It can be hard enough maintaining your own house in addition to a busy schedule and family life. If you choose to become a landlord with even one property, you will have to make regular financial and time-consuming decisions based on the property you own. Your time commitment will only grow larger if you own more properties (unless you hire a property manager, in which case you might save some time but spend more money).
Becoming a landlord can be a financially profitable decision, and for some, it can be a fun way to meet new people and run a business. However, landlords face numerous issues when renting out properties. Here are several things that will help you succeed when you are renting out.
1. Get insurance
As a landlord you will need hazard, fire, and liability insurance, and depending on your unique circumstances, you may need flood insurance, loss of income insurance, workers compensation insurance, or other types as necessary. As a landlord you risk being held responsible for injury to a tenant if the tenant can prove you have been negligent in maintaining the property or fixing a problem.
This is also a good reason to always do repairs in a timely fashion. For a landlord to be held responsible, the tenant must prove that it was the landlord’s responsibility to maintain the particular portion of the premises that an injury occurred on, that the landlord failed to take responsible steps to fix the problem and that the injury was foreseeable because of the condition or issue on the property, that fixing the problem wasn’t unreasonably expensive or difficult, that the landlord’s negligence caused the accident, and that the tenant was genuinely hurt.
2. Set a fair price
If you are just starting out or if you have recently remodeled a property and you are repricing it before advertising it, make sure you list a fair market price. Bring in a realtor or specialist who specializes in rentals who can tell you what a proper price should be. Setting a fair price will help you compete with comparable properties.
You should certainly price your rental at the highest price possible in order to cover your expenses and make extra income, but if you price the property too high, you risk paying for a property that remains vacant for a long amount of time. How much you should charge will depend on the size and condition of the unit, but also the overall desirability.
3. Screen tenants
Before you accept a new tenant, be sure to check that person’s credit history as well as his or her references. You should also do a background check. If possible, try to reach a previous landlord as a reference, because personal references can easily be arranged by a less-than-honest tenant. You will also want to check for any past evictions. This isn’t to say that a person who had financial trouble in the past will necessarily repeat history, but if he or she tries to hide it or if there were continued issues in the past, then you may want to keep looking for another tenant.
Also, the Fair Housing Act of 1968 and the federal Fair Housing Act Amendments Act of 1988 prohibit discrimination based on several factors, including religion, disability, race, sex, and familial status, and while you may never discriminate, completing a careful screening of tenants will help you avoid legal issues because you can document the reasons behind who you choose to rent (or not rent) to.
4. Write up a contract
Writing a contract will help protect you and your assets. You should include the cost of the rent (and acceptable payment methods), your lease length (one year, month-to-month, etc.), payment due date, security deposit information (cost and on what conditions it will be returned to the tenant), information on how quickly and in what manner you will handle complaints or rental issues, and also the names of tenants (so that they can’t just have someone move in later without telling you). You may also want to include your rights of entry as a landlord, which vary by state. Your contract may need additional items depending on circumstances, such as pets residing on the property.
5. Collect a security deposit
You should always collect a security deposit for your rental property. Before a tenant obtains a property, you should carefully document any wear and tear or other issues on the property and fill out a property condition report. You can protect yourself from legal issues later by having the tenant sign a document that states all issues.
By doing this, you also give yourself the power to keep the security deposit if the tenant does not take care of the property. If you are wondering how much to charge for a security deposit, the usual rule of thumb is one month’s rent. However, it depends on your state. Some states have specific rules about how much you can require for a security deposit. Some states also have requirements about how can store the security deposit and also how you can use it.
There are several other things that can help when you are renting out property. If you own quite a few properties, then you will need reliable property managers and workers. You should also protect your property and tenants by maintaining locks, windows, and other security measures, and keep meticulous order of all your rental-related purchases through receipts to help you during tax time.