From a personal finance perspective, becoming a lessor isn’t something it’s wise to rush into. Consult with a financial planning professional and/or an attorney to understand the ramifications of your new venture for your taxes, investments and other money issues. Knowing which type of legal entity you will want to use for your business is central to this new phase in your life.
Separate bank account
For legal and tax reasons, you need to have rent checks and other rental-related monies going in and out of an account different than the one for your personal finances. Contact your credit union or local bank about setting up a business account.
Alternate contact information
To avoid annoying – or downright scary – scenarios with tenants, you’re better off providing them with a phone number and address different than your personal ones. Get a P.O. Box at your local post office and have a number other than your cell phone as the primary contact point.
Once you’ve set up the contact details you’ll provide to your tenants, it’s smart to provide them with a handy way of accessing that information. Also include – perhaps on a laminated card – information for the property management company (if applicable), local fire department, police station and any other vital entities.
Unfortunately, it’s likely that at some point you’ll encounter a dispute of one kind or another with a renter. By keeping comprehensive and well-organized records of payments, communications, work invoices, and other key information, you make the process of resolving issues much easier. It will also help come tax time.
Yes, you’ll probably need nice photos of your unit for your advertisement or listing of the property. However, also keep in mind that your photos may need to stand as evidence of the condition of the unit prior to your tenants moving in. If there are problems with damage when they move out, you may need to be able to show before-and-after shots to make your case.
“They seem nice” isn’t a solid reason for choosing your renters. You will need a proper application form to get information like name, Social Security number, employer details, etc. Once you have found an application template you like (whether from a legal professional or from the internet) fill it out with your own minimum requirements to establish a baseline of what you will accept.
Don’t wait until you have applications rolling in to decide on your strategy for conducting background or credit checks. Perform an internet search engine query for “tenant screening” along with the name of your town/city/area well in advance of listing your unit. While you’re on the web, read reviews of different tenant research providers to find the most respected company.
Sample rental agreements can be found on the internet, but be careful. You need to have paperwork that is both in compliance with local laws and that takes full advantage of the rights guaranteed to you. To make sure you are covered, have a local legal professional familiar with real estate laws in your area review the agreement.
Property management agency?
Handling the day-to-day aspects of a rental property can be a load. Consider paying for the services of a property management company to handle the niggling details that inevitably come up.
It may seem like an unnecessary additional expense, but changing the locks on any doors accessible from the outside is imperative. You can’t have a situation in which former tenants are just waltzing into your new lessees’ place.
At the very least, clean the unit, make sure necessary repairs have been made, and check the working condition of the heating, cooling, water, plumbing, electricity, etc. Be aware that in some areas, local laws stipulate that an inspection is required before a unit can be rented. Check with a local legal professional who specialized in real estate issues to know your responsibilities in this area. Make sure to also ask about local requirements for smoke and carbon monoxide detectors.
You may think your unit is worth $1,500 per month, but if the local market doesn’t support that, you are going to lose a significant amount of money waiting for your dream renter. Take the time to research what similar places are going for in the area. By pricing your unit competitively, you stand a better chance of getting the right people to start renting quickly. Remember to gather information not only on monthly rent, but also deposits.
The best way to find options for advertising your unit is to put yourself in the shoes of your potential tenants. By using the internet like you’re looking for a place, you’ll find local agencies that will come up first in internet search results. Craigslist is one example of an easy-to-use and popular way to list and rent out apartments.
To further protect yourself and avoid misunderstandings, use a move-in checklist with your tenants before you hand over the keys. This should include a detailed description of the condition of the unit and should be reviewed with the tenants point-by-point. At the end, have the tenants sign and date the checklist. This is also a good time to review the particulars of the lease with the tenants before having them sign it too.
No money, no keys
You may enter into your time as a landlady or landlord with visions of being the “nice” or “flexible” lessor, but there are some areas where you need to follow the rules pretty closely. Always collect first month’s rent and deposit BEFORE your tenants move in. That way, you save yourself from some potentially major headaches.
If it’s your first time renting out a place, you’re better off erring on the side of caution and over-preparing. As time goes by, you can whittle down some tasks, but in the beginning your best bet is to cover all the bases.