So you’ve decided to increase your monthly income by becoming a landlord and investing in real estate. There’s certainly nothing wrong with the idea, and if you do it appropriately you could stand to earn a decent amount of income, not to mention adding to your list of assets.
However, if you’re going to get into the business of renting your property for profit, there are some things you’re going to want to do to make sure that your interests (i.e. the property) is protected at all costs. While it would be nice to never run into an issue, there are plenty of stories out there about landlords who encountered significant loss as a result of dealing with a tenant from hell.
So how do you protect yourself? Essentially, your tenant is a stranger and aside from the information they provide you with, how can you determine whether they will take care of your property, or become the “problem tenant” you can’t seem to get rid of? Sure there are no foolproof ways to detect a problem before it happens, but I can tell you from experience that being prepared is a lot better than cleaning up the mess later.
Here are three ways you can protect your investment and your income.
1. Screen Applicants Thoroughly
Screening your applicants is by far the best thing you can do as a landlord. Whether you got a recommendation on a tenant from someone you know, or you’re simply pulling applicant names from a real estate listing, you want to try and screen the applicants as much as possible. Screening your tenants allows you to get a better understanding of how responsible they are. Do they have horrible credit? Do they have known criminal records? Have they ever been evicted before? Do they have the necessary funds to pay you timely? These are all things you want to know before you have them sign a lease agreement, because getting them out of the home could be challenging.
2. Obtain Proper Insurances
Many landlords make the mistake of thinking that the homeowner’s insurance is enough to cover all damages that may occur to the property. However, The Insurance Place, a company offering San Diego property management insurance, points out that sometimes your homeowner’s insurance is not enough. For example, your tenant vandalizes the rental property and disappears out of nowhere, will your homeowner’s insurance be enough to cover these damages? Can you sustain the same quality of life while you fix the damage and shop around for a new tenant? If not, you need additional layers of insurance protection in place so you can afford to make the repairs and be stable financially.
3. Put it In Writing
Don’t ever rent your property to someone without having them sign on the dotted line. That being said, you also don’t want to simply draft up a lease without making sure you’ve included everything. At the end of the day, the lease is the legally binding contract between you and the tenant. Failing to include certain aspects could result in money lost on your end which is never good for business. Therefore, drafting up a lease and clearly documenting changes and other communications between you and the tenant are necessary to protect yourself and your investment.
There are certainly several financial benefits to becoming a landlord and investing in real estate. However, those advantages can quickly be overshadowed if you’re not taking the necessary steps to protect yourself and your investment. By screening your applicants, investing in the proper insurances, and creating iron clad lease agreements and correspondence, you can essentially prevent a lot of stress and financial loss in the future. While it would be nice if you could simply choose the best tenants only to rent your property, this isn’t always the case. So the next best solution is to be as prepared as possible for the things that could go wrong.
Categories: Real Estate