home, if the house itself is far away from the majority of jobs or has a considerable drive to major grocery and department stores, then it may be seen as too much of a hassle for those looking to move in.
DO: LOOK FOR A PROPERTY IN HIGH-TRAFFIC AREAS
Buying and renovating a rental property within an area that has a thriving rental market will increase your chances of receiving a large return on your investment. Purchasing a property within this type of area will provide an advantage, as most people flocking to this location are looking for rentals. Additionally, choosing an area that caters to a renter demographic may also give you an edge. Young professionals, those with travel heavy occupations, or those needing a place close to a college or university are in the market for rentals specifically.
DON’T: SETTLE WITHOUT INVESTIGATING “MINOR” DAMAGES
If the property you’re looking at requires minor repairs to pipes or needs a simple water heater replacement, calling in a plumbing professional will have this issue fixed in no time. However, don’t take the “minor” issue at face value. If there are detected leaks in the house, there may be potential water damage that can be much more serious, time-consuming in its repair, and especially costly.
DON’T: FORGET TO CHECK GUTTERS AND INFRASTRUCTURE
If the gutters were not maintained throughout the winter, your rental property could be (or already has been!) the potential victim of flooding. Check gutters to see if there are any signs of cracks or severe dents caused by harsh weather and ice. Survey the base of the house for any cracks that may allow flooding brought on by damaged gutters to pool up and seep into the foundation of the home.
DO: VISIT THE HOUSE DURING AND AFTER RAIN
If you do see cracks in the gutters or base of the home, be sure to visit the house during or after moderate to heavy rain to check if flooding occurs. This can additionally help you gauge if there may be water damage within the infrastructure or basement that is worth investigating further. This is especially important if the property has a finished basement, as potentially dangerous substances like asbestos may have been used in tiling or ceiling insulations. Water damage can cause asbestos to become airborne, which can be a liability as a landlord should a tenant become sick. Inquire about the timeframe in which the house was built- older homes constructed before the mid-eighties are most likely to have asbestos present. Age may be helpful in identifying if this may be an issue!
DON’T: OVERLOOK COSMETICS
If the house is in a great location, doesn’t require major repairs, and you can get an awesome price for it, don’t assume that this means you’ve hit the jackpot with the perfect rental property. If the house looks outdated, the yard itself is dingey, and the inside needs some updates, potential renters might be less likely to pay a price that will help you see a return.
DO: LOOK FOR A PROPERTY WITH SMALL BLEMISHES
Look for a property with cosmetic faults that can be easily updated, especially on your own. Houses that have one or two rooms with old, worn out wallpaper can be taken down and repainted within a single weekend, and at little cost to you. Use DIY tips to redo kitchen cabinets that are outdated but in good shape, such as repainting, installing new pulls and knobs, or putting on a fresh, modern cabinet door.
Although there is a long list of things to keep in mind when searching for your rental property, don’t be deterred from making this investment. Having a rental property may be similar to running a small business but it is entirely possible to be wildly successful in your endeavor. Taking your time while searching for the perfect rental property, and being mindful of some simple dos and don’ts will have you on your way to being a great landlord.
Effective September 1, 2019, weekends and court holidays will no longer count in calculating the time periods for the following tenant notices in California:
- Notice to Pay Rent or Quit
- Notice to Perform Covenant (Cure) or Quit
- The five-day period in which a tenant has for filing an answer to an unlawful detainer summons
Starting on September 1st the three days must exclude weekends and court holidays. For example, under the current law, a tenant who is given a three-day notice to pay rent or quit on a Friday would be required to pay by Monday. Under the law effective September 1st, Saturday and Sunday would not be counted towards the three days, so the tenant would have until Wednesday to pay.
The new law also applies to the five-day period that tenants have to respond to service of an unlawful detainer summons and complaint. A tenant served with an unlawful detainer summons will now have five days excluding weekends and holidays to respond. The law does not impact the notice periods for 30 or 60-day termination notices, or notices based on uncurable breaches such as illegal use, unauthorized subletting, nuisance or waste.
Norbert G. Huston, Broker/Realtor
Congratulations on making the leap towards owning an investment property in Stockton! Real estate investments in San Joaquin County are often seen as one of the most reliable (and profitable) investment opportunities due to the tax benefits and income potential.
However, a reliable and profitable investment will only become safe and lucrative if managed properly. A new landlord needs to take the necessary steps to set themselves up for success.
Finding the perfect property at the right price and paying for the property, whether with a loan or out of pocket, is only part of the real estate investment game. Managing a rental property successfully is the other equally important aspect.
Here’s a look at the most important areas a new landlord must understand in order to have the most successful property. To learn more about what to look for when purchasing an investment property check out this article.
Know the Property Laws in California and in Stockton
Every rental property is governed by specific set of landlord-tenant laws established by state law. Additionally, depending on where your property is located you may need to adhere to local city and county laws that will impact your rental property. For example, the City of Stockton has a “rental property inspection ordinance.”
Landlord-tenant laws are state driven rules that will protect the owner, the property and the tenants in all rental transactions.
Landlord-Tenant Laws include items like:
- How much you’re allowed to charge for a security deposit
- The amount of days you are required to give tenants before raising the rent price
- Whether you are allowed to charge a non-refundable pet deposit
- Who is responsible for snow-removal: landlord or tenant
- Whether a tenant is allowed to withhold rent due to a cockroach infestation
If you have yet to check out the landlord-tenant laws in California, you’ll find that there is a rule for almost every scenario that could arise between a landlord and renter interaction. Landlord-tenant laws provide the guidelines for how you will create a lease agreement.
Failing to follow landlord-tenant laws in any part of the state can result in a lawsuit and lost income. For example, if you are evicting a renter for non-payment of rent, but forgot to follow one of your state’s landlord-tenant laws the judge could end up siding with the tenant and you could owe him money!
Every new landlord should find an attorney who is familiar with landlord-tenant laws where your property is located. Arrange a meeting to go over any questions about owning a rental property, and have them review your lease agreement and any legal forms you will use in your rental business.
Screen Your Potential Stockton Tenants
Once you have a good understanding of your rights and responsibilities as a rental housing provider, let’s take a look at the next most important task required of a successful rental investment – tenant screening! Have your criteria & qualifications available for prospective applicants IN ADVANCE for their review when they inquire about your property.
Your investment will only be profitable if you find tenants who pay rent on time, following lease terms and maintaining the property according to the lease (ie do not cause any damage!).
New landlords will be most successful at finding good tenants by following tenant screening best practices. Landlords are advised to look at a rental applicant’s credit report, criminal report and eviction history to determine if they will be a good renter.
Benefits of a Tenant Screening Report:
- Credit report reveals a renter’s financial responsibility, bill paying habits and debt-to-income ratio.
- Criminal report will show you if a renter has a dangerous criminal background that would put your property, your community, your other tenants, you or your business in danger.
- Eviction reports show you if a renter has had any evictions in his past.
Additionally, a good landlord will ask for past landlord references, job references, pay-stubs, and other supporting documents to prove that the applicant can meet the income requirements and has the qualities of a good renter.
Tenant screening is one area that is governed by federal laws like the Federal Fair Housing Act and the Fair Credit Reporting Act. Your knowledge of landlord-tenant laws should include a complete understanding of these federal laws.
- Learn more about How to Create Legal Screening Criteria.
Tenant screening is the best way to protect the profitability of your investment property. The more qualified your renter is, the more likely you will have a positive landlord-tenant relationship. One free of evictions, property damage or vacancy – all things that significantly eat away at a landlord’s cash-flow.
Have a Reserve Fund
Keep a reserve fund to pay for property maintenance. This includes all planned and unplanned maintenance for your property, especially emergencies.
Even if property damage is caused by a tenant, and they are technically at fault, you will still have to pay for the out of pocket expenses to return the property to a habitual condition.
Your reserve fund should cover emergency property expenses and can also act as a savings account for big ticket property maintenance like replacing the roof, repainting the exterior or replacing a furnace.
Wells Fargo notes that you should expect to spend 1-2% of your house value on property maintenance each year.
- Learn more about Maintenance Expenses for Your Rental Property
Understanding landlord-tenant laws in California and, more specially, in Stockton, by following tenant screening best practices, and having an adequate reserve fund are just a few of the most important steps every landlord must take in order to set themselves up for a profitable investment.
About the Author: Norbert Huston is the Broker/Realtor of Huston Assoc. Real Estate specializing in residential property management in Stockton and surrounding communities. Our office is proud to use the RentecDirect software for our clients & residents, which also provides excellent content on a regular basis.