It’s not always easy to be a landlord, particularly if you’ve never owned an investment property before. These first-time landlords tip will help you get off to a good start.
Remember that the habits you create at the start of a new business will determine how much time, money, and frustration you save over the course of your landlord career. Invest early in developing a tried-and-true real estate management system so you can achieve your financial goals quicker and be a better landlord. Here are some suggestions to help you get started.
Put it down on paper
You understand the importance of a lease – you can’t do business on a handshake alone! However, don’t presume that a standard lease covers anything. Make sure your contract sets out your rules for late rent, subletting, pets, and noise complaints, among other items.
Any contact with tenants about the property should be done in writing as well. When maintenance staff need to come by if you want to show the house, you must give tenants notice. You can use these documents to prove that you followed your state’s notice criteria if there is ever a conflict.
Create a Bookkeeping Method
Landlording is a business, and you should treat it as such. That means keeping track of your income and expenditures so you don’t end up with a mess during tax season. Developing good bookkeeping practices now can be extremely beneficial.
There’s plenty of accounting software to choose from, so the method can be as easy or as complicated as you like. The most important thing is to keep track of your deposits, leases, and other costs, such as the mortgage, property taxes, maintenance costs, and any materials used on the property. Cleaning supplies, for example, are a deductible cost if purchased for the purpose of cleaning the house.
Establish Business Hours
Emergencies can eventually occur, but in general, set aside time for yourself and stick to them. Otherwise, you’ll find yourself going nonstop, which may make running a company more difficult.
Make sure your tenants are aware of your availability days and hours, as well as your email and phone number. Make it clear that you can only respond during business hours unless the situation is an emergency, such as a house plumbing problem.
Familiarize yourself with the local housing laws
In the county where your property is situated, you would most likely need to apply for a Certificate of Occupancy. This will typically give you a crash course in your area’s housing laws and tenant rights.
Even if you don’t need the services of a COO, make sure you are mindful of your commitments to your tenants. At the end of the day, if there is a problem with the property and it fails a city housing inspection, ignorance isn’t a defense.
Make Lease Violations Clearly Definable
When your lease’s terms are broken, such as late rent, policy breaches, or other lease agreements, your lease should explicitly specify what happens. Outline the steps for dealing with these infractions, including a written notice, fines, or eviction.
Make Tax Preparation a Priority
It’s easy to forget that you’re technically running a company if you just own one house. However, you are, and you must budget for taxes accordingly. Keep in mind that rent payments are considered revenue, while maintenance costs are considered an expense.
It’s a good idea to consult a tax advisor before becoming a landlord so you know exactly what to expect in terms of taxation. You would need to start paying projected self-employment taxes on a quarterly basis, for example. This is close to what your employer would deduct from your paychecks for Social Security and Medicare taxes. These are often expected to be charged at the federal, state, and local levels.
You really don’t want to overlook any property tax deductions that might help you save money on your taxes.
Take before and after images
When the tenants leave, take before and after photos of the house. Although normal wear and tear is to be expected, you should log any expenses that will be protected by the deposit. Your best proof is photos.
Renting to family and friends is not a good idea
Renting to someone you already know can seem to be a win-win situation. But the fact is that it’s more difficult to say no to friends and relatives, and renting out your home is all about setting limits. If a friend runs into financial difficulties and is unable to pay their rent, they might expect a favor that you would not extend to other tenants. Renting to people with whom you don’t have a personal relationship is the safest way to treat tenants as customers.
Check Out Your Tenants
A standard tenant screening will set you back about $50. A credit check, work history, criminal history, and eviction history are all common examples. While it is a small investment, it will assist you in ensuring that you are renting to tenants who are financially prepared to meet their ongoing rent obligations. Calling references can also help you get a better understanding of your applicants.
Don’t Expect to Make Money Right Away
If you still have a mortgage on your home, the majority of your rent payments would likely go toward it. Any money left over is normally put into repairs and upkeep, leaving you with a benefit. However, even if you don’t make a lot of money, your rental property is still valuable. All of those rental payments add up to equity, which pays off in the long run.
Acquire the Correct Insurance
It’s not a smart idea to put off securing your investment property. You will assume that all you need is a standard homeowner insurance policy if you rent out your second home. However, you’ll need landlord protection in this case. It safeguards the foundation of the house, as well as other buildings on the property (such as sheds and fences), as well as lost rental revenue and liability. It does not, however, cover all of your belongings within the property; that is the responsibility of your tenant’s renters policy.