A rental property can be an incredibly valuable investment. While that’s a good thing, it also means that you have a lot of financial value and work tied up into one property. Your property — and your own financial security — could be at risk.
Ideally, most of the time things will be fine. The weather will be calm, your property will be treated well, nothing pernicious will happen on your property, and your tenants will be pleasant people who are neat and quick to let you know if you need to fix a leak or take care of a pest problem.
Unfortunately, sometimes you won’t be so lucky. What if a natural disaster strikes? What if your property starts losing money? What if your tenants don’t cooperate with you? Here’s how to protect your investment in your rental property.
Though not legally required, landlord insurance is all but mandatory for those who own rental properties. A rental property is something that is simply too valuable to leave unprotected.
Threats like natural disasters and break-ins could destroy your property and the value that you’ve invested in it. If you don’t have an insurance policy, the costs of making things right again will have to come out of your pocket — you may even have to give up and sell the property at a major loss. Make sure that you have landlord insurance and that your policy is comprehensive.
Like any other architectural structure, a rental home or apartment building will wear down over time. That’s to be expected, but be careful: Neglecting maintenance and failing to make speedy fixes to things in need of repair will accelerate this process, causing your property to become less profitable and less valuable.
Here’s the smart move: Team up with contractors or a building management company and invest heavily in preventative maintenance. Preventative maintenance is usually cheaper than repair work, and nothing is more expensive than deferred maintenance.
Owning a rental property means, in effect, that you are running a business. You’ll have expenses, you’ll have revenue (in the form of rent), and — hopefully, anyway — you’ll have profits.
Businesses are tricky things, and they need to be set up properly from a legal perspective. This is important in part because your business could, in theory, lose a lot of money. Hopefully, it won’t, but if it does, then you will want your business to be a separate legal entity that insulates you from its losses. An LLC is a popular choice (though by no means the only one — make sure that you discuss all of your options with an attorney).
There are a lot of other reasons to set up your business on a solid legal footing, including liability issues and tax advantages. Do yourself a favor: pay a visit to an attorney. It will protect your property and your future financial wellbeing.
A lot of things can threaten your rental property. Natural disasters could wreck the structure, maintenance problems could cause the space to deteriorate, and financial problems could cost you the whole enterprise. But there’s one threat that looms particularly large: bad tenants.
Tenants are the source of revenue on rental properties, but they can also cause losses. A bad tenant could hurt your property in all sorts of ways, from failing to report a leak until the damage is done to committing crimes on your property.
Kicking out bad tenants can be tough, especially in states and cities with powerful protections for renters built into their laws. That’s why it’s important to screen tenants with background checks and credit checks before you let them sign a lease agreement. Fortunately, a lot of great landlord software solutions offer free tenant screening among their other features.
This content is sponsored by John Michelson.