Renting out property can be a lucrative venture, but it also opens up property owners to a host of vulnerabilities. Consider the following preventative measures to ensure your personal assets are kept safe regardless of what might come your way within your role as landlord.
Consider Property Management
Many landlords look to save money and handle the management of their own properties, but this can be a mistake for those looking to minimize liability. There are a host of ordinances and laws you’ll need to stay updated on, including local, state, and federal rules regarding the legalities of every facet of your “landlording” responsibilities. If that sounds like too heavy of a burden, it’s not a bad idea to consider property management. Skilled professionals will be versed on all the ins and outs, minimizing the risk of a consequential mistake.
Understanding Your Taxes
I wish I could say ignorance was an accepted excuse for the IRS, but unfortunately it’s not. Your duties as landlord extend into the confusing world of taxes, and without extensive knowledge of the ins and outs of tax filing in regards to property ownership and leasing, you’re setting yourself up for trouble. Make sure you’re versed in local, state, and federal tax laws regarding rentals. If you don’t think you’ve crossed all of your T’s and dotted all of your I’s, I highly recommend looking into hiring professional tax help, at least until you understand all the various facets that come along with your venture.
The Insurance Issues
Few things are as important when starting out on a rental property venture as securing the right insurance. The list of things that can go wrong is long, so it’s essential that you have the fullest coverage possible to protect yourself in case of emergency. Don’t settle on the cheapest insurance; most companies won’t offer coverage for disastrous events you might think would be included automatically, including floods, terrorist events, and other disasters. Spending a few hundred more throughout the year can save you thousands, so it’s a worthy investment. Many landlords are also encouraging or requiring their renters to purchase supplemental renter’s insurance for an added cushion of coverage.
A Steady Investment
A rental business doesn’t mean immediate profits; the only way to properly protect your investment is to continue to throw money into the gamut. From property taxes to utility bills, maintenance concerns to vacancies, a rental business can paradoxically serve as a money suck and great source of income simultaneously. Be prepared to part with a small fortune to make one in return.
Placing the Perfect Tenant
Everyone’s heard the outlandish stories, but nightmare tenants plague landlords with a host of stresses that can often turn into legal issues. Always be sure to perform detailed background checks with a company like MySmartMove. In this day and age, a good credit score doesn’t mean someone will be a great tenant, and a poor credit score doesn’t necessarily mean they’ll be a bad tenant. That’s why it’s important to use a service that will give you more information, like an eviction and criminal history. Leave no stone unturned when selecting a tenant. Skipping this step is a surefire way to open yourself up to legal issues, and courts usually side with tenants in case of rental property disputes—unfortunate, but true.
Separating Your Personal Assets
Instead of claiming the rental property or properties under their name, more and more landlords are choosing to file a separate LLC for their rentals. This is a good choice for several reasons. This legal step separates the remainder of your personal assets from your property, meaning if a suit were to occur, your personal belongings and personal home would be safe from legal action in most cases. Not only can you safeguard the rest of your assets, but you will also find filing as an LLC provides you with a host of tax benefits simply based on your property business’s title. Be aware that filing as an LLC doesn’t automatically protect you from all legal issues, and depending on where you live, might cost you a pretty penny.
While renting our personal property can seem like an easy source of income, be prepared for the liabilities that come along with this venture. Whether you’re about to purchase a property for rental purposes or you are a seasoned landlord, these tips and guidelines will help keep you and your family safe.
