Here are 5 rules that every landlord should live by. Following these simple guidelines can save you time, money, and headaches if you’re considering being a landlord or currently are one.
Do your due diligence when purchasing a rental property
Buying the cheapest property for an investment rental property without doing your due diligence can lead to many problems that could have been avoided and possible catastrophic financial loss. A rental property’s condition can affect your insurance premium or even prevent a carrier from insuring your property.
Make sure to hire a reputable and trusted third-party inspector to complete a thorough home inspection–just as you would your own property. This inspection can identify significant issues that could cause costly problems and prevent your property from being insured.
You should also ensure that your home is up to your local area’s building code for your tenants. Be particularly cautious with properties being sold “as-is.” Make sure your major systems: electrical, plumbing, heating, and roof are problem-free; also, don’t forget to test for mold. If these issues exist in your rental property, you could be putting your tenant in harm’s way and yourself at risk for a potential lawsuit.
If the property requires cost-prohibitive fixes to bring your rental property up to code, it’s okay to walk away. That is a choice you need to make, but you’ll be able to make an informed decision because you did your due diligence. It’s worth the time and effort.
Have written contracts in place
Contracts are an important and vital tool for a landlord and the tenant. Retain a lawyer to review and draw up your rental agreements. Additionally, your attorney can assist you with any legal disputes around your rental property.
If at all possible, have your tenants sign a 12-month or longer lease. Sit down with your tenants to review all aspects of the contract before signing. Reviewing the contract with your tenant builds a clear understanding of what you expect from them as your tenants and their expectations of you as their landlord.
Make sure to address your expectations around pets and smoking in your rental agreements. If you allow either, clearly state any additional costs for repainting, recarpeting, or extra cleaning costs. You will want to bear in mind if you allow dogs, this could potentially result in liability exposures from dog bites. Allowing smoking could expose you to a greater risk of a house fire.
You should include a clause that your tenant must carry renter’s insurance for their lease duration in your rental agreement. It would be best to let the tenant know that the insurance you carry does not cover their personal property if it is damaged.
Thoroughly screen your tenants
While screening potential tenants may seem an obvious step, many first-time and even seasoned landlords fail to screen their tenants. A background and credit check can give you some peace-of-mind that you have a reliable and trustworthy tenant. Background and credit checks are available online for relatively nominal fees.
While it’s important to screen your tenants, it’s also critical to follow the Fair Housing Act and Fair Credit Reporting Act guidelines, as well as your state’s rental laws. Violating any of these could lead to costly litigation before you even get a tenant in your property.
Make sure you have rental property insurance
Having the correct type of insurance for your rental property is paramount. You cannot buy a traditional homeowners policy for a rental property or non-owner-occupied home. What you need is called a Dwelling Fire policy, or sometimes referred to as a “Landlord” policy. Having the wrong type of policy on your rental property can prevent a claim from being paid.
You should know that underwriting for rental properties generally tends to be a little tighter. Also, the coverage isn’t as broad as what you would find in a traditional homeowners policy. Be aware that some properties may be more difficult to insure, so make sure to speak with an insurance agent before purchasing the property to ensure you won’t have any issues securing a policy.
Keep in mind; most Dwelling Fire policies state that if a property is vacant or un-rented for more than 30 or 60 consecutive days, coverage can be severely reduced or even eliminated. If you think your property will be vacant for more than 30 or 60 days, be sure to let your carrier know so that your Dwelling Fire policy can be adjusted.
Keep tabs on your rental property
Because you don’t live in the home doesn’t mean you shouldn’t know about your rental property. You should be just as savvy about your rental property’s information as you are your own home.
Keep records of all repairs or changes to the property, and make sure you physically visit or drive by the property every 3-6 months to ensure everything is in good working order. Remember that your rental property is an investment, and you should maintain the property as you would your primary residence.
As we said before, owning one or multiple rental properties can be a lucrative business that can generate a lot of passive income. However, if you cut corners on any of these 5 rules, you could face excessive costs and frequent headaches. So be a conscientious landlord, and enjoy the benefits of your investment.