You decided to become a landlord for a number of reasons. It seemed like a good way to earn passive income on your real estate investment, receive tax deductions or watch your investment property appreciate over time.
However the drawbacks of being a landlord are starting to outweigh the benefits. You may have problem tenants who continually pay late, their checks bounce, or they’ve broken the terms of the lease.
Here are some options to consider if you’re tired of being a landlord — and all the responsibilities that come with it.
Option 1: Require Your Tenants to Pay Rent Via Money Orders or Cashier’s Checks
Your tenants have been late on payments month after month, leaving you feeling insecure about your cash flow.
One way some landlords get around the uncomfortable job of repeatedly following up with tenants to pay rent is by requiring a direct deposit. The benefit is that it’s convenient and happens automatically. No more wondering when you’ll get paid, following up with tenants, or bounced checks.
There are some legal pitfalls to consider with this, though.
Let’s say this bad tenant has caused extensive damage to the property. You might need an eviction lawyer to help you evict the tenant. Depending on your state’s laws, you may be required to provide predicate notice, which should detail why the case is being brought to court and give the tenant notice about the allegations.
If you accept rent payment after termination of tenancy, it might create a new tenancy and cancel the predicate notice. Once you share your bank account information with your tenant, they can use it to deposit rent into your account, which puts a stop to the eviction process. It doesn’t have to be the full rent payment amount to cause delays in the eviction process.
Tired of bounced checks but want to avoid the potential pitfalls of direct deposit? Consider requiring money orders or cashier’s checks for rent payment moving forward.
Option 2: Hire a Property Management Company
Sometimes dealing with tenants can feel like a full time job, even when they are good tenants. Property management companies can take a number of the responsibilities of being a landlord off your shoulders.
Some of the jobs a property management company can perform include, but are not limited to:
- Marketing your rental property
- Screening prospective tenants
- Collecting rent payment
- Handling maintenance issues and repairs
- Responding to tenant questions or complaints
Depending on the property management company, they may even be able to help pursue evictions.
Another advantage of using a property management company is that they are independent contractors, so you don’t have to worry about hiring an employee and paying benefits.
Why Landlords Hire a Property Management Company
There are a number of reasons why landlords might hire a property management company, such as:
- They have too many properties to manage on their own.
- The owner resides in a different state than where the property is located.
- The landlord no longer has the time or interest to manage the property.
If your location or availability has changed, hiring a property management company might allow you to keep the rental house, but not the hassle.
The Cost of a Property Management Company
Property management can save you time and headaches, but it comes at a cost — and sometimes a steep one. Expect to pay roughly 7 to 10 percent of the monthly rent, reported Zillow. You may incur additional fees for services like tenant evictions or contracting out home repairs.
Property managers typically bill as a percentage of the monthly rent, a flat monthly rate, or a per project basis for services rendered in a given billing period. Before getting started, make sure to ask what’s included, and what’s extra. To ensure you and the company have a clear understanding, it is important to get it all in writing and signed by all parties involved.
Option 3: Owner Financing
A house is often the biggest purchase you’ll ever make. As a result, homebuyers typically have to finance the purchase to cover the cost.
Most people take a loan from a lender or bank and make monthly mortgage payments until the house is paid off. One alternative route to a mortgage is owner financing. This option allows homebuyers to finance the purchase of the property through the seller instead of a lender or bank.
Here’s a high-level overview of how seller financing works:
- Seller gives the buyer enough credit to cover the sale price of the home, minus a down payment
- Buyer pays the seller until the amount is paid in full
As a landlord, you might decide to go this direction to have a steady flow of cash over time as your buyer makes monthly payments. Additionally, you can earn extra income by charging interest on the loan.
It’s a way to slowly offload the burden of owning the house, while still making money in the meantime.
Option 4: Consider a Rent-to-Own Agreement
A rent-to-own agreement is a traditional lease that gives the tenant the option to buy the house.
There are typically two different agreements that make up one rent-to-own agreement, including:
- Standard lease
- Option to purchase
The standard lease is the agreement to rent the property. The option to purchase allows the tenant the option to buy the property within a certain timeframe for an “option fee.” Option fees are generally paid upfront.
What happens if the tenant decides not to buy the house? Good news, landlords. You typically get to keep the option fee regardless. Just make sure that it’s spelled out in your contract.
You’ll also be happy to hear that rent-to-own agreements generally require tenants to pay for any necessary home repairs at their own expense.
It’s a great way to save money on home repairs, especially since you plan to sell the house anyway.
Option 5: Sell Your Rental Property to Meridian Trust
There is an option for landlords who decide to sell their asset. The fastest, easiest thing to do if you’re tired of the time and effort required to be a landlord is to sell your property to the home buying company, Meridian Trust. We pay cash for houses “as is” in Florida, Georgia, and Alabama. Plus, the entire process can be handled virtually, there are no commission fees or hidden costs, and we take care of all the customary closing costs for you.
Additionally, if you have a current tenant, our real estate agents can also work with you on timing to ensure that they have the required amount of notice to move out, based on your lease agreement.
To learn more about how you can get a cash offer, give us a call at (954) 807-9087.
Note: This guide is for informational purposes only. Meridian Trust does not make any guarantees about the sufficiency of the content in or linked to from this blog post or that it is compliant with current law. The content within this blog post is not a substitute for legal advice or legal services. You should not rely on this information for any purpose without consulting a licensed lawyer in your area.
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