Rental property landlords are in prime positions to reap big rewards. However, these big rewards come fully equipped with equally large risks. The good news, in the case of property owners, is that you can take steps to mitigate many of these potential risks. Overcoming these pitfalls is your first step on a long path to financial freedom as a rental property owner and landlord.
Be Specific With Lease Language Referring to Pet Agreements
According toNolo.com, landlords are only liable for tenants’ pets if they knew the dog was dangerous or were at least partially responsible for keeping and/or controlling the pets. However, pets pose additional risks, beyond liability risks, to property (interior and exterior). Keep in mind, though, it’s always best to check with your attorney whenever you have doubts or questions at any stage of the process when you’re trying to lower your risks as a landlord.
The language of yourpet agreement should stipulate things such as breed exclusions (some insurance companies will not cover liability on certain dog breeds), size limits, weight limits, or even types of pets. For instance, some property owners may have cat allergies or an aversion to reptiles, mice, and rats as pets. It’s necessary to make tenants responsible for their pets (cleaning after them, caring for them, supervising them, and repairing any damage pets cause to the property).
Obtain Adequate Landlord Insurance
Landlords need more than one type of landlord insurance before you even consider renting a property out to tenants. You need property insurance to cover the physical property from structural and physical damage (flood insurance, however, must be purchased in addition to general property insurance if you want your property protected against floods), personal liability insurance to protect you from lawsuits related to injuries and fair housing law violations. Rental income insurance protects your income when it’s lost because of natural disasters or the actions of renters. Some landlords seek additional umbrella coverage policies for added liability coverage just in case.
Choose Income Properties Wisely
Not every rental property that looks like a bargain really is. You need to realistically estimate the rent the property will fetch (considering the number of vacancies and potential downtime, carrying costs, management expenses, insurance costs, and investments needed to bring the property up to code) an adequate income for the investment. According to thisWall Street Journal article, landlords should “collect at least 1.25 percent of the purchase price each year in rental income.”
It’s also wise to purchase investment properties that are close to home. You know the area. You’re nearby when the property needs repairs. You are in a better position to check on the property to make sure tenants are following the lease agreement. If you do purchase rental properties that are an hour or more away, consider hiring a high-quality property management service (do your due diligence ahead of time, however, and make sure you’re working with qualified professionals).
Yes, there are risks involved in becoming a rental property landlord. However, the potential rewards make those risks small by comparison – especially when you follow these great tips for minimizing your risks.