Turning Your Home into a Rental for the First Time? 3 Insider Steps

Please note that this post is an excerpt of the webinar hosted by our sister company, The Landlord Code, where our co-founders coach DIY landlords how to avoid problem tenants and maximize rental profitability. Get access to more training like this in our (free!) private Facebook group HERE.   

Today we’re going to get into a great topic that I think doesn’t get addressed often enough and it’s going to really hit on a lot of fronts.So why don’t we talk about that a little bit? We get a lot of inquiries, obviously through Foundation Homes property management when clients come to us and they are turning their home into a rental for the first time, they are accidental landlords. That’s how it’s known in the industry, and this would mean that you have lived in this home. Maybe you’ve raised your family here, it’s been your primary residence, but one reason or another is driving you to convert this primary residence into a rental sometimes just for short term, sometimes it’s for long term, or we get clients who are between tenancies. Maybe who’ve been DIY buying it themselves, they’re dipping their toe into what it might look like to work with a property management company.

So they’re coming to us asking questions. Whether you’re between tenants or this is a brand new rental, or maybe a brand new purchase rental, that would be the third one. There are steps that we take within our company to help make sure our clients are set up for success. And we have noticed that in the DIY world, a lot of people just skip and blow right over these steps. Today we’re going to talk about the three steps that you want to take when you are converting your home into a rental purchasing a new rental, or if you are between tendencies and tightening up the ship. I think these are not just three steps or the three insiders steps from people who’ve been there and done that and seen it.

Just a little background about Darcy and I, we didn’t just come out of the womb or jump into the real estate market, knowing everything. Although she might think that, we didn’t it. We didn’t know everything. And actually it was a long, tough road of us learning and getting kind of beat up along the way. Well, I think the term we like to use when we talk about our DRE audit was, yeah, I got spanked a little bit. That’s the one that’s an HR violation got spanked a little bit on the way up. I mean, it was costing us over a hundred thousand dollars in a DRE audit and also for DIY landlords who don’t actually own a property management company, the simple fact of getting to the end of the year with a martini in hand, looking at what we have to pay in taxes, looking at all this stuff and going, oh my gosh, I did all this work and I don’t have anything to show for it. I’m going to pour another drink. And another drink. Another drink is, you know, drown your sorrows until you get back to a place of like, okay, I’m calm down, and I can address this and create a plan around it. That’s the question, can I still have the drink even if I do have a plan? You can have a drink and you can have better alcohol with a plan. That’s where we’re coming from and we wanna let you know you’re not alone and it’s not your fault because oftentimes you get into this with the best of intentions, “Hey, I read a book, I’ve seen some, my neighbor down the streets making a ton of money in investment real estate”, but they only tell you half the story. There’s a lot to learn about the nuances of managing your property, like a business, which is why we’re here today. And we’re going to give you those three insider tips to about evaluating your home for rental. So let’s start just to jump into it.

Okay, well, number one, number one, the first thing you need to rethink about, and this is sort of a mindset thing, but analyze what is the result that you want. And this is going to vary based on the type of rental property that you’re going to start off with. So why don’t we talk a little bit about that It’s clients or prospective clients coming to us for the first time? Think the questions they should be asking are what’s my home worth? How much does property management costs, right? Those are kind of like the top questions that come to mind, but here’s what we coach our clients to be asking. What are the results that you really want? If we forget about all the immediate questions, what are you really trying to accomplish by purchasing this rental, turning this home into a rental or continuing to have this as a rental, what will leasing this home make possible for you and your family? This is the first thing that we want you to answer and really think about if you haven’t thought about it before, let’s talk about it now. So sometimes People are like, Hey, you know what? I want to rent my property out because I’m going to go to Hawaii or I’m going to go to Europe for a year or two, and this, I want to come back home. I don’t want to just sell this thing is not going to be a permanent rental. It’s my house. I intend to coming back on it. So, you know, that’s a great thing. And the idea behind that type of scenario is if you haven’t owned your home for 50 years and you haven’t paid it off already, this is just an opportunity for you to do what you want to do in Europe or Hawaii or wherever you’re going to go without having this albatross on your books and a non-performing asset where your property is just spending your own money, spend your money, and then limiting what you can do on the other hand. So by getting a tenant in place, you’re able to have someone not only keep the health up by using the, the systems inside of the property, but all also offsetting your costs considerably to enable you to come back to your property down the road. Right? So that’s a common example.

We see of people who come to us because they’re looking to go do something else. Sometimes they’re just moving across different states. You might be looking at different business ventures. It’s not the right time to sell, but there’s a reason why this home is potentially only going to be a rental for a certain period of time. So that’s one set, but another set of results that you might be looking at is the more common investor we’re at it for the long haul.

We’re in it for wealth building, we’re in it because we want to have something for legacy. We want to pass on to our children. We are looking at ROI and we want to know, how can we get the most, how can we maximize this asset? That’s going to your more typical investor class. And that would be a different set of results than the homeowner who is looking to leverage the home in another way that still has some kind of personal or like emotional value actually to the home. Absolutely. And for those folks, a lot of times, those are the new investor clients or people who have either outgrown or a downsizing into a different property. So they are growing because their family got bigger or they just decided to keep this house and they’re getting a bigger house or they’re downsizing because they’ve had this big house, their kids are out now they’re they have this thing and they can afford to have a rented. And it’s great. It’s a good money maker for them. Okay. So step one, know your results, know your results. Okay. Does this make sense? First thing in we’re going to, you’re going to figure out what your end result Is. Step two, step two is what do you mean need to fix up? What do you need to do this property to get that result? Right? Assess it. What’s the way, what are you gonna do? The common mistake that we see landlords make here, no matter how experienced the investor is, is people come at it with a scarcity mindset. They want to spend as little as possible. They don’t think about this rental property as a business. And as such, if you, if you approach it that way, you’re then coming from this place of scarcity and this place, not of abundance with this rental and not realizing what’s possible with this rental. So your decisions are then going to be guided by that. And your results are going to be guided by that same scarcity mindset. And you will not have the same results as someone who approaches this from the, what do I need to do? What do I need to put into this business, my rental, to get the results that we just talked about in step one. And so A way that scarcity sort of hides itself in the phrase of let’s make a deal, or how can I get that for less? That’s how scarcity mindset sort of enters the equation.

And oftentimes it’s not the best way to look. You don’t want to minimize the cost associated with getting your property up and running. It’s the same thing. If you were to just to put four bolts on your, on the wheel of your, on the, on, on the tire of your car and expecting it to be able to go 70 miles per hour, the wheels are likely going to fall off. At some Point, I think we did have like a little, what do you call it<inaudible> fall off In our driveway. Well, I’m not after taking it to a professional service, that was all, that was, that was a little bit of a disappointing. That was just, that was a disappointing experience. But we don’t want you to have that experience. No. So making strategic investments, not spending, not spending your entire life savings on your property, but making strategic investments into your house to sure that not only it can perform well from an ROI perspective, but also minimize a tenant calls or maintenance issues down the road. So let’s give a couple examples here of what we’re talking about, right? So if your result, let’s say you’re the long-term investor, right? You’ve got the rich dad, poor dad dream. You’re going to be toast. Pina colada at hand, this is your retirement, this is your side hustle. You are going to pass this on. You were in it for the long haul, right? So you want to be talking about ROI. So you want the maximum rent, right? Well, if you follow us, if you followed any of our other teachings, you know, that we teach garbage in garbage out quality products, attract quality tenants, and a quality tenant is the number one way. You are going to get the best return on this property.

So what does this mean? This means your strategy. And step two is to think about how do I get these results I want from step one. If I want top dollar, then I’m going to need to look at top finishes. Now, does this mean you’ve got to put in like the Sub-Zero fridge every time? No, it doesn’t, but it means you need to be using on-trend modern finishes that are going to attract these very well-qualified tenants and he needed to be smart about it. You need to choose finishes that are durable. You’re not putting marble in places because Marvel’s going to get water stains on it. And so in some of the mindset, again, this is not your fault, but some of this mindset that a lot of DIY landlords come into with like, how can I cheap out on, on finishes or preparing my property comp stems from the fact that that’s all, you know, you haven’t been in property management. Oftentimes you’re only your felt your foundational knowledge is built on the time that you went to college and you rented an apartment for the first time. And you’ve lived in something that was really cheap and falling apart, faculty, it had a smell. It had a certain smell everybody knows, that college apartments had that. Everybody is like, you can walk in like, “oh, I know where I’m at.” So that’s your sort of your frame of reference for how to run an investment property. And that’s cool if you’ve got 20 units in an apartment building, but if you’re renting out a single family home in your area, you’re looking at the families or the people who are, will be renting out property, or just spend more money than they would on an apartment. You have a higher expectation, and also there’s more things going on, system-wise inside of a house than inside of an apartment. Just putting that out there. When you’re thinking about your strategy, that’s one, that’s the long-term investor, but another just real quick example is if you’re that homeowner, who’s going to be renting your home for a slice of time, right? Maybe you’re not sure if you’re going to sell it. So it’s just going to be a rental for a year or two, or maybe you’re moving back or maybe, I don’t know, you’ve got a plan to pass it to a family member. We see a lot of different scenarios. Maybe it’s a divorce and things are still shaking out a little bit, right? There are a lot of times the door’s always on the table. Okay. Well, there are a lot of times it is today. When you’re thinking about the longterm investor, you’re going to make different decisions than if you’re a short-term investor, right? And so when new prospective clients come to us, and these are the types of things we’re trying to extract out of you, what results do you want? What strategy do we need to help you set up so that you can achieve these results? And it can come down also to things like how aggressively your pricing will match up with what your results are, or like if you’re planning on listing the home for sale, well, that’s going to affect the lease term that we’re going to recommend for you, because we’re going to try to put it on the top cycle for sales versus the top cycle for rentals, which might be slightly different. And if you’re renting it furnished or talking about renting, it, that’s a totally different game.

Step two is you want to think about your strategy, all these moving pieces. What are the elements that I need? What strategic elements do I need to think about to accomplish my results that I have outlined Is this making sense for you? So it’s sort of like a, a full global, 20,000 foot perspective of what you’re going to do with your property. So you take yourself out of it. You get in a drone and you look down, you see what’s going to happen. Again, the knee jerk reaction for most people is just to ask is the number one question we get when people call us, what’s my home worth and what do you cost? Right? You should not be asking those questions until you’ve asked yourself one and then step number two, about the strategy. Now we happen to excel in the strategy. That’s what we’ve lived and breathed for the last 16 years in this business. And the whole Frame we want you to think about this is that this is not going to, it’s not a rental property. This is a business. So businesses take money to run. They take investments to run well. Ultimately those investments pay off in the longterm. If you’ve done them strategically and thought about it, right?

Number three is, it takes a team. It takes a team and it’s just like a business and landlording can oftentimes be very lonely. It can be very lonely. And there’s not a lot of information. There’s a lot quality information out there for landlords getting into it for the first time. There was a lot of books. There’s a lot of podcasts. There’s a lot of people who are doing it and they’re doing it well. They’re super excited. They got all things to all these great things happening in their life, but they never tell you about what it felt like when it started. And all of that, all the things that they went through. And there is certainly a learning curve. What everyone talks about is coaching a prospective investors to cross that finish line for the first time to just acquire the property. Right? Can you look at the rich dad, poor dad. You look at the bigger pockets. A lot of the landlording podcast out there right there about how do I leverage myself? How do I acquire this asset? Well, you probably already have the asset. All right, congratulations. That’s more than like, most people out there have done. You’re already partly living the dream, but here’s the part nobody talks about. And this is like the heavier part. So, it’s not even sexy. It’s not even sexy because it’s not the exciting part, but this is the part where you make your money. It’s how you manage the property. And what’s the team that you are setting up to help you run this business. So we like to kind of use a sports metaphor here, a coaching metaphor that you’re setting up the team. Team landlord, right? You’re the coach. Or you could even look at yourself as the owner, the guy in the Skybox and his wife. Let’s look at it from this perspective, like you’re the CEO of your business and you are a hiring the team to make sure that your business functions so you can be insulated, but involved in everything that goes on in your poverty, you can delegate. You can be the visionary for how your property operates and you tell the people down below, Hey, this is what, this is the vision I have. This is the, what I want to execute. And this is the type of money I want to expect to get back from that from my investment. And so they go out there and they do that for you, right? Here’s the team we’re talking about. We’re talking about having your CPA, having a CPA who is specialized in working with investors in whatever states, if you’re gonna be having a different residence, residency state who is specialized in that and can help you maximize your write offs and understand your tax strategy. If you need someone we’re talking about working with the right insurance provider who understands landlord tenant insurance, and can suggest different risk policies for you and depending on your financial makeup and your assets, they’re not every policy is right for the right person. Some people, it actually doesn’t. You have so many assets that doesn’t even make sense to get a landlord policy or certain umbrella policies. So you need an insurance agent who understands how to protect you as a landlord.

If you need a reference locally, we also have two or three great landlord insurance brokers who we can. And then like the, the, the nitty gritty stuff is, what’s your maintenance team look like? Do you have plumbers? Electricians, you have people that you can call that you trust and know that are licensed, that are licensed. Are you going to consider going, scrambling the internet and looking for, you know, Bob’s business of plumbing and heating to come over to your property? When he feels it’s convenient, Then you have a slip and fall accident. And it turns out he doesn’t not only does he not have workers’ comp, but he was hiring unlicensed guys. There’s nothing. And guess who’s paying for this slip and fall.

Now you are Mr. And Mrs. Landlord, and guess who may or may not be covered depending on what policy they had, that would be you Mr. And Mrs. Landlord? So you need to set up like you’re approaching a business. You need to set up all these players, other players on this team. Obviously it would be your property management team, your leasing agents, how are you? And if you’re doing it yourself, how are you handling screening? Who’s your screening provider? Where are you getting your contracts from? No matter what state you are operating in, there are changes every year to the legislation that affect landlord tenant law. And if you don’t use the latest contract or you worse Google and pick it from around the internet or write your own and don’t have it reviewed, and there is a violation in there and something happens at your property, a lot of money. It doesn’t matter what your insurance is. If you were something that was in violation of the law, you were looking at serious lawsuits. And depending how you set up the protection around your property, there could be big trouble there, but you can avoid this by going with either a reputable property management company.

We’re not all the same, not everyone’s using up-to-date contracts or making sure you’re purchasing the up-to-date contract. If you’re doing a deal. And the other thing too, is you, you, how are you positioning yourself to make the most on your rental? Are you pricing your property based on looking on Craigslist or Zillow or what? Bob down the street. I know Bob is going to come back into this conversation, but what Bob down the street says it’s worth or what your neighbors think it’s worth. Because if you’re doing that, you’re probably leaving a ton of money on the table, not just in terms of rental rate, but vacancy, and guess what vacancy is going to drive. So what is vacancy? The number one secret ROI killer. And if you see happen all the time, so Your pricing partner would be, are you working with a leasing agent? Are you working with a realtor? Or what other tool are you using? If you’re DIY, what tool are you using for pricing your property? Because if you’re just looking at what’s on Zillow or what’s on Craigslist, that’s what people are asking. What are people actually getting? And there are a number of nationwide tools you can use where you can enter your address and they’ll give you a write-ups. And that can be really helpful, but just keep in mind where your data comes from, because what you want is comps. So that would be your partner for helping you figure out about pricing.

In the Landlord Code course that we have coming very soon, we walk you through all of this. We’ve got tools, we’ve got our worksheet. We’re going to walk you through your emergency vendor planning. We’re going to let you know, it’s a little great little sheet where you figure out who do you need to know? You fill it out in advance. So when that emergency comes, if you’re a DIY landlord, you’ve got your resources. Obviously, if you’re working with a PM company, you don’t need that, but that is a resource we’re going to have available through the landlord card to help work you, to give you a worksheet, to help work. You work, you worksheet work to help you work through these things. There’s a thing called luck. People talk about luck. And what is luck? Luck is when preparation meets opportunity. And part of the landlord code course is to make sure that you are prepared. So when that opportunity does come up, you’ll be able to take advantage of, and you will not be known as Bob, the landlord you’ll be known as Larry, the lucky landlord out there. We should, we should trademark that, Larry, the lucky landlord. So you, you w people will look at you as like, wow, this person is making so much money from the rental. It just looks so easy. It was, you will have known is that, Hey, I put in the work, I educated myself. I know the details. I know what to anticipate. And when things do start falling apart, or things start to break, I know how to fix them in a way that makes sense and a sustainable, right? So in summary today, the first thing you’re going to do is ask yourself, what are the results that I want?

The second thing you’re going to do is what’s my strategy. How, what is the strategy? What are the things I need to think about to help me get these results and step number three. It’s How do I avoid being lonely and get myself the best partners out there and the best team to help me out. You’re building team landlords. Exactly things need to be done before you start even asking yourself, what’s my property worth. You know, what am I paying for the various vendors who I’m helping. You need to know who you’re plugging in or what holes you need to fill in your team. You need to have your strategy and your outline in place before you start asking those questions. And one more thing I just want to throw at you is that when you start thinking about costs, maybe reverse that a little bit and thinking about the investment for you to make, to live the life that you ultimately want to get the results that you’ll ultimately want to be on the beach with your cocktails, hanging out with Robert Kiyosaki. So I know when we talk about this stuff, sometimes it overwhelms people, right? We throw off a lot of scenarios that we’ve seen, obviously, with having seen thousands of properties, we’ve rented over $1 billion worth of properties, less than 1% eviction rate. We’ve kind of seen it all. We know it can be overwhelming when we come at you also, cause I talk like a million miles an hour, but here’s what we want you to take away. You can do this. You can be a landlord.

You can be successful. You can be Larry, that lucky landlord, right? If you, if you follow the steps, if you have the playbook, if you follow the processes and the teachings that we outlined for you, whether it’s working with us as foundation homes, property management, or learning to be a DIY landlord through the landlord code or any other don’t work with us, work with someone else, but do something. Either you hire a pro or you teach yourself how to do it, but there is no in-between. And when you fall in the in-between, which sadly is where most people fall, that’s where you start to hear all these stories. I can’t believe my tenant did this. I lost that. And before you know it, people are running for their Hills. What running for the Hills, selling these investments that could have made them tons of money in a buy and hold strategy. But they tapped out because they didn’t know that’s right.

If you’re interested in learning more about us for our brick and mortar company, Foundation Homes, property management, if you’re interested in learning more about our teachings for DIY landlords, or even have learning how to manage your property manager better, you can catch us at the Landlord Code. We’ve got our products coming very, very soon. We’ve got an awesome lineup complete with experts and some VIP opportunities for you coming this summer, all the way, starting in June, all the way through August.