Six Things Every Landlord Should Consider Before Jumping in With Both Feet
Life as a landlord may seem stress-free, until the disasters happen and the resources are unavailable to remedy the problem. The following are 6 things every landlord should consider before jumping in with both feet.
- Run a rental as a business, not a hobby. Renting out a home is a business, and there are tax, insurance and local landlord tenant laws that need to be addressed. A rental is considered an investment property, which has different tax implications than a primary residence; rents collected are considered business income and must be reported to the Internal Revenue Service. On the flip side, certain repairs and upkeep, in addition to mortgage interest, can be deducted as business expenses. Property insurance is also handled differently for a rental, and the provider will need to know that the property is being rented out. Also, a host of federal, state and local regulations cover the rights and responsibilities of both tenants and landlords, and rental properties need to adhere to these.
- Don’t confuse ”˜rent’ with ”˜mortgage’. It’s easy to assume the rent should cover the mortgage, since it’s the amount that is being paid out to live there, right? The two aren’t related, and it’s the most common misperception new landlords have. The mortgage is an agreement made with the bank based on the sum of the loan. Rent is entirely driven by local market competition and conditions- supply and demand, basically. A mortgage and a rent also buy different things- a mortgage pays for an investment, while rent pays for a roof, for a specific period of time, with none of the financial or tax benefits of ownership. The entire rent will not always land in the owner’s pocket, it’s taxable and there are expenses involved with investments.
- Don’t skip background and credit checks. It’s just good practice to always screen for credit, criminal and rental history, even when someone seems nice. When entrusting what’s likely your biggest financial asset to a stranger, the rule is this: screen, screen, and screen. Managers need to know if an applicant has been evicted in the past; whether he has a history of criminal behavior that could jeopardize others safety, or property; and whether this person earns enough to cover the rent and living expenses.
- Handshake agreements don’t mean anything. A written lease is always a must, and it must cover every detail of the rental agreement. Who pays for the utilities, who is responsible for mowing the grass, when is rent due, and what happens if it’s late, how many people can live in the home, and how many cars can be parked outside? It’s all got to be in writing or someone will always have misunderstood expectations.
- Don’t skip needed updates to your property. Just because it will be a rental, don’t think that it doesn’t need to show well. It may seem silly to upgrade things for a renter, but the fact is, nice homes attract nice renters. A majority of tenants want a nice place to stay, and they’re going to keep it up. There are a lot of outstanding people who rent for years and years, and they take excellent care of the property.
- Federal, state and local requirements, including landlord-tenant laws are important. As an owner in your own home, you’re kind of free to take as many risks as you want. With tenants, however, you become responsible for their safety, at least as it relates to the property -things like structural damage and environmental hazards (radon, carbon monoxide, lead paint, mold), and you have to take reasonable measures to respond to renters’ concerns about unsafe conditions, even neighbors’ suspicions of potential criminal activity on your property. This is an area that a professional property manager can certainly give you peace of mind, since they are licensed, well versed in the various requirements, and can navigate such issues effectively.
These ideas were from the research done by Rob Armsrong, RD House Real Estate and Property Management in Seattle, Washington.