Passive income just has a good sound to it. The idea of doing nothing (or, in most cases, very little) and making money is appealing. It’s all about finding things you already have and making them work for you. In the case of renting space, you’re taking an area that was just sitting around and making it productive. Maybe you have a basement apartment, a spare room, or even some storage space in your garage, attic or shed. It’s time to stop scratching your head about what to do with the space and put it to some good use.
Drive by any property rental company or storage facility and you might begin to realize the potential. If there are entire storage facilities and rental buildings full of apartments, then your space is also likely to be a desired commodity. Once you get your feet wet, don’t be surprised if you find yourself loving it so much that you’re looking for ways to purchase more rental space. It’s an addicting form of passive income, and you can’t say that you weren’t warned. You may find yourself becoming an avid property manager owning and running multiple properties with ease and joy. What better thing than to take an unused space and toss someone in there? Not only does someone get a great place to live with a fantastic landlord (you), but you make money on the deal to boot.
Understanding the Value
There are a lot of specific rules for deciding how to start out. One of the key factors is setting your price for a property. It’s important to look at other rental spaces around your area. Look within a few miles, it’ll give you the best idea for your specific space. If you’re in a very urban area, property values can fluctuate drastically in a several mile radius, so it’s critical to just look at spaces with similar square footage in your immediate vicinity.
If you are looking to rent a living space, the best way to evaluate it is on a per-bedroom cost. While some properties are significantly nicer than others, your renters will be looking at the cost-per-occupant, so you must as well. Knowing what’s available around you will enable you to be discerning about setting a price. Price is everything. If you set it too low, you’re more likely to get occupants who don’t care as much for the space and don’t take very good care of it. If you set it too high, you won’t find people willing to pay the fee. It’s about striking a balance.
As a landlord, the best way to rent out your property is to update your property so you are competitive with the upper end of your area, advertise for extra amenities that are not offered at the large complexes (think yard, garage, storage space, etc), and sell the space for what upper-end properties in the area are going for. Even if you’re not quite as fancy as a place with a pool and workout facility, it’ll help weed out the irresponsible renters who can eat up your profits. Also, never rent a space for less than you are paying each month for it. That’s losing money and it’s not smart. If you’re going to lose money on something, use it for yourself. Renting a property for a loss will not only be a cost on top of paying for a space for yourself, it could also cause feelings of bitterness and a bad relationship with your tenants.
Be Picky!
Again, the mantra with property management for passive income is to take excellent care of a facility (meaning, fix things more often for the renters than you do for yourself) and expect the same in return. Don’t get saddled with renters who take advantage of you. Write a lease that protects you from abusive renters, know the renter/landlord laws in your area and do as much as you can to make yourself safe.
Be sure you’re not in a place where you’re desperate for the passive income generated by a rental. Being desperate will lead you to lower your standards, and it may cost you in the long run. Many landlords learn this lesson the hard way. Just as you are one among many properties for renters to choose from, each potential renter is one among many as well. If someone doesn’t sit well with you, don’t enter into a long-term contract with them. The right people are out there, and they’re worth the wait.
Don’t be afraid to give references to renters. Once you’ve had some positive experiences, those renters will likely offer recommendations for future renters. Likewise, don’t be afraid to ask for (and spend the money on) a background check on any renter you are seriously considering. If you do this, don’t sign papers until the background check clears.
Above all, have fun with property management. It’s an excellent way to develop new friendships, learn more about your community and generate a passive income as well. Being a landlord also builds a name for you among your community. With the right preparation and attitude, it will be the best job you have ever worked.
What do you think? Do you have a space that you could rent out? Would you?
We currently rent out space to my sister. It’s pretty easy and she’s been a great roommate!