Becoming a landlord is an exciting step for any property owner. Whether you plan to rent out your own home or purchase an investment property, you’ll need to spend time and money to prepare yourself—and your property—for the job.
In this guide on becoming a landlord, we’re sharing everything you need to know about the transition so you know what to expect from day one.
For more information on becoming a landlord, reach out to our Orange County property management company. Whether you need an Irvine rental property manager, Anaheim property management company, or Huntington Beach real estate manager, our team helps new landlords navigate leasing, tenant screening, and property maintenance.
Key Takeaways
- Becoming a landlord provides steady income and the opportunity to build equity but requires organization and a solid understanding of landlord-tenant laws.
- Essential steps include purchasing a rental property, creating a budget, obtaining landlord insurance, and preparing the property for tenants.
- Proper tenant screening and a detailed lease agreement are essential to minimize risks and protect your investment.
- Consider hiring a property management company to handle the day-to-day operations and reduce stress, especially if you have multiple properties or limited time.
Table of Contents
The Pros and Cons of Becoming a Landlord
The Benefits of Being a Landlord
There are many benefits to becoming a landlord in California—you get to be your own boss, and when done right, you can turn it into your full-time career. Let’s explore the biggest benefits of owning rental properties.
- Steady income: As a landlord, you can expect a regular stream of cash flow when a tenant occupies your properties. This can help you cover mortgage payments and other property-related expenses while still turning a profit.
- Tax benefits: Landlords can access a variety of tax deductions, from mortgage interest and property taxes to maintenance costs and depreciation. Additionally, expenses associated with the repair and maintenance of their property become business expenses and can be tax deductible.
- Portfolio diversification: If you want to reduce your overall investment risk, diversifying your portfolio through real estate is a great option. Compared to other investment opportunities, real estate is a stable investment venture.
- Build equity: As your tenants continue to pay rent, they contribute to paying down the mortgage on your property, effectively helping you build equity.
- Flexibility: Landlords can choose to be as involved as they like with ongoing property management.
The Challenges of Being a Landlord
If you aren’t prepared, the challenges of being a landlord can start early on in the process. They often involve time and money, but with the right planning, you can avoid them becoming a deterrent. Let’s look at some of the biggest challenges to owning a rental property and how to overcome them.
- Finding the right tenants: A lot hinges on finding the right tenants. Good tenants pay on time and take care of your property. Bad tenants may pay late, which can impact your budget, and they may not treat your property with care, resulting in unexpected maintenance and repairs. Spending the time to screen potential tenants is essential to find the right tenants.
- Potential vacancies: Your rental property may always experience a vacancy. When your rental is vacant, you’re not making money, which can result in a significant financial loss.
- Cost of maintenance and repairs: As the property owner, you’ll need to cover the costs of all maintenance and repairs to the property. You’ll need to be prepared for not only routine maintenance but also unexpected repairs and maintenance that may occur.
- Staying on top of local laws and regulations: Landlord and tenant laws constantly change and evolve. Landlords need to understand these laws and stay current on any changes. Not doing so can result in costly fines.
- Possible stress: Becoming a landlord can be stressful. Midnight phone calls and chasing down late payments are a few of the potentially stress-inducing tasks landlords must deal with. But with a property management company, you can offload a lot of the stress and focus more on building your portfolio.
| The Pros and Cons of Being a Landlord | |
|---|---|
| Pros | Cons |
| A steady income | Finding the right tenants |
| Access to various tax benefits | Dealing with potential vacancies |
| Diversifying your portfolio | The cost of maintenance and repairs |
| Building equity | Staying on top of local laws and regulations |
| A flexible lifestyle | Possible stress |
Characteristics of Successful Landlords
A few key characteristics will make you a successful landlord. While you don’t need to have all of these characteristics to be successful, they’ll be an asset to you on your journey to becoming a profitable landlord.
- Approachable: Above all else, being approachable is essential for landlords. You want your tenants to know they can count on you if something happens, and you want them to reach out to you. Establishing a good relationship with them will be easier if you’re kind and approachable.
- Organized: Owning a rental property involves many moving parts. Being organized will help you with everything from screening applicants to scheduling maintenance to collecting rent on time.
- Clear communication: Another aspect of developing a good relationship with tenants is being a clear, open communicator. You should respond to inquiries, questions, and concerns as soon as possible and promptly notify tenants of planned maintenance and policy changes.
- Honesty and integrity: A good landlord is honest and has integrity. You want your tenants to trust you, and being open and honest with them from the beginning goes a long way toward building trust.
How to Become a Landlord in 12 Steps
1. Determine if you need an LLC for your business
While creating a limited liability company (LLC) to become a successful landlord isn’t required, it does limit your personal liability. It allows you to separate your rental income from any personal income. Do your research and make sure you understand the pros and cons of an LLC before moving forward.
LLCs are regulated at the state level—you can register your LLC in California here.
2. Purchase a rental property
| Types of Rental Properties | ||
|---|---|---|
| Single-family home | Condo | Multi-unit building |
When you’re looking for a rental property make sure:
- It’s within your budget.
- It’s in good condition and doesn’t need major repairs.
- It offers a high return on investment.
3. Register your rental property
Depending on where you live, you may be required to register your rental property. In Orange County, the city of Santa Ana is the first to adopt a rental registry that requires landlords to register their units annually. Be sure to be informed about your local area, and if there is a registry in place, stay compliant to avoid issues.
4. Create a budget for ongoing and unexpected expenses
| Rental Property Expenses to Consider When Creating a Budget | ||
|---|---|---|
| Common expenses | Expenses to pay even if a property is vacant | Additional expenses to consider |
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|
|
5. Invest in landlord insurance
It’s a great idea for landlords to require their tenants to have tenant insurance as part of a lease agreement. But that doesn’t mean landlords can ignore insuring their properties. It would be a monumental landlord mistake not to take out landlord insurance.
Landlord insurance protects your property from accidents and sudden loss. It also protects you and your financial assets if your tenants or someone else files a liability claim. Typically landlord insurance covers:
- Your property’s structure.
- Legal costs associated with your property.
- Loss of rental income if repairs are needed.
- Medical expenses related to your property.
6. Understand landlord-tenant laws
As a landlord, it is of the utmost importance that you understand the landlord-tenant laws in your area. Set at the state level, landlord-tenant laws protect both landlords and tenants and must be followed at all times. You can learn more about the California state laws and see the 2024 updates here.
You must also be familiar with and adhere to the federal laws regarding rental properties. The 1968 Fair Housing Act outlines guidelines for landlords and tenants on:
- Protection against discrimination: Tenants are protected from discrimination based on sex, race, disability, or any other form of profiling.
- Acceptance of service animals: landlords must accommodate service animals.
- Refusal of children: Landlords cannot limit the number of kids allowed in a unit or their use of common areas.
Landlords should also investigate the Fair Credit Reporting Act, the HUD Equal Access Rule, and all other state-specific laws mentioned above.
7. Get your property move-in ready
Now, it’s time to turn your attention to the rental property. It needs to be in livable condition and ideally in great condition to get the best return on your investment. You want the space attractive to potential tenants, so it’s essential to complete repairs, clean the property, and ensure it’s up to code.
If you’re looking for a more in-depth guide to getting your property rental ready, check out these 11 steps to get your rental property ready for tenants.
8. Set your rent price
Setting your rent price may be one of the most stressful aspects of becoming a landlord. You need to set a competitive price—not too high that renters won’t be interested but not too low that you won’t be able to generate profit.
If you’re trying to price your rental property, look at the rental market in your area to get an idea of what properties like yours are listed for. Look for comparable properties in size and location to get the most accurate price.
Still struggling to price your property? Use our free online rent calculator to get an area-specific estimate.
9. Market your rental property
Listing and marketing your property is the only way to find the right tenants. When you have a vacancy, you need to post ads, host open houses, and use social media to spread the word about your property.
Think about staging the property and hiring a professional photographer to show it in its best light. This might seem like an unnecessary expense, but these photos can be used for years and will impact finding the right tenants.
10. Screen potential tenants
Tenant screening is the process used by landlords to assess a potential tenant’s ability to fulfill the terms of the lease agreement. At this stage, be sure to remember all the research you did on landlord-tenant laws.
A typical tenant screening process includes:
- Pre-screening: Gathering information to see if the tenant meets your basic requirements like move-in date and references.
- Credit checks: A document that tells you about a tenant’s credit activity and current credit situation.
- Criminal background checks: A list of arrests and convictions. (Note: In California, landlords can only order criminal record checks that look back at the last seven years.)
- Employment verification: Verifying or confirming a potential tenant’s current employment.
- Eviction history: A report showing if the potential tenant has ever been evicted.
- Reference checks from previous landlords: This is a great way to learn how individuals were as tenants.
Learn more about screening tenants with our ultimate guide.
11. Sign tenants to a lease agreement
12. Maintain the property
Once you have tenants in your property, it might seem like the work is over. But you still need to maintain the property on an ongoing basis. There are regular maintenance tasks that you should be performing, including, but not limited to:
- Pest control
- Cleaning gutters
- Servicing HVAC units
- Property walkthroughs
- Confirming and updating your landlord insurance
- Responding to tenant concerns and questions
- Update rules and regulations—or even the lease—based on new laws
- Check for potential mold
- Test and repair appliances
Take the Stress Out of Becoming a Landlord
A lot goes into being a landlord, from finding the right tenant to maintaining the property once the tenants are in. It can feel overwhelming, but it doesn’t have to be.
If you want to avoid the stress of being a landlord, you can hire a property management company to take over the entire rental and maintenance process. While this requires you to spend more money, hiring a property manager can save you time and money in the long run. Property management companies are in a unique position to help you find the best clients, manage repairs and maintenance, and process payments efficiently.
At Good Life Property Management, we believe life should be enjoyed, not spent sweating the small stuff. That’s why we set out to make property management easy. We service all of Orange County, ensuring landlords in every city receive expert support. Whether you need a Fullerton property management expert, Costa Mesa rental property manager, or Newport Beach property management company, our team is here to help. We care about you, your property, and your tenant. And we do it all so you can Live the Good Life.
Schedule a call to speak with one of our Good Life experts.
Becoming a landlord FAQs
Do you need a license to be a landlord in California?
Is California a good state for rental properties?
Is it hard to be a landlord in California?
Steve Welty
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