What Is a Private Landlord? A Guide + Best Practices for 2023

A private landlord owns and manages their own property without assistance from a real estate agent or property manager. Private landlords can choose to manage their property remotely by hiring contractors or locally if they prefer to handle the maintenance and simple requests on their own. Whichever you prefer, the return on your property investment is one of the major benefits of becoming a private landlord.

In this article, we’ll take a deep dive into being a private landlord, including explaining the pros and cons, how to become a private landlord, and even some best practices. Let’s get started!

Private Landlords: Pros and Cons

Before jumping into your property rental search, there are a few serious considerations to keep in mind. Take a look at some of the pros and cons of private rental properties to better understand what’s in store.

Pros of Private Rental Properties

• Diversification: A popular strategy to diversify your portfolio is adding rental properties.
• Direct Control: Secure direct control over your investments by becoming a private landlord.
• Rental Income: Rental income can provide significantly higher returns on investment than the stock market.
• Property Appreciation: Historically, U.S. home prices always increase long-term.
• Tax Benefits: There are several tax benefits for rental property owners, including the ability to deduct mortgage interest, depreciation, legal fees, and more.
• Financing Options: Financing is made relatively simple for residential rental properties.
• 1031 Exchange: This tax break allows property owners to swap one piece of real estate investment property for another and defer capital gains taxes. You can learn more about the rules of 1031 here.

Cons of Private Rental Properties

• Property Taxes: Property taxes constantly fluctuate based on the local government’s operating budget.
• Constant Maintenance: Unexpectedly high repair costs may sometimes result in negative cash flow.
• Neighborhood Changes: Property value is directly impacted by neighborhoods, which may fluctuate at times.
• Potential Tenant Issues: Proper screenings don’t always vet out bad tenants.
• Real Estate Market Cycles: Similar to the stock market, the real estate market has cycles of ebbs and flows, with 18-year cycles on average.
• Unguaranteed Returns: Many variables contribute to the fact that profit isn’t guaranteed as a private property owner.

Now that you’ve got a better idea of the pros and cons of private rental properties let’s take a closer look at how to become a private landlord.

How to Become a Private Landlord

Running any successful business requires a hefty amount of time, money, and patience. If becoming a private landlord is in the cards for you, check out these steps.

1. Purchase an Investment Property - Do your research to find a property that shows potential, doesn’t require many repairs, meets codes, and is within your budget.
2. Make Financial Projections - Figure out a budget that includes unplanned expenses.
3. Hire a Property Manager - If you’re not local, consider hiring a property manager for assistance with filling vacancies, general maintenance requests, etc.
4. Prepare Your Rental - Ensure your property is up to code, handle any necessary renovations, and complete a thorough cleaning.
5. Market The Property - Utilize various websites to list potential renters.
6. Screen Prospective Tenants - Conduct background and credit checks and reach out to rental and personal references of applicants.
7. Draft and Sign The Lease - Create a legally binding document to be shared between your tenant and yourself to help protect both parties.

5+ Private Landlord Best Practices

Check out these best practices if you’re considering becoming a private landlord.

1. Create a Budget

If you’re looking into renting privately, the first thing you should do is define your budget. In addition to covering the costs of a private rental, which include purchasing, and regular and unexpected maintenance, you’ll also have to consider expenses during unpredictable vacancy periods.

Not only are you responsible for the mortgage during these times as a private landlord, but you’ll also have to pay marketing fees, utilities, and property taxes.

2. Purchase The Right Rental Property

Finding private rental properties may seem relatively simple, but you’ll need to research to ensure you find a good investment. In addition to finding quality properties, you’ll also want to look into desirable neighborhoods. Look for features that include:

• Proximity to public transportation
• Quantity and quality of local restaurants
• Local movie theaters, parks, libraries
• Crime rates
• Rankings of schools in the district

3. Understand Local Landlord-Tenant Laws

Private rental owners should also review local landlord-tenant laws before finalizing rental purchases. Landlord-tenant laws vary by state, which is why it’s crucial to familiarize yourself with local laws to protect your tenants and yourself.

4. Get Private Landlord Insurance

Private landlord insurance is available to help protect landlords from financial losses on their rental properties. Shop around with different providers to find the insurance policy that makes the most sense for your situation.

5. Determine Monthly Rent

You’ll want to get the pricing right on private landlord rentals, which means looking at the local market to help determine monthly rent. Tenants looking for private landlords might be otherwise turned away if your rent is too high, while pricing too low can hurt your bottom line. You have to find a healthy balance between the two.

6. Draft a Lease Agreement

Begin drafting your lease agreement terms once you’ve determined your monthly rent price. Some of the basic rental considerations to feature in your lease agreement include the following:

• Security deposit amount and how it will be accepted
• Length of the lease term
• Rent specifications
• Pet policies
• Guest policies

7. Properly Screen Tenants

Application fees help private landlords to fund the background and credit check process of prospective renters. Check out a variety of private landlord websites that can help assist, providing online screening services. Always ask for rental and personal references for renters to get a better idea of who you may be renting to.

Final Thoughts

There are many benefits to becoming a private landlord, and now that you’re familiar with the process and best practices, you can begin your journey with confidence and realistic expectations.

Once your property is good and ready, the next step is to list it.

Find out more about how Apartment List helps properties, and start by listing your rental property today!