Beginner Landlord Tips
Real estate continues to be a tried and true method to wealth building in the United States. Rental properties can provide a steady stream of income as a side business or as a full time living.
So, whether you are renting out a vacation property or just purchased a 10-unit apartment building, being a landlord for the first time is fun and exciting.
Being a landlord for the first time can also be overwhelming. If you’re new to the rental property game, here are some pointers to get you started off on the right foot.
Vet your tenants carefully
Once your tenants have moved in, getting them out if a problem arises can be very difficult. It is crucial to vet your tenants thoroughly. You should run credit checks, background and criminal history checks. You can also review social media pages, ask for references or paystubs.
Join an organization
The American Apartment Owners Association (AAOA) is an organization for landlords and property managers. They have been around since 2004 with a mission to “provide superior property management services that will equip landlords to better manage their investment properties.”
The AAOA offers many services to first time landlords including a tenant background screening program to its members.
Become familiar with the law
Landlord tenant laws vary by state. They exist to protect both you as a landlord and your tenants. It is important to be familiar with these laws before you draw up contracts or lease agreements. On the AAOA site you can view Landlord Tenant Laws by state.
Protect your property with insurance
Having the right insurance coverage on your rental property should be a top priority. Landlords need coverage for the property, liability and to protect their income.
Here’s some information about the basic coverage you need as a first-time landlord.
Property damage insurance: Property insurance will protect your building and any personal property you maintain in the building. The property is insured for physical damage such as fire, theft or other disasters. It is important to make sure your property is insured to replacement cost so that if you are involved in a total loss your insurance policy will pay enough for you to rebuild or replace your property.
Liability Insurance: Liability insurance protects you from claims and lawsuits. If a tenant or guest is injured on your property they may try to sue you for bodily injury. Liability insurance will step in to pay for any damages for which you are found responsible.
Liability insurance can also protect you from property damage claims if it is determined you as a landlord are responsible for damages to someone else’s property.
For example, if you have failed to maintain the trees on your rental property and a tenant’s guest vehicle is damaged when a dead tree limb falls on it, you could become responsible for that damage.
Loss of income insurance: Loss of income insurance will help replace the income you lose if your rental property becomes uninhabitable due to a covered insurance loss.
The coverage typically contains a time element deductible which is a pre-selected number of hours that must pass after the loss event before the coverage will kick in. Loss of income insurance is very important for a landlord and should be a top consideration.
These insurance coverages are only the basic coverages you may need for being a landlord for the first time. It is important to discuss your insurance needs with a trusted professional to make sure you and your property are protected.
Practice good maintenance
Maintenance is extremely important on your rental property. It keeps your tenants safe, helps avoid injuries and can minimize property damage.
Inspect the property regularly and immediately repair any problems. If for some reason you can’t repair the problem right away, secure the area and make sure your tenant is aware of the issue.
Your rental property must be kept “fit” and “habitable.” Take any tenant complaints of maintenance problems seriously and address them immediately.
Keep your property safe
Keeping your property safe from physical hazards requires some diligence and regular inspection, but environmental hazards can be a little more difficult to find and deal with.
Environmental hazards are not always obvious and sometimes can’t be seen. They can include things like plumbing leaks, mold or asbestos.
Require your tenants report to you immediately any signs of plumbing leaks, mold or flood.
Maintain carbon monoxide detectors in the property. Also make sure to keep your heating and cooling systems and plumbing systems in good working order.
Be prepared
Be prepared for disasters or emergencies.
Make sure you and your tenant know where utility shut off switches are. This includes the main water shut off as well as the main shut off for the electricity to the property.
Have a written disaster plan in place. This should include steps to protect and preserve the property before a catastrophe as well as after.
Make sure your tenants have emergency contact numbers to the police and fire department, insurance company and contractors you like to use such as plumbers, electricians or HVAC professionals.
Good records
Maintaining good records is important in any business, but particularly for first time landlords. Draw up good leases and maintain records of all security deposits, rental payments and maintenance records.
Good records are everything if you have an insurance claim or a lawsuit and a fair settlement will depend on you having them.
If you keep digital records, make sure you keep back up copies on an external drive. If you prefer paper records, a fire and water safe box is necessary.
Tax time
Don’t get on Uncles Sam’s bad side. Trouble with the Internal Revenue Service is deep and can be ongoing. Follow these best practices for taxes:
- Establish a system of tracking your income and expenses. You can use a dedicated bank account as well as an accounting software system such as Quickbooks.
- Chose your business structure carefully. Decide whether you will incorporate and what that structure means for you during tax time. The United States Small Business Administration is a valuable resource when choosing your business structure.
- Know and use your deductions. Taking every deduction that you are entitled to will help make sure you aren’t leaving any money on the table. You may wish to hire a professional tax consultant to review your deductions and make sure you have claimed them all.
Being a landlord for the first time is exciting. If you establish good maintenance and record keeping practices, choose your tenants carefully, and maintain proper insurance you will be off to a great start.