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What to Know Before Becoming a Landlord
Does owning rental property appeal to you? Whether you’re really excited about becoming a landlord or a little more hesitant, we’ve got some tips that will help you prepare for this new venture. So let’s dive in and see what you need to know before you decide to become a landlord.
Get to Know Landlord-Tenant Law
Every state and every city has different landlord-tenant laws and it’s your job as a professional to know and operate within them. Knowing an attorney who specializes in this area is a great idea as they can help you along the way as you run into issues. Another wonderful way to get to know the local laws is to join a landlord association. These groups help you network with other business owners and you can learn from their experience. It also helps you stay on top of any changes in the law. Connect with your local tenant resource center — yes, even if you’re a landlord — and they will be able to point you in the right direction for most of your concerns.
Know Your Property and Surrounding Area
Get to know the property you’re going to rent and the area. Being familiar with the property gives you the ability to fix some problems before they become bigger issues. It also gives you knowledge you can use to figure out budgets, leases, and future business decisions.
Knowing the area will give you an idea of who will be happiest in your unit. You want tenants who will love the area and want to stay long term. Make sure to highlight the features of the surrounding area that will be most appealing to renters in your marketing efforts. Being close to schools, bus lines, and parks will appeal to families while being smack in the middle of the downtown nightlife will likely appeal to a different crowd.
Customize Your Lease to Fit Your Property
There are generic leases online and these are a great starting point, but you’ll want to customize the lease to fit you and your property. Think about the things that are important to you and get it in writing. Will you allow pets? Will you charge a late fee for rent that’s not paid on time? How much notice do you want before a tenant moves out? All of these things should be written down and signed and/or initialed by both parties so there is no confusion. This is one of those places where it helps to have an attorney review your documents to make sure what you’re asking is legal and to, maybe, suggest any additions you hadn’t thought of. The goal is to create a customized lease that you can use well into the future.
Make Documenting Everything in Writing a Habit
We touched on the importance of having a written lease, but it’s really smart business sense to document everything in writing. There are a number of useful landlord forms you can simply repurpose throughout your career. While it may seem like an extra step initially, you’ll quickly learn that having that paper trail is a great benefit for taxes, potential evictions, maintenance records, future tenants and more. Before you dive into the business, it’s a great idea to look over the forms you may need as they help you understand the scope of work you’ll encounter.
Learn How to Screen Tenants and Do It Every Time
Even if you hit it off with a potential tenant and they say all the right things, don’t skip the tenant screening. Sometimes you can’t judge the book by the cover and doing a tenant screening for every potential renter will help you learn more about their background and their history with credit and paying debts. Also, under the Federal Equal Credit Opportunity Act and the Fair Housing Act, you can’t discriminate against applicants. Having a set procedure in place for screening every tenant will help prove that you’re following the law and treating all potential tenants fairly.
One great tool you can use to screen applicants when you become a landlord is TransUnion’s SmartMove. This web-based tool provides comprehensive credit and criminal background checks along with leasing recommendations. American Family Insurance has partnered with TransUnion to give our landlord customers a discount. Contact your American Family Insurance agent to learn more.
Cultivate a Team of Experts
When you’re just starting out in the landlord business, you’re going to need some help. One great way to start your business on the right foot and keep it going in the right direction is to cultivate a team of experts. You don’t necessarily need employees to manage your rental property, but you do need a great network of professionals you trust to help you with repairs and maintenance. Use your networking skills to find the most reliable and affordable professionals in their fields and then keep their numbers close at hand.
Get Insured and Encourage Your Tenants to Get Renters Insurance
Being proactive and protecting your property lays the foundation to your new business’s success. You’ll want to insure your rental property and your business with different types of protection. Some insurance you may want to consider is a Business Owners Policy, sometimes called a BOP. This policy can protect you from damages to your property and liability claims. If you feel you need a bit more protection than the BOP can offer, a Commercial Liability Umbrella Policy could give you that extra coverage you want. Your agent will help you find the right coverage for your properties so everyone feels adequately protected.
And while we’re talking about insurance, one of the best things you can do for your tenants is encourage them to get renters insurance. While your insurance policies are designed to protect you and your property, they will need renters insurance to protect their belongings. This coverage is very affordable and gives them the peace of mind in their new home. It also comes with some nifty benefits, like coverage that follows them wherever they go.
Set Realistic Expectations
It’s pretty easy to get caught up in the idea of having tenants that not only pay for the property but then also put money in your pockets with their rent. It’s a win/win for you while you get cash for rent and build a real estate portfolio that should appreciate over time. But it’s not quite that easy. It takes a lot of cash and great credit at the outset to begin buying properties. Then there are the tenants themselves, who move in and have complaints and, at the very least, cause normal wear and tear to the property. And, if you don’t have a property manager, you’re on-call whenever there’s an issue and your tenant wants it resolved.
Basically, being a landlord is like any other business. It can bring some great windfalls but there are also some downsides. Being realistic about your expectations puts you in a good position for success and the joy that comes from having your own business.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal advice. You should contact an attorney for legal advice specific to your situation.
Related Topics: Business Insurance , Safe Business Tips