Many property owners are making the lucrative decision to rent out their houses in today’s market, but opening yourself up to a new income also means opening yourself to liability issues. Buying a rental property can be one of the most lucrative investments you make if marketed appropriately, but there are safeguards you need to employ to ensure your assets are protected.
- Use a Property Manager
If you elect to manage your own rental property, you open yourself up to a great deal of liability. You’ll need to understand many local and state ordinances, have access to a variety of forms necessary for the legal running of your property, and find the proper insurance for your property. If this all sounds like too hefty of a role, it may be in your best interest to hire a property manager. They are already well-versed in the regulations and legal issues of renting a property, can deal with the face-to-face interactions, and are also able to carry out the unsavory jobs of renting, namely, eviction.
- Insurance Needs
The list of things that can damage a rental property are endless, but this isn’t said to scare you off from your endeavor to rent out your home. Whether it’s a natural disaster or a burst pipe, make sure you have the most comprehensive insurance. It will save you hundreds if not thousands of dollars, and the peace of mind for you and your tenant is priceless. Be sure to read the fine print when you select an insurance plan, as many don’t cover terrorist attacks, floods, and other conceivable damaging events. Hire a knowledgeable insurance agent and go through the facets of your coverage piece by piece, as the effort now will save you a headache later. You can also elect to make renter’s insurance required. This extra coverage may help keep you protected should any accident or natural disaster result in legal action from your tenant.
- Find the Right Renter
Dealing with a bad renter is like dealing with a bad customer in business, only the stress is multiplied by immeasurable amounts. That’s why it’s essential you protect yourself and your property with the proper tenant screening. Use a service that offers tenant background checks to give you the information you need to make an informed decision—before allowing a stranger to live in your home. Detailed checks like these will let you know if a potential tenant has ever been evicted before, will detail their credit score, and will let you know of any prior criminal record. The small investment required to use a service like this is well worth the money you’ll save from eviction issues and damaged property.
- Be Prepared to Invest
You own the property, pay the utility bills, and do the upkeep— none of which is cheap. Being cheap in business won’t make you substantial returns, and the same goes for the business of landlord-ing. You’ll need to be prepared to invest sums in your property throughout the weeks, months, and years. Whether its updates to the roof, new appliances, or a fresh coat of paint, you’ll have to keep your home updated and safe—basically it needs to remain habitable under all points of the law for the duration of your renting experience.
- Creating an LLC
By creating a separate LLC for your rental property, the rest of your assets are more fully protected. Should the worst happen and a tenant get hurt on your property, they will be able to sue your LLC, not your personal assets—like your home or monetary savings. There are also many tax benefits to functioning under this title, which could make creating your LLC worth the effort. This route isn’t without its caveats; the title doesn’t automatically protect you from all lawsuits, you may have a harder time finding outside financing, and an LLC can be a costly endeavor depending on the state you live in.
- Figure Out Taxes
If you’re not giving your taxes the due diligence they need, you’re setting yourself up to lose your assets and face legal consequences. The taxes that come along with a rental property can be complicated, and are very different than your personal filings. If you struggle with the right forms and caveats of taxes placed on your rental, consider hiring an accountant to handle your finances. The fee may be worth the peace of mind, and it’s definitely worth keeping yourself out of hot water with the IRS.