There are plenty of reasons to rent out a house. Maybe you’re dipping your toes into the world of real estate investing, or you’re struggling to sell your home and need to rent it out in the meantime.
Owning an investment property can be quite profitable, but being a landlord is much more than handing over the keys, making the occasional repair and collecting a monthly rent check. It’s a lot of work, and it’s not for everyone.
Keep reading these tips for first-time landlords to learn which common mistakes to avoid and how to protect yourself and your property.
1. Understand that being a landlord isn’t easy money.
Owning a rental property is an investment, but it’s not mailbox money. Being a good landlord takes a lot of work, and since your rental property may not be profitable off the bat, it’s vital that you’re aware of what you’re getting yourself into: paying more for property taxes, emergency phone calls in the middle of the night or dealing with an eviction.
2. Remember that it’s a business.
Your rental property isn’t a house that you own. It’s a house that a business owns—your business! As such, it’s essential to keep your business separate from your emotions and handle situations efficiently, say if your tenant is a week late with rent or causes damage not covered by insurance. In preparing your property, you’ll consult with accountants, lawyers and insurance companies that will bestow valuable business advice that can help you navigate these tricky situations.
3. Know your state’s landlord-tenant law.
You’ll have to apply for a certificate of occupancy before you rent out your property, which will help you familiarize yourself with California or Arizona landlord-tenant law, as well as the federal Fair Housing Act. You don’t need to become a legal expert, but it’s important to have a basic understanding of the law to ensure that you don’t break it.
4. Find a good tenant.
Your tenant shouldn’t give you a reason to worry, so take your time in finding someone who is the right fit. Meet them in person to make sure you’re comfortable with them and run a background check before you draw up the lease.
There are a few more things you can request in the application process that will give you additional peace of mind, including:
- Salary verification
- Credit check
- References, especially from employers or past landlords
Friends or family members may seem like a great choice but proceed with caution. These situations have the potential to get messy, and it’s a lot easier to evict a stranger.
5. Charge the right rent.
You need to charge the right rent if your investment property is going to serve as a source of income. However, you also need to compete with similar residences in the neighborhood. An accountant can help you crunch the numbers.
6. Be clear about the terms of your lease agreement.
Your lease agreement is a contract between you and your tenant that includes crystal clear stipulations. A lease typically contains specifications on the following:
- Lease term
- Security deposits
- Payment due dates and late payment penalties
- Repairs, maintenance and who is responsible for what
- Pet policies
- Rules of behavior
- Subletting policies
- Eviction terms, such as property damage
Note that this list isn’t exhaustive; meet with a lawyer to ensure you’re covering all of your bases.
7. Consult with the right people.
It’s wise to consult an accountant or tax planner who has experience filing taxes for landlords because owning a rental property will affect your state and federal taxes. They can show you how to track your expenses, compile the documents you’ll need at the end of each tax year and help you determine how to pay yourself for your side job.
It’s also smart to hire a lawyer who can review your lease agreement. You don’t need to pay to retain them, but having someone look over the terms and conditions of your contract can provide much-appreciated assurance.
8. Document everything.
It can be painstaking to maintain such impeccable records, but staying organized will ultimately make your life easier in the long run. Put things in writing and keep a paper trail. Track the items you purchase and contractors you hire to maintain your property. Take pictures so you can see what the property looked like before, during and after tenants, so you know how to proceed with security deposits. Even the smallest detail can potentially be important.
9. Hire a reliable handyman.
Knowing how to make minor repairs and perform ongoing maintenance can cut down on the costs associated with being a landlord, but you’ll likely encounter repairs that are out of your wheelhouse. It’s critical to have a working relationship with a trustworthy, reliable handyman who can take care of more involved projects, like those involving plumbing or electrical work.
10. Get landlord insurance.
Landlord insurance, also known as rental home insurance or dwelling fire insurance, can provide additional coverages that protect you, the landlord, from financial losses. Dwelling insurance includes protections for the property’s structure, legal and medical expenses, and loss of rental income, say if your tenant has to move out while repairs are made. Liability insurance is also a smart investment.
Encourage your tenant to carry renters insurance, since your landlord insurance policy only covers the physical structure of the property—not any of your tenant’s possessions.
Personal Express can help you secure the coverage you need so everyone is protected. You could even save money by bundling your policies. Our Homegrown Pros are here to navigate you through every step, so meet with a local agent in your neighborhood or call 1-800-499-3612 to get started.