Property tips for rental owners save you money while helping you to profit from your investments.
Rental properties investments can be very profitable, but also a disaster. The difference between the two boils down to industry knowledge.
The following 10 tips suggest ways to earn a good profit renting properties.
1. Buy Smart Rental Properties
It all begins with the types of rental investment you purchase. Which properties attract the best tenants? While multi-family units offer management efficiency, single-family homes attract more lasting tenants.
Learn (or rely on an expert Realtor®) to search for good Return on Investment (ROI) properties based on neighborhood data and correct profit calculations.
2. Understand Landlord-Tenant and Housing Laws
“Ignorance of the law is no excuse” requires understanding the laws affecting your rental investments.
Study local and state landlord-tenant laws and follow them to the letter. Courses and guides available online and local small colleges or your state real estate commission teach landlord-tenant laws.
Basic landlord-tenant laws cover important subjects like property maintenance, security deposits, legal notices, and the eviction process.
If you don’t have time to study the laws, rely on an experienced property management company with a good reputation. Such companies handle all of the legal requirements for renting units and homes while knowing how to strictly comply with the laws.
Besides landlord-tenant laws, you should study federal fair housing along with state and local laws dealing with discrimination. Violating those laws leads to hefty fines as much as up to $10,000 per violation. Knowing exceptions to these laws pays dividends. For instance:
Did you know The Federal Housing Act doesn’t apply to a building with fewer than five apartments when the building owner occupies one of them?
Understanding the federal laws regarding lead-based paint in tenant units built before 1978 also helps. The penalties for violations are huge. The federal HUD housing website provides useful information regarding this and other laws.
3. Screen Every Tenant
Make every potential tenant provide you with a copy of a recent credit report. More intensive background searches require additional time and resources you may wish to avoid. That’s why an experienced property management company routinely provides tenant screening services to save you time and money.
Patience pays off when it comes to screening tenants. You don’t have to rent to the first applicant. Pick a deadline date for accepting applications and use an objective evaluation system to find the best applicant. Keep records of your screening procedures in case of a future discrimination claim.
4. Get it in Writing
While an oral agreement to rent a property for less than one year may be legal in some states, they lack proof of any promises you or your tenant made. That’s why getting everything in writing creates a foolproof record of every promise.
A fully completed application by the tenant including employers, references, full contact information and nearest relative; dated and signed creates a foolproof record. A signed lease agreement specifying all of the terms establishes a secure contract. However, some landlords prefer a month-to-month arrangement making notices of termination easier than a formal written lease.
A written property inventory detailing everything included with the unit prevents theft and allows deducting the costs to repair or replace items. Include the condition of each item including appliances, carpets, doors, floors, walls, windows, and fixtures. Require the tenant to sign an acknowledgment of all items and their condition. This protects you when deducting security deposits to pay for missing or broken items.
5. Be Polite but Firm with Tenants
Good tenants minimize problems. Keeping your property in good condition with regular maintenance keeps tenants happier. Promptly respond to unit problems and tenant complaints.
If a tenant related problem arises, speak with the tenant about the legal consequences of his/her actions. For example, late rent requires reminding your tenant about late fees. Be firm. Let them know continuous late fees result in a written eviction notice. After each discussion, follow up with a letter summarizing what you said.
6. Sensibility Regarding Property Improvements
Keeping properties clean and comfortable makes tenants happy. Use the same maintenance practices you perform in your home.
Inspect your properties for potential hazards. Unsafe electrical outlets, missing guardrails, and poor flooring invite personal injury lawsuits. Just don’t over improve.
7. Budgeting for Problems
Rentals require more of your time than other real estate investments. Acquiring more rental properties requires planning for potential problems like damages, maintenance, and vacancies. Budget reserve funds to deal with these problems.
Reserves: Some rental experts recommend reserving 10% of each month’s rent to deal with such problems. Of course, knowing the vacancy rates in your area helps to decide how much reserves to set aside.
8. Separate Fact from Fiction
Don’t rely on uninformed sources. For example, a landlord cannot physically evict a tenant. Eviction is a formal legal process carried out by proper authorities.
Local customs and “the way it’s done in this neighborhood” usually do not conform to the law.
9. Instincts Count
Follow your instincts when feeling suspicious about a potential tenant.
Don’t let potential tenants convince you to stretch the deposit past the required timeline. Don’t keep a unit open for more than a week without payment because a potential tenant asks.
10. Protect Your Property
Finally, the last property tip for rental owners suggest protecting your property.
Insurance: Investing in good insurance to protect your property from all types of hazards, including tenant lawsuits, makes sense. Umbrella insurance coverage saves money. Requiring tenants to take out renters insurance also provides further protection.
Knowing when it’s time to sell protects your investment.
On the other hand, life circumstances may force you out of the market. Such as illness, death, or relocation.
A well-maintained property showing good cash flow enables you to sell even during a sluggish market.
To summarize, property tips for rental owners include:
- Buying smart;
- Understanding the laws;
- Screening every potential tenant;
- Getting everything in writing;
- Being polite but firm with tenants;
- Being sensible with property improvements;
- Budget for problems;
- Follow facts, not fiction;
- Rely on your instincts; and
- Protect your property with insurance and maintenance while knowing when to sell.
Follow these property tips for rental owners to save money and profit from your investments.
Steven Rich, MBA – Guest Blogger
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