Despite the recent shifts to the real estate market, the Pittsburgh market is still relatively hot. With a large housing stock and comparatively low prices, investors have set their sights on the city for affordable houses. Even Ted and I have bought an investment property, and have learned a lot about responsibly managing and renting a property as landlords ourselves.
Although buying investment property might seem like the latest and coolest trend in the quest for building independent wealth, it’s a complex endeavor. In addition to securing capital, coordinating construction projects, and marketing the home, you also need to understand fair housing laws.
While that may seem like a lot to cover, there are definite benefits to investing and becoming a landlord. Pittsburgh has very reliable inventory, which can give you a relatively stable foundation as you step into entrepreneurship. Plus, you’ll get to invest in the community while influencing its future and building your own financial portfolio!
Steps to Becoming A Landlord and Renting Your Investment Property
If you’d like to earn an extra income stream by renting real estate property, here are some steps to help you get started!
1. Find the right type of property. To be fair, you could turn any property into an investment property. But paying a premium price for a premium property might not deliver the best ROI!
Instead, you want to find the type of property that helps you follow the ultimate investment maxim: Buy low, sell high.
In renting terms, that means you want to buy an incredibly affordable property and rent it at a monthly price that:
Covers your loan for the property.
Covers any unexpected future repairs for the property.
Delivers an additional income stream for you and your family.
In general, success in investing comes down to work, risk, and the home’s reliability. The more turnkey and easy a property is to manage, the less cash flow you’re likely to secure by renting it out.
With all of that in mind, the right property for you may be one that’s relatively modest—or that even needs a few repairs.
It really comes back to how much you understand about housing. If you’re uncomfortable swinging a hammer or lack the funds the remodel, you may want to avoid homes that require major repairs.
2. Determine how to pay for it. There are numerous strategies you can use to pay for an investment property.
One of the most efficient ways to pay for an investment property is to take equity out of property you already own (like your own home).
With the right equity loan, you can borrow against your home and use that money for the property—which means you may not need to pay cash for the property!
Of course, we should point out that you’re basically putting your house down as collateral, and you could risk losing it if you miss payments on your investment property.
There are other ways of paying for income property, though, so consult with your lender for more information!
3. Fix it up as necessary. In general, your rental should meet the minimum property standards—building codes that ensure your home is safe for families to live in.
At a minimum, your home should have running water, working heat, and properly installed electrical systems.
Investing in high-quality lighting fixtures, luxury flooring, and stainless steel appliances may help in getting your property rented, but do the math ahead of time to ensure you can cover these in your monthly income from rent payments!
4. Price it appropriately. There are numerous, thoughtful strategies on how you can price a rental property.
One concept is the 1% rule, which basically means you charge 1% of the home’s total price as the rent for each month.
Let’s say you paid $150,000 for the home. In that case, you would charge $1,500 per month as the rent.
In a market like Pittsburgh, though, that sort of rent can be difficult to charge, especially as you reach further away from the city.
Another strategy is to simply look at what people are willing to pay for homes of similar size and quality within your location.
5. Set up your lease agreement. If you have zero experience in contract law, that is 100% OK!
You can find lease agreement templates online, and these could be great starting points for renting out your property!
However, we do recommend consulting with a local real estate attorney to help you develop a lease that protects you and your investment as much as possible—while simultaneously following local and state laws.
6. Start marketing it. Don’t expect people to come flocking to rent your house automatically. You’ll have to market it somehow.
And while you can use online platforms like Zillow, Trulia, or Apartments.com, don’t forget some of the other tried-and-true strategies:
Your workplace community and professional network
Your church or community groups (like a book club or neighborhood association)
Social media (including Facebook groups for the neighborhood the house is in)
The more you ramp up your marketing, the more likely you are to rent the house or apartment faster.
Remember: Every month that the property isn’t occupied, you’re losing money!
7. Set aside money for annual repairs and unexpected costs. This is one of the most important tips, and we even alluded to it in No. 1.
Set aside money from every rent check to make future repairs on the home. There will be repairs—and virtually all of them will be unexpected.
Because you’re not in the home every day, there will be parts of the home that slowly break down—and you’re totally dependent on your tenants to report issues.
A slow leak in the attic could gradually eat away at the ceiling in an unused room. An accidental hole in drywall may go undiscovered until the tenants move out. Sudden issues with the foundation could lead to costly repairs.
It’s better to have the money set aside in the event of an emergency than to have to take a loan out for the expenses!
Find Help Becoming A Landlord
If you need additional help in becoming real estate investors, contact us by sending an email to theblocks@blocksintheburgh.com.
We’d be happy to help you make the best decisions on your journey, and we can even help you find the ideal properties for first-time investors.
Cheers,
Julie & Ted