Plans Well Laid Are Good for Other Reasons
Life often doesn't go as planned. In fact, experts say real success is an offshoot of your intended goals and journey.
For some, the decision to own rental property is deliberate and intentional, and came about after careful consideration -and a lot of hard work. For others, though, their foray into the world of rental investing is less deliberate -and more, well, accidental!
Maybe you ended up with two homes after getting married, or inherited a home from a family member? Or, maybe you ended up moving for work, or due to a life change -and were left wondering what to do with your previous house?
It's safe to say that everyone's journey into the world of rental property looks a little bit different.
Find a handy man or DIY
You always want to make sure someone has the responsibility of checking that property frequently to be sure its being taken care of. Come up with a list of preferred handymen if you're not so good with a plunger. Also, will you require tenants to mow the lawn or shovel the driveway in winter? Those are the details you'll want to hash out before anyone signs anything.
Maintenance Costs And Vacancies Can Compound The Problem
To help prevent monthly maintenance costs from skyrocketing, decide to purchase a home warranty, which cost another $40 a month.
Costs to consider
Many experts recommend including a vacancy factor of at least 10 percent in the amount of rent charged. So, in my case, I could expect at least 30 to 60 days of vacancy every time I had to find a new tenant. Protect yourself for unexpected costs and build a buffer fund.
How To Reduce Vacancies:
4 Ways To Rent Out Your Property Quickly
Be proactive with your current tenant. Ask your tenant 90 days ahead of the lease expiration whether they plan to stay another year. ...
Optimize your advertising strategy. ...
Understand the market. ...
Identify your ideal tenant with online tenant screening.
Respond to problems promptly
Most landlords put off repairs until later, since they're quite costly. Keep in mind, however, that the longer you put off repairs, the more you'll have to spend in the future.
That's why you need to address issues as soon as they crop up.
Find ways to make things more cost-efficient
For example, you can change your shower heads and toilets to ones that use less water. You can also use energy efficient appliances and light bulbs. You don't need to spend loads of cash to upgrade to efficient systems, as long as you know what to look for.
Qualify Your Tenants
The most important part of landlording (besides calculating the cash flow) is choosing the right tenant. Almost every problem with rental properties stems from tenants. Vetting tenants can prevent property damage, unauthorized tenants, unauthorized pets, and non-payment of rent.
Placing Bad Tenants in your rental could be a Horror
You could own a beautiful property and maintain it perfectly, but it wouldn't be worth a penny to you if you couldn't get it rented by good tenants. Not just any tenants, but ones who pay rent on time and are honest about damages to the property and don't sue the owner or managers with false claims. New owners and landlords are often all too willing to rent their property to people whose credentials (credit, work history, criminal history, etc.) they haven't thoroughly verified. Looking into a tenant's history is of the utmost importance, so don't just call their last landlord - call two or three of the landlords they've rented from. After all, the most recent one might speak positively about the tenant only because they want him to become your problem, not theirs. Taking on bad tenants can get you dragged to court for no good reason, and end up costing you dearly on legal fees even if you win the case. Verification of tenant records should never be skipped over in favor of guesswork. Remember: your rental property is only as good as its renters.
Why Is Tenant Screening So Important?
If you are a landlord, one of the most important things you can do is screen your prospective tenants carefully. This can prevent losses of thousands of dollars in damage, unpaid rent, and court costs associated with evictions. However, if you do not screen properly or use the right metrics to evaluate potential tenants, you may waste your time and money and still be unprotected. It is important to include the right screening protocols in your tenant background checks.
Require a Deposit
Most renters expect to pay a deposit, a designated fee the landlord holds until termination of the lease. This money may be returned in full to the tenant if at the time of move-out there's no damage or violations of the rental agreement. However, if needed, the deposit may cover repairs. It's common for an additional deposit to be charged by the landlord if the tenant has pets.
Privacy is essential for renters and helps ensure a smooth in-life tenancy. Yet, it's still crucial that you inspect your investment to see if it's in good condition and the renter is looking after the home. Two per year should be enough, and you should always provide the renter with at least 24 hours notice - if not more.
Whether you've converted your family home into a full-on boarding house or are renting out the basement, you'll need to convert your homeowners' insurance to one for landlords. Sometimes this is referred to as a "Dwelling Fire Policy," but it protects you from far more than a lazy bum who falls asleep with a lit cigarette.
Gather records of your income and expenses
Record your rental income earnings from the prior year and all cash-related expenditures on the property on IRS 1040 Form Schedule E. Things like property taxes, energy costs, association fees, maintenance, legal fees (if a lawyer drafted your rental contracts), ad costs to rent the space, and repairs are now deductible because your home is a rental property and not a personal residence. In recent years, there's been an increase on rental property audits,1 so be sure you have receipts and proper documentation to support your deductions in case you're audited.
Outline a tenant's obligations.Tenants have specific responsibilities under landlord tenant law to maintain the rental property. Tenants must keep their property free from safety or sanitary hazards. They must not cause damage to the rental and must follow all building and housing codes. The specific tenant responsibilities listed in your state's landlord tenant laws should be included in this lease clause.
Landlord and Tenant Signatures Should be on a Lease
If the lease is not signed and dated, it is worthless. The signatures acknowledge that the landlord and the tenant agree to follow the terms of the lease. The landlord, or the landlord's agent, such as a property manager, must sign and date the lease. The tenants must also sign and date the lease. Make sure to have all tenants over the age of 18 sign and date the lease. These tenants should all be named in the "parties" clause of the lease.