Accidental Landlords are uniquely positioned to capitalize on the Real Estate market and start earning passive income. However, there's a steep learning curve, and new landlords need to know everything from the perfect property management softwareto the best practices for filing your end of year taxes.
Whilst we are constantly shown landlord success stories. Stories about how some guy went from working a minimum wage job into a millionaire. More often than not somewhere along their road to financial freedom was Real Estate. They make it sound easy to start making passive income from rentals.
If only it were all that simple.
The problem that these "accidental landlords" face is that they suddenly find themselves with a side business, and often don’t realize the work that needs to be put in, or the problems that come with being unprepared.
So, we have gathered together the essential tips that "accidental landlords" NEED to know in this blog.
Landlord insurance is vital. When you become a landlord one of the first things you need to establish is your coverage for if, or when, things go wrong. Being a landlord opens you up to all sorts of liability, and homeowners' insurance isn’t going to cut it. Landlord Insurance generally covers the building against damages from things like fire, storms or smoke.
More expensive coverage will even cover loss of rental income in the case where your tenant needs to move out following an insured event. For example, in the scenario of the property getting fire damage and needing to be fixed up, the policy would cover the damages and the loss of rental income during the refurbishment period.
Coverage for landlord policies is broken down into three categories.
This includes the structure and (when added) furniture, appliances and other major landlord owned possessions.
Note: This does not cover the tenant's property, they need their own separate renter's insurance policy for their own personal possessions.
This covers any expenses incurred by a tenant or guest if they are injured on your property. This coverage is especially important if your tenant gets injured and claims negligence of property maintenance on your part. Accidents happen, and this will cover lawyer fees and medical expenses.
This is precisely what it sounds like. If your tenant is unable or refuses to pay due to one of the perils described earlier in this article this kind of insurance will protect you against revenue loss.
There are actually some pretty good tax benefits from running a rental property.However, a lot of landlords (especially new landlords) overpay their taxes every year.
The key is setting up your property as a business and knowing what is deductible!
A few key things that are deductible:
A final note is to make sure to ask a tax professional about all your deductibles, what documentation you need to keep and ask about depreciation, it's is a big one.
For keeping track of your income and outgoings it’s well worth downloading software like Landlord Studio. This will save you time and help you better understand your financials.
Proper tenant screening is vital. Whether you’re new to the property game or a seasoned landlord, the process of screening tenantscannot be underestimated!
There are so many horror stories out there that could have easily been avoided if the landlord had gone through a proper screening process.
If you want to find out more about our quick and thorough tenant screening process get our E-book here: Landlord Secrets
A little more extra effort now could save you a lot of time, money and stress in the long run.
Proper screening can reduce your risk of being stuck with tenants who can’t pay rent on time, host parties on the regular and cause you more trouble than their rent is worth.
Great, you’ve got tenants, you’ve got landlord insurance, now make sure your tenants have renters insurance!
Whilst your landlord's insurance covers your property and any furnishings you supplied, it does not cover any of the renter's belongings. Nor will it cover someone suing you for damages if they have an accident within the property.
Renters' insurance is a form of property insurance that covers a tenant's personal property as well as covering liability claims. Renters insurance is one of the cheapest and easiest to obtain insurance policies that a person can get. Yet, surprisingly, many tenants don’t have it.
A very basic renter’s insurance policy will cover the contents of the dwelling as well as some basic threats. These basic named threats generally include perils like; fire, theft, vandalism, plumbing, and electrical malfunctions and certain weather-related damages.
Another common policy component covers loss of use. Meaning if the property becomes uninhabitable the policy will provide some money to pay for temporary housing, (this has to be specified on the policy).
You should customize each of your leases for each property that you rent out as every property has its own idiosyncrasies.
This is also a great chance to outline exactly what you expect from the tenant. For example, if you want them to trim the hedges in the yard routinely or mow the lawn, specify such in the lease.
If you don’t get them to sign a legally binding lease, you will find it much much harder to evict them should the need arise.
Most landlords aren’t the world’s best handyman. Nor do they have time to be fixing all the things that break.
Whilst its good practice to know how to fix minor issues yourself, you will want a number of good contractors that you trust and you know charge reasonable fees. Having these contacts will make your life a lot easier. We mean a lot easier, we can't stress that enough.
Charging a competitive rent that allows you to make a good margin can be a challenge. You can’t just pluck numbers from the air or go with what feels ‘right’. You need to put in some time to do some research.
Thankfully there is software out there that allows you to quickly analyze the rental market in your neighborhood and assess what the competition is doing.
Every state has different laws, and you need to know yours. You need to stay on the right side of the law when it comes to your rental otherwise you could get into a lot of trouble. Each state has variations on the laws surrounding everything from deposit amounts to smoking laws.
Our final point on the list is to do your research. The fact that you're already here reading this article is a great first step! But there's so much more to learn! (You've probably noticed the extreme amount of outbound links in this article already...)
There is a steep learning curve to becoming a great landlord, and nothing teaches you better than the act of doing it. However, being prepared and armed with the right knowledge will help you seamlessly transition from ‘accidental landlord’ to a ‘real estate entrepreneur’.
To help you on your road to success we’ve put together an educational series of videos and e-books, that cover everything from understanding the right mindset to a detailed process of tenant screening, and even information around taxes.
Thanks for reading and we hope you found this blog interesting! However, do note that the purposes of this article is for general information. We are not licensed financial or legal professionals and as such nothing in this article should be understood to be financial or legal advice. If you are in need of financial or legal assistance please seek the help of a competent professional.
As the property owner, you’re responsible for non-compliance with snow removal ordinances, so it’s best if you make sure snow removal equipment is available. You may even find if you check the local bylaws that you are required to keep public thoroughfares that cross our property free from snow too...