Becoming a landlord can be a great way to build your wealth or to make use of a second property that you own. But, property management can take a lot of work, too. Whether you’re leasing your apartment to family, friends, or to tenants you just met, there is one crucial thing to keep in mind: You’re not a host. You’re a business owner.
There are many financial matters to consider. It’s essential to know all about them so that you can manage your rental property well.
Primary duties of a landlord
Being a landlord comes with a great deal of financial and legal responsibility. Some of the significant duties of a landlord include:
- Finding responsible tenants. This includes advertising and showing your property, and screening applicants.
- Preparing and executing a lease. The lease, or rental agreement, must conform to legal requirements, and include information such as the lease period, rent amount, and tenant names, and must specify lease terms and conditions.
- Maintaining the property. Your property must be safe and fit to live in and must comply with all health and building codes. You may need to be available at all hours to respond to urgent tenant issues.
- Collecting rent. There may be periods when the property is vacant, or your tenant hasn’t paid the rent on time, so make sure you’re prepared for the financial ramifications.
Find your price range
You want your rent to cover all the expenses of owning your property while also earning you a substantial monthly income. You need to calculate your costs but also be mindful of the rental market in your area.
Depending on your region’s rental market, you might face stiff competition from other landlords in the area. That’s why it’s essential to put thought into how much you should charge for rent. Ideally, you’ll have enough to cover all of your monthly expenses and still make a profit, but you also need to make sure your property is attractive to potential renters. Otherwise, you either won’t be able to find tenants at all, or they’ll leave as soon as they find a better offer.
Learn about taxes
Check how your rental income will be taxed. This might influence your decision to get and rent a property in the first place. It might also help you decide where you want to have rental property if you’re considering several different places. Landlord taxes are not the same as homeowner taxes.
You should have a record of every cost related to your property. This could help you become eligible for some great tax benefits that might help write off many of your costs and fees. It will also allow you to be on top of your expenses and even lower them as much as you can.
Make collecting rent a priority
You want to make money from your property, so make sure you collect rent on time. Set clear expectations to your tenants about the day rent is due, and outline how many grace days they’ll have for late payments. If they exceed that limit, enforce a consistent late-payment penalty. Of course, you don’t want to be harsh to someone struggling to make payments.
The best way to manage rent collection is to offer automatic online payments. Not only will this eliminate the need to cash checks each month, but it will also lead to consistent, timely payments.
Get to know your rights and what you can do if a tenant stops paying rent, as well, just to be safe.
Run a background check
Taking the time to screen potential applicants can go a long way in protecting your investment.
Too many landlords rush to fill a vacancy rather than taking the time to make sure the prospective tenant is a better option than an empty property. If you have time, you may want to drive by a prospective tenant’s current living space – that is what your property will probably look like when that tenant comes to live there.
Check the insurance requirements
Contact your insurance company to find out what type of insurance you need to cover your rental property. You may need a landlord or rental dwelling policy that covers damage to the home’s structure and provides liability coverage to protect against legal fees and medical costs in the event your tenant or someone else is hurt on the property.
There may also be additional coverage you choose to add to your policy to fit your property’s needs.
Keep everything on the record
Keeping good records is essential. Having proper maintenance and repair records will substantiate that you’ve fully addressed property issues in the event of a dispute with a tenant.
Other necessary documentation includes legally required forms such as move-in and move-out inspections and security deposit receipts and supporting documents for rental income and expenses that will be especially important at tax time.