Owning property is a great investment and can provide significant supplemental income when you do it right. That being said, the way many people who promote real estate investment describe owning property can be a bit misleading in regards to its complexity.
Generally, unless you have a property management company, owning investment property isn’t a turnkey operation. There are lots of things you need to know, do and avoid to ensure your investment property doesn’t actually become a net loss.
Find the Right Tenants
The quality of your tenants is what will ultimately make or break your property investment. Irresponsible tenants likely won’t pay on time, will trash up your property and will likely fight you tooth and nail during any eviction process, which is designed to be in the tenant’s favor, not the landlord.
You can protect yourself from bad tenants by being thorough.
- Check their credit score. If a tenant’s credit score is poor or bad you should at the very least be checking into previous rental references and their employment situation.
- Get to know your tenants enough to make an informed judgment of their responsibility and trustworthiness.
- Stay on top of rent payments and enforce consequences if those payments aren’t on time.
- If a tenant stops paying rent and won’t return your calls or messages start the eviction process as soon as possible, as this can be a long, drawn-out process that is designed to protect their rights, not yours.
- Require security deposits. You may wonder what the point is of taking a relatively small amount of money at lease, because how much can you really repair with just a couple hundred dollars? But the real value of a security deposit is communicating to the tenant that you care about the condition of the property and that there will be consequences if that property is damaged.
Know Your Contract
Always have your rental agreement in writing, and make sure you know everything that’s in that contract. If you violate one of your own terms your tenant will be able to take you to small claims court and you may run afoul of the local housing authority.
Also make sure to address issues the tenants have and maintain the property to decent quality standards. If you let the property fall into disrepair and don’t address any of the tenant’s concerns or issues you will have a harder time enforcing your own contract’s terms. You may also risk local penalties resulting from any legally required responsibilities you shirk as a landlord.
Understand Both Tenant and Landlord Rights
Knowing local and state laws pertaining to tenant and landlord rights will be hugely valuable and could help you avoid costly mistakes.
For example, don’t let a tenant tell you that you’re not allowed to enter the premises. That’s not necessarily true. You can’t, on the spur of the moment, show up and demand entry, but if you need to perform maintenance or have it in the renter’s contract that you will perform annual inspections you must be allowed entry as long as you give adequate advanced notification.
That being said, most state laws and regulations are designed to protect the tenants from the landlord more than the other way around. You should definitely familiarize yourself with local eviction rules and the steps you need to take to remove a troublesome tenant.
Let Us Help You with the Purchase
Before you can rent out any property you first have to buy some property! Eastern Title & Settlement assists many property investors with their real estate transactions, purchase agreements and even REO and short sales.
If you want to enjoy the supplemental income afforded to landlords who own investment property, give us a call at (240) 403-1285.