The rental market is booming, enticing many owners into renting properties and becoming landlords. Large numbers of new landlords are diving into the market with enthusiasm, but without much planning and foresight.
The following are five of the most important things new landlords should be aware of before renting properties and entering the property rental space:
1. Clear Lease Terms Are Foundational
Essential to the landlord-tenant relationship is the lease. It should be well thought out and carefully worded. While there are many templates and boilerplate options available, a customized lease with all terms and parameters should be seriously considered. Landlords should spend considerable time on the lease before renting properties, so that everything is covered and all expectations of tenants can be clearly mapped out in black and white.
Include elements when renting properties such as:
- Tenant responsibilities (landscaping/degree of upkeep expected, amount of notice required when vacating, etc.)
- Fees or penalties, such as for late rent
- Terms regarding pets, storage, subleasing, etc.
2. A Cash Cushion is Crucial
While focus and expectation should be on everything going well, landlords should also be prepared in case they don’t. The ability to cover an emergency property repair or a bad tenant with reserve funds is essential. New landlords should establish an emergency savings account or quick loan option before renting properties. At least two months’ rent in the bank for every rental property is ideal if possible.
3. Carefully Consider Decisions About Management Before Renting Properties
Landlords must also consider if they will manage the property themselves, outsource it to a reliable tenant, or hire an outside management company. All options have pros and cons, although hiring a management company ensures that an experienced entity will be in control. They will already have reliable resources to call on for property emergencies ranging from repairs to legal disputes, and they will be on the ball in terms of keeping properties occupied.
4. Adequate Insurance is Important
Landlords renting properties that still have a mortgage will be required to carry insurance. However, this is a wise idea for all property owners. Insurance allows landlords to sleep more peacefully at night and know that there is a safety net for:
- Physical damage to the property (read the specifics carefully to ensure a full understanding of what is covered)
- Coverage for loss of rental income due to damages
- Coverage for property maintenance items
- Liability coverage for medical and legal costs
It should be noted that landlord insurance will not cover the tenant’s property, so landlords should consider requiring tenants have a renter’s insurance policy while on the premises.
5. A Reliable Tenant Screening Company is Indispensable
Screening tenants thoroughly and professionally is essential to success as a landlord. Bad tenants can damage the property, make it undesirable for other concurrent renters and ultimately cost the rental business money. A professional tenant screening company can run eviction and criminal records as well as credit checks.
The rental market is surging, with new landlords exuberant about all the benefits renting properties can bring. However, all landlords should bring attention to these five important aspects of the business before getting started and renting properties.