Given the lingering effects of the Great Recession, many people consider the benefits of a fall-back plan to safeguard their hard-earned money. One way to diversify is investing in real estate. If you’re a first-time landlord in the current housing market, it’s more important than ever to know the responsibilities and expectations you’ll face and take the proper measures to ensure your property is protected no matter what may occur. Home ownership is more of a luxury than an expectation these days, and many families elect to rent property instead, meaning you’ll have a variety of renters to select from. If you’re looking to profit by renting out your property, be sure you protect your assets with these essential steps.
1. Become a Legal Entity
If you purchased your rental property in your name, you are vulnerable to a variety of legal consequences. If you have not yet bought property but are in the process of looking, consider obtaining a legal entity. By creating an LLC and including another name on the owner’s rights, you lessen your risk of losing your property in litigation. If you plan on owning multiple rental properties, or perhaps you already do, be sure you don’t include too many properties on one LLC. Should the LLC be sued, you don’t want to risk losing all of your legal assets in one fell swoop.
2. Screening Your Tenants
One of the biggest pitfalls of being a landlord is the risk of renting to dissatisfactory tenants. In order to ensure you’re renting to the ideal candidates, use a Smartmove tenant background search. It will allow you to scan for past evictions, a criminal record, and show you their credit score—all of which is essential information when deciding on a renter. Taking the time to select an excellent renter will save you time, headaches, and money in the future. Follow Fair Housing Act regulations, do not discriminate against tenants, and find the right fit for your property and monetary requirements.
3. Excellent Property Management
If you don’t use a property management company, your liability skyrockets in almost every facet of the rental process. If you choose to manage your property alone, you’ll need to have a proper handle on numerous local and state ordinances. You’ll need to be well-versed in a variety of documents and forms to ensure everything with your rental property is done by the book. If you choose to forgo hiring a property manager, be diligent with your tenants. Respond quickly when they call, do your best to fix any problems that may arise as soon as possible, and be respectful.
4. Craft the Perfect Lease Agreement
Do your research and be sure to craft an airtight lease agreement. Should anything go wrong with a tenant in the future, the lease will make or break your case should it find its way into court. Make sure your lease follows protocol on both the state and local levels, use clear language to ensure it can’t be manipulated for tenant purposes, and be clear about your pet policy. State your rent requirements and any potential deposits, outline conduct restrictions you may have, and write out the consequences should any portion of the lease be broken, i.e. eviction.
5. The Proper Insurance
Make sure your rental property is covered by the proper insurance. Talk one-on-one with your home insurance agent, and be aware of the things that often are not protected; whether it be natural disasters, terrorist acts, or even sewage issues. Some properties are not considered for coverage of this type, but having a handle on the things you may be liable for will help you decide on the insurance rates you’re willing to pay. You can also elect to make renter’s insurance mandatory to provide yourself with an extra layer of insurance protection should something happen.
6. Legal Disclosures
In addition to a well-crafted lease agreement, be sure to issue the appropriate legal disclosures to your prospective tenants. There are a variety of disclosures required by state that you must provide to tenants; failure to do so could be the proverbial nail in the coffin should you find yourself in court. Whether it be policies on lead-based paint, fire protection offerings, or rights to move-in checklists, be sure you cover all the essentials required by the applicable legalities. If you’re unsure of how to begin, consult with a legal counsel. The fee they charge will be worth avoiding financial hardship and a lawsuit in the future.
Making an investment in a rental property can be a lucrative business decision, but it comes with its fair share of responsibilities and legal issues. Understand the complexity of your renting venture, and be sure you do your due diligence to protect your rental property investments.