The rental market is strong, with many residents electing to rent instead of buy in today’s economy. This means great things for property investors, and choosing to rent out a home can be one of the most lucrative business decisions you make. However, with great reward comes great risk, so do what you can to protect your property investment by following these key guidelines.
- The Right Screening Tactic
There’s nothing scarier to a landlord than a terrible tenant, and this fear is based upon plenty of examples. Stories of awful lawsuits, violent renters, and damaging tenants are aplenty, so finding the right renter is key for all landlords. Instead of leaving it to chance, do your due diligence to find the right fit and rely on tenant reports for landlord use. These checks will help you determine whether a renter candidate has a criminal record and allow you to see their credit score. An even better aspect of using services like these? They will also tell you whether or not said individual has ever been evicted.
- Hiring a Property Manager
Even if you plan on managing the property yourself, at least consider using professional services. A good property manager already has a handle on the necessary local, state, and federal regulations and ordinances concerning rental properties, and using one greatly decreases your liability. They handle the nitty gritty details of renting out a property; they’ll make sure any repairs are made through reputable companies and handle face-to-face interactions with your tenants. The fees for a property manager start at around 10 percent of your rental income, but can increase depending on your location and the company chosen. If you’re using your rental as an additional income to your full-time job, a property manager may be necessary in terms of availability for your tenant.
- Upkeep is Key
To ensure you have tenants that don’t break their lease early, and you don’t face legal action, perform upkeep on your rental property whenever necessary. Small investments now mean protection from large fund-depleting repair or legal issues later. It will also help you maintain a solid, respectful relationship with your tenants and avoid periods of non-tenancy—meaning no lapses in your rental income. Less turnover also means fewer times of rental revamping for new tenants. A good general rule of thumb? The maintenance costs for a year should come in around 1.5 times whatever your monthly rental costs are. Of course this varies depending on unforeseen events and the age and condition of your home.
- The Right Insurance Plan For You
Take the time to find the perfect insurance plan for your property investment. From natural disasters to freak accidents to even burst pipes, the list of things that can cause damage to a property are seemingly unlimited. Speak to an insurance agent well-versed in the details of property rentals to ensure you find the right coverage. Most insurance plans don’t cover conceivable damages, including flooding, terrorist attacks, and sewage issues. Knowing this upfront can save you a small fortune down the road, and the peace of mind you’ll have is worth the investment. Many landlords are also enforcing renter’s insurance requirements. This will provide extra coverage for your tenants and hopefully further reduce your risk of any lawsuits.
- Becoming a Legal Entity
Many property owners elect to create a legal entity in the interest of protecting their other personal assets. One of the biggest liabilities when renting out your property is the possibility of lawsuits. Even if you end up winning a case brought against you, the legal costs of securing your win can be devastating. Make sure your personal assets are not vulnerable to attack by opportunistic terror tenants by creating your very own LLC. This will help protect your personal home, savings, and more, from any potential lawsuits.
- Tax Issues
The taxes required for a rental property are different than your normal personal filings, and there are various caveats and technicalities you’ll need to be aware of to ensure you stay on the right side of the IRS. It may be in your best interest to use tax services for the first go-around. Spending the small amount that it takes to have your taxes done is worth avoiding the risk of jail time or legal fees.
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I really liked the insight you gave about hiring a property manager. As you say, when you hire a professional service, all of the necessary regulations and ordinances that need to be made will be taken care of and done correctly. Thus, it will not only be easier to manage your rental property, but it will give you a higher chance to be successful and ensure your tenants are safe and secure in the place that they live. Thank you for sharing!
I totally agree with Lauren. But it’s too hard to professional today(