You may have been working hard for years to save enough money to buy your first investment property, or perhaps your life plans have changed, and you have to rent out your family home.
Either way, if you’re going to become a first-time landlord soon, you must go about the process in the best possible way to make success more likely. Here are some of the top factors to consider as you get ready to rent a property out to tenants.
Always Treat the Rental Property in a Business-Like Way
If you’re buying a property with the plan to rent it out and use it as an investment or getting tenants for your current home, you must look at the arrangement as a business one. Try to take the emotion out of things and always treat the rental process seriously, so you can maximize profits and decrease issues.
Don’t rent your property to people you know well, such as family members, friends, or colleagues. You can run into trouble if these people don’t look after the home or pay on time. All potential occupants should be screened thoroughly with credit history checks and related investigations.
Create a separate bank account for deposits and fees to transact in and out of, too. This way, there’s no problem with your personal and property finances getting entangled, which makes it harder to keep track of profits and handle taxes and the like. Keep receipts for all the expenses you pay for regarding the property, as you can likely claim some if not all of these on tax. Make sure you have appropriate insurance, too.
Plus, if you have a mortgage or plan to get one to buy an investment property, obtain the best deal possible. Don’t just go with the first bank you see, but investigate multiple lenders, both those with physical storefronts and those that run purely online. Do some research for current rates to educate yourself. Search online for “mortgage lenders, Charlottesville, VA” or “home loan rates in Seattle,” etc., or check out updated blogs and magazines for potential lenders to approach.
Be Careful About Which Rental Agency You Hire
Most people don’t have the time, experience, or temperament to manage the rental side of things themselves and thus hire a rental agency for this work. Experts who handle such deals day in and day out know all of the ins and outs of property management, including the legalities, which is helpful.
Take your time selecting the best agency for your needs. Talk to multiple companies in the region where your property is to learn about their costs (including the less obvious charges), expertise level, communication style, reporting methods, how often they inspect properties, and more. Ask as many questions as you must to feel comfortable that you have all the necessary information to make an informed decision.
When it comes to fees, most organizations charge more than just a commission on each rental payment. They also charge for drawing up leases and finding tenants, and some have cancellation fees for terminating a contract early. Plus, if they’re going to handle repair and maintenance work on the home for you, there may be extra charges for that.
Ensure You Have Contracts and Other Documentation in Place
One part of treating your investment property like a business is covering yourself with necessary documentation. It’s critical to put everything in writing so you have legal proof and guarantees if issues arise. You’ll need a contract with the rental agency you choose, covering each party’s rights and responsibilities, the fees involved, length of term, and more.
Plus, there should be a lease agreement with anyone who lives in your property. The rental agency is usually the one to draw this up and get it executed. However, if you’re managing a home yourself, you’ll need to speak with a lawyer to have a template contract drawn up and have renters sign this each time you get new people living in the home or extend their lease.
Get Advice from Experts
Another top tip is not to be afraid to get advice from experts. While it’s helpful if you know people who can give you advice for free or at a discounted rate, if not, remember that paying some money to avoid mistakes can save you a whole lot more cash later on.
For example, chat with an accountant about the best way to set up property ownership if you’re buying a new place (e.g., in a company or trust name or partnership, etc.) and about what expenses you can and can’t claim on tax. A lawyer should check all contracts to ensure you’re well-protected and advise you on your rights and responsibilities as a landlord. They might check your mortgage documents and help in other ways, too.
Being a property investor can help you grow your personal wealth considerably over the years, but only if you’re smart about how you manage the places and your finances. Following the tips above can help you maximize success and reduce risks.