Leasing out real property for profit can lead to significant financial rewards, but potential landlords should exercise caution by practicing due diligence and educating themselves about potential rental pitfalls. Those new to the landlord community must learn to run their rental properties like any other business endeavor. Those looking to get rich quick off of rentals without taking the proper precautions often end up losing money due to costly legal action.
Landlords should possess a basic understanding of landlord-tenant law and should learn how local ordinances may impact the use of their rentals. New landlords must create a business model before delivering their first set of keys. Consider the following when designing your rental business plan.
Tips for Succeeding in the Landlord Business
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Streamline the Rent Collection Process
All businesses must turn a profit to remain viable, and the rental industry offers no exception. Make sure to establish sufficient avenues for tenants to pay rent promptly.
Hardly anyone uses checks anymore, so invest in a payment system that allows tenants to pay rent using a debit or credit card. Preferably, set up a secure online portal for tenants of your properties where they can pay rent and request maintenance with a few mouse clicks. Better yet, allow tenants to establish automatic payments, so their rent gets paid automatically on an agreed-upon date.
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Understand Basic Contracts
Succeeding in the rental industry requires landlords to understand basic contract law. To be legally binding, all contracts must contain an offer, an acceptance and consideration, usually in the form of security deposits. Contracts for periods longer than one year must be in writing to satisfy the statute of frauds and stand up in court.
All rules and stipulations regarding property use should appear prominently in the rental agreement. Determine what tenant behaviors other than a failure to pay rent represent a breach of contract. For example, many landlords prohibit smoking in residential rentals due to the high cost of repainting the unit and installing new flooring to eliminate tobacco odor.
Pay attention to HOA regulations when renting out residential properties in such communities. Some HOAs specify certain days for tenants to take the garbage and recycling bins to the curb or limit the number of cars, if any, tenants may park on the street. In some jurisdictions, HOAs have the power to initiate foreclosure proceedings, so prohibit HOA violations clearly in the rental contract.
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Know What Makes Tenants Tick
Landlords who attract the best tenants do so by providing property features people love. Tenants expect to pay more for certain amenities, and even small improvements can lead to sizable returns.
When selecting appliances for your rental, avoid searching Craigslist for the cheapest refrigerator available and opt instead for matching appliances that make the rental unit feel more like a permanent home. When remodeling, consider the flooring in the unit, as hard surfaces such as tile in living areas gives the unit a luxurious feel while protecting your investment from spills, stains and pet messes.
Speaking of pet messes, considering the majority of millennials own pets, allowing four-legged friends in rental units improves tenant satisfaction significantly. Be sure to check local ordinances for any breed restrictions to avoid hefty fines and even legal action from injured tenants. Landlords may charge prospective tenants an additional pet cleaning fee, but may not require such a fee if the tenant provides proof that their pet is a service or support animal.
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Keep Careful Records and Photographs
If a tenant injures themselves due to a safety hazard on the property, such as a faulty stair railing, their landlord may face costly lawsuits. And, because landlord-tenant disputes often turn into a he said/she said scenario — tenants claim that the landlord is held liable for hazards the tenants themselves created — keeping careful records and photographs of the property helps protect landlords from false claims.
Landlords do have responsibility for performing property repairs promptly and keeping the property inhabitable. If a landlord fails to make a necessary repair, some jurisdictions allow the tenant to complete the repairs themselves and deduct the cost from the monthly rent, as long as the repair doesn’t cost more than half the regular rental rate.
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Protect Your Investment
No landlord wants to discover their investment property burnt to the ground or destroyed by other means. All landlords should carry insurance on their rentals to cover losses from disaster or damages. Some landlords take the additional step of requiring their tenants to carry a rental insurance policy to protect their personal belongings and cover moving expenses should the property be rendered uninhabitable through no fault on the tenant’s part.
Additionally, a good home warranty protects landlords from unexpected expenses due to the stove or AC unit going on the fritz. Since a landlord’s personal financial situation holds no bearing on their obligation to provide timely repairs, carrying a home warranty prevents landlords from needing to take out loans to cover unforeseen events.
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Value Your Best Tenants
Finally, no matter how thoroughly landlords screen prospective tenants, nothing provides more peace of mind that the rent will get paid than keeping quality tenants happy. Offer additional incentives to encourage well-paying tenants to extend their leases for another year instead of letting them stay on a month-to-month basis. Incentives can take the form of a one-month discount on the rent or providing a wanted but unnecessary amenity, such as installing a programmable thermostat or ceiling fans in living areas.
The landlord business can prove quite lucrative. By keeping an entrepreneurial mindset and educating themselves on basic legal matters, landlords can enjoy a passive income stream for years to come.
