Renting out a property is an excellent way to make a return on your capital. There are, however, many pitfalls that you’ll likely encounter along the way, each of them potentially disastrous.
People often say that the route to genuine wealth is through property, and there’s some truth to this. Property is at the foundation of a lot of wealth portfolios owned by the wealthiest people in the world. Getting into the market safely, though, is fraught with difficulty. Investors have to continually have their wits about them, knowing precisely who they should rent out to, as well as understanding the law. It’s not an easy game to play.
If you’re considering renting out your property, make sure that you imbibe the following. The more you know about the market, the safer you’ll be.
Hire Property Management Company
The reason property managers are so popular is the fact that they do all the work required to rent out a property on your behalf. They take care of sourcing clients, advertising, managing rental payments. They can even collect additional fees from clients independent of the rent that you charge.
Property managers are experts at what they do and can save you a tremendous amount of time. With them, you can say goodbye to waiting on the phone for clients to pick up or respond to emails. Tenants simply go to the property management company if they have a problem.
It’s not free, of course. Property management companies usually insist that you pay them around 10 to 15 percent of the total rent. But this still enables you to make a pretty good return while freeing up your time to focus on other, more lucrative opportunities.
Screen Your Tenants First
If you use a property management company, then they will have robust screening processes in place already. If you don’t use one and decide to go it alone, you’ll have to do it yourself. But how?
The easy way to confirm clients’ identities is to use a third-party provider: somebody who has the tools and know-how to check that people renting from you are who they say that they are.
In the modern world, identity theft is a real problem. People know that if they can take on the identity of somebody else, they can experience all kinds of benefits, like lower rates, better deals, and even the opportunity to commit fraud.
You don’t want to be a party to that. For that reason, you’ll want to screen every tenant you have before signing any contracts to make sure that they are who they say that they are, and they have the means to rent from you.
Your home insurance policy covers the building and contents while you live in the home. However, it doesn’t include those things when you rent your house out to somebody else. The reason for this is that renters are less likely to look after the building than you are, primarily because they don’t own it. Likewise, it’s not your responsibility to insure their contents. That’s their property.
As a landlord, you’ll need to buy landlord’s insurance to protect you against potential losses if tenants damage the structure itself. Following that, it’s the tenant’s responsibility to cover their belongings. Again, if you use a management company, it will take care of all that for you, so you don’t have to worry.
Understand The Law And Tax Implications
Governments and people, in general, don’t particularly like landlords. The reason for this is that landlords are seen as people who earn money for not doing much other than renting out their properties. Of course, that’s not the truth. Landlords are usually people who’ve worked hard, saved up, forgone consumption, and then plowed that money into a house. Doing that isn’t free.
With that said, regulators and tax authorities like to penalize landlords for carrying out their services. It’s essential, therefore, that you ensure that you comply with all the regulations and tax laws in your state. Again, this is where having a property manager, and a decent accountant can help. The property manager can take care of all of the issues regarding managing and maintaining the house, while the accountant and figure out how your income should be taxed and what you need to declare.
Renting out a property is by no means easy if you decide to do it yourself. If, however, you can make a good return, then you have the opportunity of beating the stock market and making an excellent secondary income for yourself.
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