Why Landlords Should Require Renter’s Insurance Policies

Renter’s insurance. You have probably heard about it, but what does it have to do with you as a landlord? Why should it concern you whether or not your tenants take the time to protect their property?

Image courtesy of orixinsurance.comAt first glance, it is clear to see why many landlords do little more than suggest that tenants take out adequate renter’s insurance, but once you understand the benefits of such a policy, to both the tenant and also to you as the landlord, you may start to think differently about it

Renter’s insurance can be extremely valuable when it comes to protecting your investment. By ensuring the cost of damages to property within the leased property are covered, it protects your tenant’s wealth, allowing them to continue affording rent payments, even in times of crisis.

What Is Renter’s Insurance?

Renter’s insurance is a form of property insurance that covers the possessions and liability of a tenant within a rental property. It does not cover the dwelling itself or the structure.

What Does Renter’s Insurance Cover?

In general, renter’s insurance provides coverage for the tenant’s property in case of theft, fire and stormwater, providing replacements and in some cases alternative living arrangements if necessary. It can also protect a renter’s personal liability in situations where their actions (for example, flooding from a bathtub) have caused accidental damage to a neighbor’s property and possessions, especially when they are subject to a lawsuit for such damage. The amount of coverage depends, to some extent, on the value of their belongings which is often underestimated by individuals.

“Many renters underestimate the value of their possessions and would be surprised by how much it would cost to replace the items they have accumulated,” says Emily Lyons, a Liberty Mutual property insurance expert.

“It can be helpful to suggest that your tenants walk from room to room and take a full inventory of their possessions. It may come as a surprise when they add it all up. A typical renter’s insurance policy will cover up to $15,000 in property damage and $100,000 in liability coverage.”

It is important to be very clear with your tenant from the start that your landlord’s insurance does not cover their possessions at all and is simply there to cover the building structure. You can also mention that certain situations are unlikely to be covered by their renter’s insurance policy. This may include earthquakes and flooding in areas prone to such scenarios.

How Much Does Renter’s Insurance Cost?

Compared to the massive benefits derived from renter’s insurance, the cost of a renter’s insurance policy is minimal – around $200 per year – and is equivalent to the average price of a pizza delivery for a month’s policy. In some cases, tenants can even receive discounts for holding multiple policies with one firm, such as renter’s insurance and vehicle insurance.

How Does Renter’s Insurance Benefit You as a Landlord?

As a landlord, you will already have insurance in place to cover your investment on the rental property, so you can be forgiven for thinking that renter’s insurance is not something you need to worry about. While it is true that the main benefits are for the tenant, you will be extremely grateful in the event of accidental damage to your property by the tenant if such insurance is in place.

Numerous rental insurances will cover the cost of cleaning up a property after it has been damaged by fire or water, for example, as well as replacing destroyed items. This Image courtesy of urgentatlanta.commeans covering the cost of removing and disposing of damaged furniture and appliances … something that could be time-consuming and costly for you.

The costs involved in even a small fire can add up quickly, so it’s a relief to know that renter’s insurance is activated in these instances. “Soot and odors from a household fire can penetrate many areas and damage paint, carpet, upholstery, drapes, clothing and other belongings. Even a small stovetop blaze can cause smoke and soot damage far beyond the actual burned area, and this damage can be hard to remove. Soot is oily and easily stains household textiles, while smoke penetrates deeply, even into the spaces inside walls. If not properly deodorized, smoke odors can reoccur.”

If renter’s insurance is not in place, it is likely that the tenant will expect the landlord to deal with the cleanup. In some scenarios, tenants may feel it is easier to simply move out and leave the whole problem to the landlord to deal with. This is a real headache, especially in conjunction with losing the income stream from rent.

It is very difficult to protect yourself as the landlord if this occurs. Looking for legal support to force the tenant to pay will cause further delays in getting your property back to a livable condition, and that has to be your main priority.

Protecting Yourself from Lawsuits

Image courtesy of viralnovelty.netUninsured renters can find themselves in great financial difficulty following unexpected damage to their property, or subject to lawsuits themselves if they have caused damage to a neighboring property, for example. In instances such as these, the obvious place for tenants to turn for assistance is their landlord. Sadly, past evidence has shown that tenants are more likely to bring a lawsuit against a landlord if they are unable to replace property or pay for the cost of repairs.

No matter how thorough your screening process, don’t think this would never happen in your situation. Cases involving tenants suing their landlords are becoming increasingly common. Finding themselves in a dire financial situation could be all the motivation needed for a tenant to blame negligence on your part for the damage that was caused.

Enforcing a clause stating that renter’s insurance must be in place will protect you from such desperate measures on their part and, of course, protect you from costly, stressful and time-consuming legal issues.

Protecting Your Investment

Even if your tenant does not actively come after you with a lawsuit following loss or damage to their possessions, you may find that unexpected emergencies cause financial loss to you. Replacing expensive property can amount to far more than most people expect, negatively impacting your tenant’s cash flow.

Image courtesy of homeinsuranceratequote.comRemembering that renting your investment property is a business, you must always keep in mind that receiving timely rent payments is essential to a successful strategy. Anything that renders your tenants unable to pay rent is a sizeable problem for you. For many landlords with one or two properties, the monthly cash flow is all that is available to cover mortgage payments. Delays can be a huge concern, jeopardizing your ability to pay the loan on your investment property and leading to issues with the lender. Your credit rating may even be affected, negatively impacting your ability to grow your business by investing in future investment property.

So, protecting the wealth of the tenant is another way that renter’s insurance can help landlords to protect their own wealth! Nothing affects your return on investment (ROI) more dramatically than fixing up your investment property after your tenant caused accidental damage and ran away.

Summary

By now it should be evident to you why renter’s insurance is so valuable to you as a landlord. While your tenant’s liability is protected, as well as their possessions, you are also more likely to experience less stress as well as a reduced financial strain in the case of an emergency.

Image courtesy of rcps.ieThe great news is that you can actually make renter’s insurance a requirement within your lease agreement, providing both you and your tenant with protection and peace of mind. You can even include additional terms requiring the landlord to be named as “additionally insured” on the policy. Many landlords report that a clause regarding renter’s insurance has kept their relationship with their tenants strong and healthy despite difficult circumstances. Communication tends to remain open when neither party is forced to blame the other.

In brief, renter’s insurance offers fantastic, affordable benefits for your tenants. Additionally, you as the landlord also reap the rewards. Renter’s insurance translates to reduced risk, fewer worries and less time wasted. You must agree, that is priceless! It is certainly worth the effort to make renter’s insurance part of your tenancy agreement in order to maximize your profits and protect your rental income in the long run … no matter what issues arise along the way.

How to Earn Money While You Sleep as a Landlord

For many millennials completing college, reality strikes with an ugly blow. After years of studying towards their dreams, the truth can be stark. Numerous people are left wondering what went wrong, with no idea how they will ever afford the typical American lifestyle.

Image courtesy of gcrealtyinvestments.comHeavy debt from studies, coupled with high expectations from family and friends, places an unfair burden on individuals to accept a less than ideal career path and little time for outside pursuits. It is no surprise that people are rebelling against these expectations and looking for an alternative.

As this tide of millennials looking for a different way of life grows, people are turning to real estate as the answer. They are discovering that it is possible to develop a healthy stream of passive income through investing in rental properties. In their role as landlord, they have far more control over their life, and with a little ground work, they are discovering that the life they had dreamed of may still be within their grasp. The great thing is that this technique isn’t limited to Millennials.

Why Is Passive Income So Appealing?

Image courtesy of copticnationtemple.net“Passive Income is money that you earn without having to work for it. When you earn interest on a savings account, you are earning money passively; it accrues whether you’re working or not.” ~ J.D. Roth

Passive income is simply a stream of earnings acquired without exchanging time in hours. In other words, money that comes to you, without you doing work for it. Once the structure of the particular business is in place, the income will continue to pay, with minimal (or even no) effort on the part of the owner. It is, of course, a great idea to include a passive income flow as part of your overall retirement plan.

When it comes to real estate, a passive income is achieved through acquiring properties and then renting them out. The rental income should cover the costs of paying the mortgage, as well as insurance, management fees and any other maintenance requirements.

Being free from the burden of exchanging your time in hours for money allows you to be in control of your life. Many have successfully set up passive income streams, allowing them to pay off crippling debts, enjoy additional travel opportunities, engage in an enviable work-life balance and even retire at a young age.

How Is This Different from Flipping Homes?

Building a passive income through real estate is different from a business involving flipping homes (in other words buying property to fix up and then selling quickly for a profit). Investment in rental property is a longer term strategy, which is generally less risky than flipping homes.

Image courtesy of anderson-schuster.comWhen buying property to sell, there is a lot of work and stress involved that can’t be considered passive since a considerable input of time is required in order to make a profit at the end of the deal.

Becoming a landlord certainly involves time at the beginning of the process. Finding the right property, screening the tenants etc. requires effort in the beginning, but generally once everything is in place, the income should stream in regularly without hassle.

Investment in property provides gains in the long term as property value grows with generally better outcomes than investment in stocks. When you consider that this asset growth occurs in the background, while the rental income provides real cash in the present, it becomes an attractive proposition.

How Can You Afford to Invest in Real Estate?

At first glance, people are put off by the perceived high barriers to entry to becoming a landlord. But, it isn’t as difficult as you might think.

Several companies offer affordable mortgages and with in-depth research you can find competitive deals. It makes sense to speak to a broker to find out the specifics of the loans that are available and then be ready to negotiate.

When it comes to choosing a property, know your maximum price and keep a cool head to avoid paying more than you should. You should aim to purchase property below market value, an achievable goal if you are armed with the right information.

The secret to a good rental property investment is to conduct thorough research into the area you would like to purchase, looking at what is already being rented and the figures involved there. House sale prices are readily available, and you can find out average rental rates quite simply. It can be useful to pose as a potential tenant to enable you to see what is on the market and learn from landlords, too.

If you find that conventional funding routes are not an option to you for various reasons, don’t give up. There are various other ways to raise capital, including finding a silent partner who is willing to invest privately or investing in a Real Estate Investment Trust (REIT). This fantastic option allows you to take the first step into your landlord career.

How Much Income Does Rental Property Generate?

Image courtesy of investorsmortgage.com.auRental property is a real way to generate passive income, but just how much is a question that needs to be looked at carefully. It is wise to consult a financial expert in order to map this out accurately, but here are the basics.

You will need to create a financial forecast, looking at the costs involved in purchasing a property, alongside the income, paying special attention to the cash flow.

After balancing the initial purchasing fees, monthly mortgage payments, expenses, taxes, insurance and repairs against the monthly rental income, you should be able to identify your passive income for a single unit.

It is unlikely that the income from a single unit will be enough to set your goals alight – so once you have the single unit income amount, work out how many times you will need to multiply it in order to achieve your desired income. A very rough estimate is that 10 properties will bring in $5,000 per month.

This is, of course, only going to provide you with an estimate, as unexpected costs do arise and occasionally tenants don’t behave as we would hope – but with allowances made in the “costs” for such discrepancies and adequate insurance in place, you should find that this figure is a good indicator of your income stream.

Is Rental Income Really Passive?

Is it really accurate to say that rental income can be passive, considering the amount of work and research required in the early stages?

I would say 100% yes, as the ongoing work involved is minimal and can be largely outsourced. It is hard work to start with as it is vital to make the right choices for a successful long-term investment strategy, but once that is done, you can pretty much sit back and relax.

Image courtesy of nostalgic-art.co.ukMost landlords set up systems allowing their rental business to run smoothly even while they are relaxing on the beach! Fixing up the house can be outsourced to contractors while you simply oversee the process. Once that is accomplished, there are fantastic companies dedicated to property maintenance who will run routine inspections on your property and handle any repairs that are needed. This frees you up from sourcing last-minute contractors and worrying about the workmanship and rates they charge. Maintenance companies develop relationships with multiple contractors, so you are unlikely to be overcharged or mistreated

Additionally, you can outsource the tenant management as well. This can include sourcing and screening tenants, drawing up and signing contracts, obtaining deposits and even dealing with late payments and evictions. These are the aspects that several landlords find the most stressful, so for a monthly fee you can conserve your energy and hand this over to a professional company.

Of course, for both property maintenance and tenant management, you should do your homework before deciding on what company to use. Ask for referrals and speak to other landlords to find out their experiences with the various companies. The monthly rate may be negotiable as well so don’t just sign up with the first option you find.

Summary

The initial work required to “set up” investment in a rental property can be difficult, there is no denying that. It is essential to make early decisions carefully, after substantial research – but the potential to bring in serious passive income once the systems are in place is huge!

This is a great option to consider if you want to enjoy more free time without the pressure to work constantly simply to escape debt and make ends meet. Making an investment in rental property has risks, as with all forms of investment, but it can provide the money to live life on your own terms in the short-term, while building your capital wealth over time. Isn’t it time you looked into it?

Your Complete Guide on How to Handle Late-Paying Tenants

Image courtesy of timaltass.comMaking the decision to become a landlord is a big one, calculating the risks involved in purchasing a property and balancing that with rental income requires a degree of trust that the rent will, in fact, come through. Rental income is, of course, essential to the equation, so late payment is an issue that should not be taken lightly.

The key business of being a landlord is to make money on your investment in rental property. Losing money, and wasting time chasing money you are owed is stressful, not to mention detrimental to your cash flow.

Unfortunately, tenants are only human, and as such, it can be extremely difficult to predict how they will behave. Tenants paying rent late is something most landlords deal with occasionally, and it can be a distressing time. Fortunately, there are a number of measures you can take to prevent late payments from occurring, and if they do, to regain control of the situation by ensuring payments resume as quickly as possible with minimal disruption.

Steps to Prevent Late Payment of Rent

Image courtesy of advancerecruitment.netThere are a few early steps you can take to minimize the risk of tenants paying late. It all starts at the tenant screening stage. It is essential to have a robust system in place, ensuring you choose financially responsible, employed individuals to inhabit your rental property and protect your investment. This should not be rushed; taking the time to follow up on references can make all of the difference.

Once you have handpicked the best possible tenant through your screening process, you should communicate all of your rental terms clearly – including payment particulars such as due date and late fees. These items should be incorporated into the lease agreement to prevent confusion and ensure you are protected from a legal standpoint.

Deciding how much to charge as a late fee is often something landlords struggle with. The first thing to consider is whether there are local laws governing upper limits for such charges. Whatever happens, don’t be tempted to waive the late fee, no matter what situation has caused the late payment.

Receiving late rental payments is an inconvenience that should be avoided as much as possible. One available tactic is to charge a relatively steep late fee, within the limits of any local laws, which should act as a deterrent to your tenants and prevent late payments from becoming a habit.

Why You Must Take Late Payments Seriously

You are probably aware of the costs incurred if your mortgage payment to your lender is delayed, regardless of the reason for your late payment. Additionally, late charges are only part of the story as your credit rating may also be damaged. Therefore, it is more than a mere nuisance when rent does not come through on the date you are expecting it. Take a look at the following excerpt from nolo.com about what you can expect to be charged if you pay your mortgage payment late.

“If your mortgage payment is late, you may be charged a late fee. Most mortgage contracts include a grace period of ten or fifteen days after which time the loan servicer will assess the fee. Late fees can only be assessed in the amount specifically authorized by mortgage documents. (The late fee provision is usually found in the promissory note.) Generally, the late fee will be in an amount equal to 4% or 5% of the overdue payment.

State law may limit the late charge amount. If the state limit is lower than what the loan documents allow, it will generally override the loan documents.

Late fees can quickly stack up, adding hundreds of dollars to the amount you owe the lender.”

Once you are put in the position of being owed your rent payment, it also adds a strain on the landlord-tenant relationship. Confrontation can feel awkward, and often people find the situation highly stressful. The issue can be further exacerbated by habitual late payments. For this reason, it is important to take a hard line … and stand by your decision.

What Action to Take When Rent Payment Is Late

When the due date for rental payment comes and goes without receipt of money, it is time to take action. The important things to remember are:

  • Be firm but fair
  • Keep communication lines open
  • Remain consistent
  • Be professional at all times
  • Treat all of your tenants the same
  • Control your emotions, not getting angry, panicked or sucked into sob stories
  • Never threaten your tenants
  • Be timely in starting the eviction process

Keep in mind the history of the tenant, in terms of adhering to the tenancy agreement, and their track record of paying rent. Establish whether the late payment is a one-off event, or if it is the result of a significant issue that will likely escalate into further late payments down the line.

Some individuals simply aren’t responsible enough to manage their finances well and don’t take their rental due dates seriously. Take a look at a few of the more amusing excuses landlords have received over the years from their tenants. It isn’t fair that these problems are passed onto you!

1          I had a flat tire so I can’t pay my rent/can’t get to your office.

2          The government hasn’t mailed my check yet and I don’t know when I’ll get it.

3          I just got out of jail so I didn’t work last week.

4          I lost my job.

5          My daughter had a baby.

6          My power bill is too high – can you lower my rent?

7          We just bought a new car.

8          They messed up my check at work.

9          The banks are closed by the time I get off work so I can’t get your cash.

10        How much do you need today?

11        My (insert yet another family member) died and I have to go out of state to the funeral so I won’t have time to come by.

12        The check shouldn’t have bounced. The money was in my account when I gave it to you.

13        I’m not even really that late.

14        My (fill in the family member) took the money out of my purse.

15        I had to use the money to fill up my gas tank or I couldn’t get to work.

http://www.karensperspective.com/50-tenant-excuses-i-cant-pay-my-rent-because/

First Steps to Take When Rent Is Not Paid

Image courtesy of clickplayceu.comAlways keep a close eye on the due dates for your rental payments so that you are not caught unaware when tenants are late. In the event that payment is not received by the expected date, act quickly, stay calm and keep confrontation to a minimum.

The first action to take is to reach out to the tenant, informing them that you are aware the payment is late and establishing when you should expect to receive your money. The method of this initial contact is a topic of debate among landlords. Some prefer to make a phone call, while others feel that a visit is the best way to go. The decision ultimately lies with you and depends on what you are most comfortable with.

Whatever you decide to do, it is wise to keep a record of the interactions between you and your tenant. This should include promises made and reasons given so you can follow up if necessary. A written record will also ensure you are legally protected if you are ultimately forced to start eviction proceedings.

SummaryImage courtesy of renthomes123.com

When it comes to late payment of rent, you should regard the issue as a serious one and more than a mere inconvenience. Use robust screening methods to prevent late payments wherever possible. If it does happen, do what you can to discourage further late payments by enforcing late fees and remaining firm.

At the same time, you must always act professionally and remember that being a landlord is a business. Your tenants must always be treated with respect and dignity – regardless of how they may appear to disrespect you. Stay within the limits of the law, record everything and be ready to start eviction proceedings if necessary.

Ultimately, late paying tenants are not something you should have to accept, and the good news is they are not the norm. Most tenants respect the terms of their lease agreement and pay on time, every time. With the guidelines provided in this article, you have the tools you need to deal with the problem if it arises.

6 Common Real Estate Pitfalls to Avoid

Purchasing real estate is thought to be one of the wisest decisions when it comes to investment of money, and becoming a landlord is one way to ensure you are able to receive an ongoing income from your investment, while your capital wealth continues to build.

Of course, it is not as easy as the last paragraph describes! Investing your hard earned cash should not be done lightly, any decisions should be made after substantial research and consideration. However, many individuals take the time to research their purchase carefully, enlisting the advice of experts in the field and still make mistakes that can be extremely costly in the long run.

For this reason, we have compiled six of the most common pitfalls that landlords tend to stumble into when it comes to investing in real estate. Once you know what these mistakes are, which frequently cause problems for landlords, you will be aware of what to watch out for, and you can make your investment decisions wisely.

Mistake Number One – Deciding As You Go

The most serious mistake many landlords make, is not putting a full plan of action together before they start. Instead, they simply make decisions as they go along on the journey of choosing and investing in real estate – and all of the aspects that go along with that.

It is a far better idea to have a complete plan in place before financial decisions are made, and that should cover the location, type of property, budget for offer price, renovations and so on. By failing to adequately research their options and plan for all eventualities, landlords leave themselves more vulnerable to risks.

This mistake can be extremely costly when issues arise that landlords hadn’t considered, for example, unexpected problems with the structure of the building that has been purchased.

Mistake Number Two – Allowing Emotions to Rule

The second pitfall that tends to swallow landlords whole is allowing emotions to take the reins with regard to decision making. While it is easy to say that real estate should be regarded as a business with everything considered calmly and rationally, we all know how it feels to be “sucked in.” In some circumstances, the heart tries to rule the head.

But while we are all human, real estate is one situation where landlords must consciously control emotions, and consider decisions carefully from all angles. The “get rich quick” schemes, for example, can be tempting, especially when they are marketed in a shiny must-have package, but often these schemes really are too good to be true and are little more than a scam.

Another example in which landlords must watch their emotions, is in submitting an offer for a rental property. A sizable part of the long term profit is made at the point of purchase, so landlords must stay strong and stick to the budget that has been set. Paying below market rate for a property should be the goal.

Mistake Number Three – Ignoring The Advice Of Experts

Landlords are required to excel at a number of roles in order to make their real estate business a success, but the great news is that they don’t have to do it all alone! Unfortunately, many landlords fail to depend on the experts for advice in certain specialized areas of the rental process, and as a result, costly and largely avoidable, mistakes are made.

There are many experts that can help landlords with various factors, such as a real estate agent to provide details about recent sales values, a broker to explain the finer details of a mortgage and an attorney that can advise you on legal matters. While certain aspects can be completed without the input of an expert, it is always valuable to ask questions and complete research with the help of individuals inside the industry. The best case scenario is to build a team around you, of professionals that you can trust.

Mistake Number Four – Relying on Inaccurate Estimates

When it comes to making plans in real estate, numerous decisions are based on estimates that are made along the way. These include an estimated purchase price for a property, plus the cost of renovations, the final rental fee and even the health of the local economy on the whole.

It is impossible to assess the cash flow of a real estate investment accurately in advance due to the number of estimates that make up the foundation of the financial plan.

While this has to be accepted to a certain degree, it can be a pitfall for landlords when they rely on the estimates too heavily, taking the figures that have been drawn up as fact. The best way to handle the uncertainty of the estimates is to input accurate numbers into financial forecasts as soon as they are established. It can also be useful to build strong relationships with contractors and tradesmen, so that any quotations for renovations can be viewed as solidly reliable. This will be extremely useful when it comes to deciding on the viability of a property that needs work done to it. Always overestimate costs, and underestimate profits to a certain degree, this will provide a margin of error that could make all of the difference to your budget.

Mistake Number Five – Forgetting The Importance Of Cash Flow

Another mistake many landlords make is in focusing on the bigger, long term picture of their investment and forgetting the importance of cash flow. This can crop up in several ways including:

  • Failing to prepare for unexpected costs
  • Paying too much for property/tenant management
  • Failing to plan for vacancy

The costs of owning a property are constant, including the mortgage, taxes, insurance, maintenance and advertising for a tenant. Of course, it is necessary to balance the incoming cash with the outgoing costs, otherwise the landlord will find themselves in trouble very quickly, and the long term gains can be lost due to short term mistakes, which may eventually damage credit ratings and even lead to losing the property. Long term gains need to be balanced with short term needs in order to make the deal a success.

Mistake Number Six – Failing to Complete Due Diligence

With the real estate market becoming increasingly competitive, deals often move quickly and investors can feel rushed through the process, cutting essential corners such as signing contracts and conducting research. This is one pitfall that can be disastrous for landlords and can result in losing substantial amounts of money.

The key is to take time to complete adequate due diligence regarding the real estate deal in order to minimize the risks of the investment. Nothing should be taken for granted. For example, it should not be assumed that newly constructed buildings will have no defects. Unfortunately, the opposite is often true due to pressurized deadlines on the builders.

Summary

There are many common mistakes that landlords make time and again, and they can be extremely costly to rectify. Fortunately, these can largely be avoided, simply by taking the time to research decisions thoroughly, reaching out to experts for advice as much as possible.

We recommend that landlords plan ahead in their real estate decisions, and avoid making decisions as they go, in order to be fully prepared for the investment business, completing adequate due diligence along the way.

This leads us perfectly to the reminder that the business should be run rationally and not controlled by emotions. While it can be easy to be carried away by how we feel around a deal, the viability of decisions should always come first.

Landlords should turn to the advice of experts to help them with this, working with a team of individuals across the industry is the best way to conduct business. A real estate agent can offer insights into properties coming onto the market in the best locations at a price that is right for you. In addition, a broker can walk you through the confusing array of loans that are available for landlords, and an attorney can save you a fortune in the long run, by keeping you inside the law in your choices.

Within your team, it makes sense to have a contractor that can help to provide accurate estimates of any work that is required. This will help you avoid the mistake of relying on inaccurate estimates of costs. The best way to handle this pitfall is to always remember that estimates are just that – inaccurate figures that should not be taken for granted.

This should help to keep the cash flow in check, which is something that landlords should have a close eye on at all times. Remembering that the short term cash health of the business is as important as the longer term profits. With this in mind, it should help landlords avoid the most costly financial mistakes, so they can save money and make their real estate business a success.

11 Tips On How to Deal With Tenants That Skip Out

It can be an uncomfortable moment when your tenant stops returning calls and emails.  It may be completely innocent. They may have gone on vacation, found themselves too busy to return your call quickly, or a number of other things that will not affect their timely payment of rent. If you’ve been in the rental business for any length of time or have heard any horror stories, your mind might wander to less-than-innocent possibilities in which your tenants have packed up their belongings and moved out without notice, leaving you on the hook for damages done and rent left unpaid. That’s a place that no landlord wants to find themselves in if it can be helped, but LandlordStation has gathered a few tips and tricks together to help you approach the situation in the best way possible.

  1. Sudden Loss of Communication – There are many reasons why a tenant may cut off communication, either intentionally or accidentally. Make sure you don’t jump to the wrong conclusion first off, but also don’t take too long to act if you can’t reach them.
  2. Follow These Steps – You need a balanced approach with a tenant that shuts off communication with you, but these steps should help you make sure that you don’t find yourself in a bad position as a landlord.
  3. Determining Abandonment – As a landlord you will need to find out if the tenant has legally abandoned your property and then take the appropriate action from there.
  4. Understanding Judgement Collections – Choosing to seek out a judgement collection against your former tenant is one way that you may recover overdue rent or damages that a tenant leaves if they vacate your rental early. If you’re thinking about going this route, make sure you understand what all that includes.
  5. Seeking a Judgement – When a tenant skips out and leaves you with the bill, there are legal routes that you can take to receive a chance to regain at least some of what you are owed.
  6. Reporting a Judgement to a Credit Bureau – Even if a tenant abandons your property, leaves with rent due and damages unpaid, there is a certain route that you must take to report a judgement to one of the credit bureaus.
  7. Picking a Collection Agency – You may wish to work with a collection agency to receive the money owed to you. If so, you will need to know how to choose the right one.
  8. Working with the Collection Agency – If you have never worked with a collection agency before, you may wish to take a look on these tips so that you know what to expect from the experience.
  9. Keep it Legal – A tenant that leaves without warning can be frustrating, but you don’t want to let your frustrations cause you to approach the situation in an illegal manner. Your best chance to regain some of the money that you’ve lost on that tenant will come by handling it within the law.
  10. Tracking Down Their New Address – There are a variety of reasons why you may need an old tenant’s new address, but if you are going to file for a judgement against them, you may need to be able to contact them directly.
  11. Warning Other Landlords – If a tenant breaks their lease with you, skips out owing money, and/or causes damage to your rental, there’s a good chance that you’ll want to make sure that any future landlords that they try to apply with don’t meet the same fate as you did. Be careful how you approach warning others.

10 Awesome Tips on Finding the Best Tenants

There will be a day when even the best tenant moves on from your rental property for one reason or another. When this happens, you’ll want to make sure that you take the necessary precautions to bring in an other excellent tenant to pay rent on time, treat your rental as if they owned the property, and abide by the rules set up in the lease. While tenant screening is going to be your first line of defense, you will need to be prepared for the entire process. Take a look at some of the tips Landlordstation has put together below for finding the best tenant for your rental property:

  1. Know How to Market – Your first step in finding that amazing tenant will be to cast a wide net to bring in as many applicants as possible. The more applicants you reach, the more people you have to choose from.
  2. Be Careful How You Limit Yourself – There are certain limitations that will help protect your rental property and investment, but be careful not to limit yourself so badly that you miss out on great tenants that can’t apply.
  3. Be Ready to Answer Questions – Applicants will have a list of questions for you as the landlord, and it’s best to have these answers prepared for them ahead of time. If you’re scrambling for even basic answers, they may move on to their next option.
  4. Minimum Requirements – Don’t be afraid to set minimum requirements for your rental (as long as they are legal minimum requirements). If an applicant does not make enough money to pay rent, does not have a credit history that instills confidence in you that they will make payments on time, etc etc…you do not want to waste your time or theirs by going through the entire process just to decline them at the end.
  5. Know How to Screen Your Tenants – Tenant screening will be your first line of defence against delinquent tenants. Tradelines can provide you a great deal of insight into their payment history and how reliable they have been in the past. Take this (combined with the other information you gather) and use it to form up an educated opinion on what type of tenant they may be for you if you were to accept them into your rental.
  6. Verify References – References will help you gain a better idea about who your applicant is as a person, but you’ll want to make sure that they do not hand you a name or a phone number for a prior landlord or employer that really belongs to a friend that will simply tell you what the applicant wants you to hear.
  7. Verify Income – You will need to have a set minimum income (or rent to income ratio) before you start to accept applications. Once the applicant provides their income to you, verifying that income is your next step.
  8. Watch for Scams – Not every applicant that applies to your rental will be an honest person. You will need to be careful of scams from those that are often referred to as “professional tenants.” These people know how to work every angle to get into a rental and then stay as long as they can without paying rent.
  9. Choosing Between Applicants – In the best case scenario you will have more than one applicant that fits what you are looking for in your next tenant. If so, you will need to have a way to choose between multiple qualified applicants.
  10. Stand Out – Competition can be tough in certain cities, but competition against corporately owned rentals can feel like a losing battle. Make sure that you highlight what you can bring to the table that corporations often do not.

What I Wish I Knew Before Buying Rental Property

Investing in rental property is becoming increasingly popular across the United States. Not only is it a great way to grow your capital wealth, but it can also provide a source of passive income, which can go a long way towards helping you to achieve your financial goals.

However, the first steps into a life as a landlord can be treacherous. If you are not an expert in the world of rentals, mistakes are likely. And the problem is, they can also be very costly.

To help you avoid common rental investment mistakes, we have gathered a list of the top seven things that real landlords wish they had known before they got into the business. By banishing these assumptions, and learning from their experiences, you should be closer to making your purchase of rental property a huge success.

Image courtesty of blog.readytomanage.comKnow If the Seller Is Motivated

When it comes to buying a property, one often overlooked aspect is how motivated the seller is to actually sell their property. The Business Directory offers a definition of what a motivated seller is below:

A seller of property – for example, a residence or automobile – who is compelled to entertain reasonable offers from prospective buyers. The motivation may come from economic circumstances or a desire to abandon ownership. The buyer is often able to purchase the property at a reduced price or under favorable terms.

We are putting this at the top of the list because it could be the single most important factor in making a profit out of your investment.

Keep this in the front of your mind when choosing a property, and if the seller does not appear motivated to sell, then move on! Buying rental property is a business, so keep emotions at bay. Use your head and always aim to pay under the property’s market value.

Fixer Upper? Think Again

Image courtesy of thoughtcatalog.files.wordpress.comProperties in need of refurbishment can be very attractive to new investors as the asking price is typically a good deal lower than other properties on the market. Seeing a “great” deal can lead to making offers without taking the time to think them through properly. This is something numerous landlords wish they hadn’t done.

It is important not to be fixated on the low asking price without factoring in the cost of the refurbishment as well as the time it will take to get the property into a good livable state. Materials and labor can add up quickly and each day the contractors are working is another day the property is not earning rent.

For some individuals, fixing up properties to rent is a passion and a full-time job. But, for the majority of people looking to supplement their income in an already busy life, they are simply not worth the hassle. Properties in need of serious rehabilitation can cost more money and headache than buyers realize.

So, don’t be caught unawares. Ask three trusted contractors for quotations on the work to be completed as well as estimated time periods before you make an offer. This will allow you to grasp the full picture before you move forward.

Choose Tenants Very Carefully

Image courtesy of alexiskold.files.wordpress.comOnce you have purchased your property, you will want to get someone inside, paying rent as soon as possible. Of course, that makes business sense. However, this process should not be rushed! Bad renters can be extremely expensive, causing your entire business plan to flop and ruining your investment. This is one mistake landlords look back on with pained expressions.

There are countless horror stories of tenants causing serious damage to property in a relatively short period of time. Taking these kinds of renters to court is a long and costly procedure, so it is best to avoid the situation altogether, if possible. Thoroughly screening potential tenants and finding responsible individuals who will take care of your rental purchase is a must.

It is recommended to start by setting base criteria, allowing you to screen interested applicants over the phone. This can include points such as past criminal convictions or bankruptcy.

For potential tenants that pass your initial test, an application form can be completed. This will provide you with further details and enable you to complete full credit and reference checks before you consider accepting them as a new tenant. It may seem like a waste of time, but finding a good tenant is a real blessing that will pay dividends in the future.

Ideally, you will have fewer hassles over the months, less wear and tear on the property and absolutely no late payments. If you are lucky enough to find great tenants, be sure to treat them well, possibly even promising to hold the rent at a set rate for the duration of their lease.

Any short-term losses you incur by doing this will be more than covered over time. Plus, it is beneficial to know you have somebody taking care of your investment.

Take Time With the Rental Agreement

Your rental or lease agreement is a critical document and deserves more attention than simply downloading and signing a template. A template can be a great place to start, but be sure to research any local state laws that may not be met by your contract.Image courtesy of www.lawspeed.com

Also, think about what is important to you, decide your boundaries on pets, how much notice you would like to receive when the tenant moves out, noise levels and even late fees.

The lease agreement is your one chance to set rules, so don’t rush. Be sure to ask an attorney to check over the document before signing it to ensure there are no loopholes.

Once you have set your rules, it is essential you stand by them from the beginning. Consider, for example, a tenant paying rent late one month when they have never done so before. If your reaction is “never mind, pay when you can,” you will be in a tricky position if they are late the following month.

The relationship between landlord and tenant is strictly business and it is easier if this is established immediately.

Image courtesy of wjb-cpa.typepad.comPlan for Property Tax Raises

Property taxes can shoot up, steeply, without notice. So be aware.

This mistake can be costly, especially if you have set a rental price without taking into account the added expense. Avoid stress and loss of money by researching as much as you can before you decide on your rental amount. The rules vary across states, so be careful here.

By failing to take property tax increases into account, you could be stuck with a shortfall every month for the duration of your lease … something that could be enough to cause the business to ultimately fail.

Build a Maintenance Savings Pot

The very point of your rental property is to be lived in, and as such, it is expected that maintenance will be required to keep it in a good condition. Wear and tear is normal. Unfortunately, maintenance issues often happen unexpectedly and the costs, especially with areas such as the roof, can mount up quickly. The best way to handle this issue is to keep a savings fund specifically for maintenance of your rental property. It is also wise to visit the property regularly in order to catch any niggles before they are too far gone – and more expensive – to repair. A good rule of thumb is to inspect your rental properties every three months in order to stay on top of the maintenance.

Fix any snags as soon as you notice them. This will keep your tenants happy and your investment safe.

Know Your Stuff

The underlying message that comes through loud and clear when asking landlords what they wished they had known before buying a rental property is to do your homework. Research is key with all aspects of buying for an investment. Research the location, the property type, the demographics, the seller’s motivation, the loan types, how much rent is being charged locally and so on. The law surrounding real estate can also be complex, especially when it comes to rentals, so be careful not to be caught off guard.

In addition, don’t be lazy when it comes to due diligence. Keep on top of everything. If this is too much for you, then seriously consider using an agent. There is certainly no shame in that and it may be one of the most sensible things you can do, especially when just starting out!

A real estate agent will know the movements of the industry, especially within a given location. They will be aware of trends and other happenings in the market as well as be privy to the inside scoop on properties that you may not be able to find out for yourself. They will also have contacts they can recommend to support you along the way. So, if the homework is too much, consider hiring someone to do it for you.

Summary

When it comes to navigating the real estate minefield and buying your first rental property, it is almost expected that mistakes will be made. While it can be great to learn this way, it can also be expensive and complicated to rectify. There are many instances of buyers deciding to flip their properties ASAP instead of continuing with becoming a landlord. But, by following these 7 suggestions, you might just escape a few of their biggest regrets and make your own venture a real success.

 

5 Reasons You Should Never Buy or Sell Without an Agent

Are you considering buying or selling real estate in the near future? Then you should seriously consider using the services of a real estate agent.

You would be forgiven for thinking that buying property for rental is the new trend. So many people are turning to real estate as the answer to their financial woes and with good reason. It can be a solid way to build wealth as well as a passive stream of income, but as with all investments, it doesn’t come without risk. It is hard to understand the mixed signals that we see in the headlines. Take a look at this from Global Property Guide, for example.

“Housing demand is rising in the U.S., but house price-rises are slowing. Why this seeming contradiction? The answer is simple: Increased housing supply and more new-builds are coming onto the market, so demand pressures can more easily be met.”

The property market is complex and full of complicated processes along with plenty of jargon. And this is why an agent could be invaluable to you. If you are not an expert, it probably won’t be long before you feel out of your depth when going it alone. That is not ideal when you are purchasing a house – which is a huge commitment – and mistakes can cost a fortune!

Of course, selling rental property through an agent means that you will be paying them a commission, but their advice and expertise can save you in the long run. So, before you reject the idea of hiring a real estate agent (or Realtor) in exchange for going it alone, take a look at what you are dismissing.

Before we dive in, you should also be aware that not all real estate agents are Realtors. An agent with the title “Realtor” is part of the National Association of Realtors, which comes with a strict code of conduct. Take a look below for more detail:

A REALTOR® is a licensed real estate salesperson who belongs to the National Association of REALTORS®, the largest trade group in the country.

Every agent is not a REALTOR®, but most are. If you’re unsure, you can ask your agent if they’re a licensed REALTOR®. REALTORS® are held to a higher ethical standard than licensed agents and must adhere to a Code of Ethics.

REALTORS® should recognize that the interests of the nation and its citizens require the highest and best use of the land and the widest distribution of land ownership. They require the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment.

Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibility and a patriotic duty to which REALTORS® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.

1. Network and Connections

Image courtesy of gregorybknapp.comOne of the most valuable assets an agent can bring to your rental property transaction is people. An experienced real estate agent has built personal connections and relationships throughout their career. This network is one of the strengths enabling them to move quickly in the market and to make sound decisions. The real estate agent’s network can also be beneficial when it comes to selling property as they may assist with marketing and can bring more traffic to your property than you could without their assistance.

Their network should include a team of tried and trusted professionals across the industry, who are accustomed to working together. Their network may include attorneys, contractors and accountants for example – teamwork is the cornerstone of their success, as seen here:

Keller Williams was designed to reward agents for working together. Based on the belief that we are all more successful if we strive toward a common goal rather than our individual interests, we're confident that every Keller Williams professional shares the vision of serving our clients at the very highest level possible.”

If you were going it alone, you would have to rely on your own judgment and build a team from scratch, which is not only time consuming but also risky.

2. Insider Knowledge

Image courtesy of www.cardiff.ac.ukAn experienced real estate agent will have an intimate knowledge of the rental property industry. You should choose someone who knows the location you seeking and who is used to dealing with the type of property you are interested in purchasing. The right agent will be aware of current trends due to their constant immersion in the market.

Plus, agents have access to hidden information and listings that are not publicly advertised, which means that they may be able to provide you with access to properties you may not have known about without their input. This knowledge is incredibly valuable when buying rental property, and it is usually far more in-depth than the research you could achieve on your own.

Additionally, Realtors and real estate agents are aware of the ethics, codes of conduct and unwritten rules of the industry … nuances you may not be aware of yourself. Opting for a real estate agent equates to putting yourself in the hands of an expert.

“Going above and beyond.

That's the sign of a RE/MAX agent. Buying or selling, you'll have a trusted pro guiding you every step of the way.” 

3. Problem Solving

Image courtesy of blog.readytomanage.comRealtors are familiar with the typical roadblocks that tend to crop up when buying and selling property, so they will be unfazed by situations that leave you reeling. By remaining level-headed and determined to close a deal, they could prove to be ideal at solving last minute or emergency issues that arise.

What would you do, for example, if you were faced with one of these problems chosen from Investopedia’s top 10 problems preventing closing a deal?

1. The termite inspection reveals extensive damage.

2. The appraisal wasn't high enough.

3. There are clouds on the title. (Any document, claim, unreleased lien or encumbrance that might invalidate or impair the title to real property or make the title doubtful.)

4. The home inspection reveals major defects.

5. The seller backs out.

6. The home isn't insurable.

Your real estate agent knows!

4. Expert Communication

Realtors are fantastic communicators, expert negotiators and great sales people. This means you can rely on them for the tricky conversations that always come up in the buying or selling of real estate. Effective communication for sales is a skill that takes time to learn and develop, so if this is not a strong point of yours, a real estate agent could be essential.Image courtesy of edumuch.com

“Your communication skills determine your chances of a sale – from your opening pitch to your closing statements. Developing your questioning, vocal and conversational skills will help you build on a strong first impression by gaining trust and establishing credibility.”

An agent will also be an ally to guide you through complicated and sometimes nerve-wracking scenarios such as dealing with counteroffers and rejections of offers. They will be able to recommend and implement strategies that can close a deal without losing money.

Image courtesy of jobhuntersbible.com5. Time Saving

Often, people don’t anticipate that the buying and selling of property can be a full-time job, requiring attention around-the-clock. There are numerous people involved in the process, and it can often be difficult to meet all of their needs in a timely manner, especially if you are also juggling other commitments. This is, of course, the perfect time to turn to your real estate agent, who will work all hours of the day or night to service the deal.

Summary

While the initial thought of paying commission can be off-putting to sellers, the service provided by experienced Realtors can be invaluable to securing a great deal. For buyers and sellers alike, the amount of time and money saved by using an expert ally is considerable. They can guide you through the complicated processes, avoiding mistakes and making the entire transaction simple for you.

Most realtors have an extensive network of business connections they can call upon to help with closing your deal. These trusted experts in the industry will also work on your behalf. Agents have unparalleled insider knowledge of their housing market that you simply won’t be able to match with online research. They are also experts in problem solving, sales negotiation and communication, too.

These are five key benefits of using a real estate agent to buy or sell your property, and this is just a sampling of how they can assist. So, why not take a bit of time to find out how you could benefit from a Realtor before forging ahead alone?

The 8 Steps to Success for New Landlords

In this post, we have identified the first 8 steps you should take as a landlord in order to ensure that purchasing your rental property is an investment success. Making the choice to purchase real estate is a great step towards taking charge of your financial future. But, it can be tricky to know where to start. However, it is vital to be prepared, as mistakes can be costly. The role of a landlord requires you to keep multiple balls in the air, and knowing the right place to start can be the difference between profit and loss in your venture.

1. Stay Within the Law

Image courtesy of storage.googleapis.comThe first thing we must mention are the legal implications of renting a property. There are federal and state laws you must be aware of and these must govern your actions if you are looking to become a landlord.

These laws cover numerous aspects of buying to rent that you may not be aware of, including discrimination rules when it comes to choosing the tenants occupying your property. State laws may dictate eviction terms and even late fees as well so it is important to be aware of these before you begin drafting your tenancy agreement.

Rental Property Law involves all law surrounding landlords and tenants, leases of immovable property, rental collection, evictions and advice on general disputes arising between all stakeholders in the rental property arena. It involves the dynamic relationship between a rental agent, a landlord and a tenant and is an intrinsic and often underestimated aspect of general property law and sales.

Even in the event that you are expanding your own property to include rental space, you must check the legal stipulations, as permits may be required. Your insurance terms will also need to be amended, and you should check that the electrical circuitry and plumbing supplies are safe and able to take an additional load. Doing so will prevent potential negligence claims.

2. Calculate Rent Amount Carefully

Collecting rent is an essential component of being a landlord, and it can be tempting to look only at existing properties to calculate your rental amount. While it is true that setting your rent at slightly below the current average for your location should ensure that you are not left with a vacant property, this shouldn’t be the only factor in the decision.

Look closely at your costs, including the loan repayment amount, tax deductions, maintenance savings and insurance. You should also take account of the capitalization rate, which calculates the rate of return on an investment property using the expected annual rental income divided by the purchasing price. It is explained in more detail below by Property Metrics.

The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.”

Once you have your figures in hand, you can make an informed decision about the rental rate which should prevent nasty surprises further down the line.

3. Screen Tenants Thoroughly

Image courtesy of careerealism.comHopefully, this is not news to you! It is absolutely crucial to screen every potential tenant, as bad tenants can prove to be far costlier than a vacant property! Check out the post we wrote on this topic here for additional details.

While renters are looking for the right property to rent, as a landlord and property manager, you are looking for the right tenant for your property.

You must treat every single potential tenant the same way, using the same checks and making your choice without discrimination. We recommend you conduct an initial screening over the phone, enabling you to state your base requirements such as no criminal records or bankruptcy. From there, an application form can be filled out by each potential tenant, allowing you to conduct more thorough checks on their background, criminal and credit checks as well as references.

It may feel like a hassle, but will save you a fortune in the long run!

4. Create a Robust Lease Agreement

Your rental agreement should be strong with no loopholes. This document is your protection against damage to your property, it is what gives you the power to enforce your landlord rules, and it should be created with care. Customizable templates can be a good place to start but be sure you are covered, and you are abiding by the laws in your state. We would advise an attorney familiar with your local laws review your document before you sign.

5. Make Sure Your Property Is Attractive

When choosing a rental property, you probably have a long list of requirements in your mind. The location, the basic condition, the number of bedrooms, etc., but you are unlikely to consider the finer details as someone living there.

As a landlord, it is easy to overlook the points that make a property attractive to tenants when you are in the mindset of making an investment. But, being aware of aspects such as privacy, space and sound proofing can mean far fewer complaints over the years.

6. Inspect Your Property Regularly

Image courtesy of bishoppropertyinspections.comOnce you have chosen a great tenant for your property and you have documented the property condition and inventory on their arrival, don’t think you can sit back and enjoy the rent rolling in. Landlords should protect their investment by regularly inspecting the rental property in order to ensure it is being kept in a good condition and to keep on top of any required maintenance. Include these regular inspections as a term of the lease so that the tenant is aware that this will be happening. Usually, every three months is enough to check on the condition.

These inspections will give you the opportunity to catch any issues before they become big problems, hopefully saving you money. And just in case you are wondering if routine repairs are really your problem, take a look at this Q&A from NOLO.com.

If a landlord doesn’t make required repairs, what are the consequences?

If a tenant requests repairs and the landlord or property manager doesn’t meet the habitability requirements, a tenant usually has several options, depending on the state. These options include:

            •Making the necessary repairs and deducting the costs from the next month’s rent

            •Withholding the entire rent until the problem is fixed

            •Paying less rent while the rental remains substandard

            •Calling the local building inspector, who can usually order the landlord to make repairs

            •Moving out without responsibility for future rent, even in the middle of a lease.

7. Do Your Filing!

Image courtesy of organisemyhouse.comOne secret to being a successful landlord is organization! You have legal and tax responsibilities, so do yourself a favor and keep everything straight and retain records of everything. As the following quote from Investopedia shows, rental income is classed as a common income source.

Money you receive for rent is generally considered taxable in the year you receive it, not when it was due or earned; therefore, you must include advance payments as income.

For example, suppose you rent out a house for $1,000 per month and you require that new tenants pay first and last month’s rent when they sign a lease. In this case, you’ll have to declare the $2,000 you received as income, even though a $1,000 of that $2,000 covers a period that might be several years in the future.

Some people find it useful to set up a separate bank account for rent and hire an accountant to do the books, plan for taxes, etc. Often, landlords even go as far as using a separate phone line and P.O. Box number for any correspondence relating to their rental property in order to keep this part of their business separate from anything else.

8. Hire a Property Manager

Image courtesy of micampusmag.co.zaWhen you are armed with the knowledge of these first steps, you should, hopefully, feel clear headed and empowered to move forward with your goals of becoming a landlord. But, if this has left you feeling more concerned than before you started reading, fear not. There is another option. A property manager can take care of all of your needs once you have purchased a property, from advertising for tenants, to sourcing and screening tenants, to the lease agreement, inspections and maintenance of your property.

They can handle rental collection, late payment and even eviction if necessary. The huge benefit of hiring a property manager is that your time will not be tied up in the administration of your investment. Take a look at the opening line of Ray White Management’s “Owner” page which shows they understand the goals of a landlord and know what is required to make that happen.

Here at Ray White we recognize that your rental property is a significant investment and as such, you expect appropriate returns. In order to achieve this, you need to minimize your vacancies and maximize your rental yield.

Summary

These 8 steps should provide you with a real insight into exactly what is required of you as a new landlord. Following the guidelines will keep you and your investment protected while avoiding costly and time-consuming mistakes. So, whether you decide to go it alone or hire a property manager, you should find that your rental property venture is a success.

A Candid Look at the 4 Key Challenges That Landlords Face

The demand for rental property in the U.S. has been steadily growing since 2005, and this trend is set to continue, according to The Joint Center for Housing Studies of Harvard University (JCHS). It is no surprise that more people are deciding to become landlords, therefore, we are asking this question today: Is it worth it?

The JCHS shows us that on paper the rental business is sound in the medium term, at least.

JCHS reports that since 2005 the number of American households living in rental properties has risen by around nine million, the biggest increase on record. And over the last 10 years, the share of rental households in the U.S. has gone up from 31 to 37 percent to reach its highest level for more than 50 years.

The sharp rise in the number of rental properties in the U.S. has been particularly pronounced since 2010. Some 1.05 million new rental households have joined the market every year since then putting “the 2010s on track to be the strongest decade of renter growth ever recorded,” says JCHS.

Rental property is considered to be a sound way to build a passive income, which can be life changing. Rental income has allowed people to take early retirement and achieve wealth and financial freedom that is only a dream for others. Real estate has been outperforming stocks and real estate investment trusts (REITs) … so why are we questioning whether becoming a landlord is worth the effort?

It is just that. The effort involved is enormous. Becoming a landlord is expensive, with the minimum downpayment an average of 20% of the property value. It takes a great deal of hard work to enter the market, not to mention ongoing maintenance of the property and management of tenants. In this post, we are looking at the four key challenges that landlords face, in an effort to determine if the returns make it all worthwhile.

1. Finding the Right Property

Image courtesy of formalholdings-realestate.comOne of the key elements that makes being a landlord worth it or not, starts before tenants are anywhere in the equation. The real money in the deal is made at the very beginning, when choosing the right property and negotiating a buying price.

With thorough research and the help of a trusted real estate agent, you should be able to find a property in a great location that is highly attractive to renters in the area. You should also know the maximum price you can purchase it for in order to make the investment worthwhile to you.

This is crucial to making money, in both the short term and also over the life of the investment. When looking at a “fixer-upper” be cautious, as the attractive price may not be a fair trade off in comparison to the time and cash required to convert it into a livable unit. You need to know the cost of materials and labor required to refurbish the property before you place an offer.

Jason Sherman, who owns a communications and marketing firm in Chicago, has bought eight fixer-uppers over the years and rented out most of them. He advises that if you’re going to buy one, bring in a contractor for a walk-through beforehand. “But you should also do your homework so you know what materials cost and how much time a project takes, and so you know if what your contractor is telling you is fair,” Sherman says.

Any house that you buy will need to be prepared as quickly and efficiently as possible, to make it clean and attractive to potential tenants, in order for you to start receiving rent.

2. Choosing Good Tenants

Many of the landlord nightmares that you hear revolve around a “bad” tenant, who either refused to pay rent, destroyed the property or has had to be forcibly removed. These situations are, fortunately, in the minority, but they do happen. Even tenants that consistently pay a few days late are enough to cause real hassle, so it is no surprise some landlords decide that renting their properties is simply not worth the effort.

Image courtesy of evanlaar2012.files.wordpress.comFortunately, there are simple steps you can take to vastly improve the likelihood of securing a good tenant. This does take a little more work, but good tenants are worth their weight in gold!

We recommend you screen all potential tenants thoroughly before deciding on who will live in your rental property. This should include credit and criminal checks, calling employers and past landlords and even using social media for screening. All potential tenants should be screened using the same criteria, and you should also be aware of the laws forbidding discrimination by landlords.

Once you have chosen a tenant, be sure the lease agreement includes a clause for late payment, so you are protected in the event that they do have financial difficulties. Charging a late payment fee is usually enough to deter tenants from making this a habit and establishes a business relationship from the beginning. If you fail to include this in your lease agreement, however, you leave yourself uncovered if a tenant does pay late. Take a look at this advice for tenants from NOLO.com.

If your lease or rental agreement says nothing about late fees, your landlord may not impose one, no matter how reasonable it is.

Laws in a few states restrict the imposition of late fees, both by amount, and whether the landlord must wait until you’re a certain number of days late before he imposes them.

The fee should be within a certain percentage of your rent. Your landlord is always on shaky ground if the late charge exceeds 5% of the rent. That’s $38 on a $750-per-month rental. Of course, if the rent is extremely late—say, ten days—a higher late fee, such as 10% of the rent, might be reasonable.

3. Maintaining the Property

Image courtesy of hsconstruction.co.zaThe one thing about investing in a house rather than in stocks, is that stocks never get leaky roofs, nor dripping faucets. So does that make being a landlord too much like hard work?

This really depends on how much effort you put into regular maintenance. You should expect to spend money to keep your investment property in good working order, no matter if it is a new build, or an older home. You should calculate this into a monthly fund (more on that in a moment).

Houses need to be taken care of, and usually issues that are recognized quickly, can be rectified more simply. For this reason, it is advisable to conduct regular inspections on your rental properties, this way you can check the floors, doors, roof and anything else that may show early signs of trouble.

A savings fund will ensure you are prepared to fix any issues quickly, and, hopefully, expensive items such as the roof won’t need work too regularly. Your building’s inspection should give you an idea of what to expect. A guide on how much money to save for maintenance is offered here by About Money.com.

One popular rule of thumb says that one percent of the purchase price of your home should be set aside each year for ongoing maintenance. For example, if your home cost $300,000, you should budget $3,000 per year for maintenance.

That doesn’t mean you’ll literally spend $3,000 every year. It just means that on average, over a span of a long time period (10 years or more), you’ll spend around $3,000 annually, according to this rule of thumb. Some years you’ll spend far more; a roof replacement, for instance, will cost $4,000-$8,000. Other years, you’ll spend far less.

4. Managing Cash Flow

Image courtesy of greekshares.comThe final factor in deciding whether becoming a landlord is worth it or not is the profit that is made. Remember above all, that being a landlord is a business. Your main aim is to purchase income-producing property.

So, after the purchasing fees, mortgage payments, repairs, maintenance, taxes and other costs, there should be enough money from rental payments to make it worthwhile in the immediate term, as well as increase in property value to make the investment worthwhile in the long term. You can recruit the services of a financial advisor to help you make the right decisions, or try this cash flow calculator to see if your sums add up.

Summary

Being a landlord is hard work, without a doubt, but if you manage each aspect and are prepared along the way, the benefits can be worthwhile. You can use a real estate agent to assist you in the early days conducting research, and, if the stresses of tenants, with hidden pets, vandalism and late payments is too heavy a price to pay on your sanity, then it may be best to consider a property manager to handle that burden.

Investing in rental property can be expensive and stressful, but the long term gains can really make it worth the effort, and there are services to support you along the way if you need them.