And how you can avoid making the same mistakes!

If only we had the ability to see into the future and prepare for things we couldn’t anticipate under ordinary circumstances. But life doesn’t give us this loophole, and instead we have to do our best to roll with the punches and adapt to every situation.

There is a silver lining, of course. Experience offers wisdom, and those who are more experienced than we are often pass down the knowledge they have gained. So let’s learn from their mistakes!

Being a landlord is challenging, but it’s also incredibly rewarding (and not just in a monetary sense). To get started on the path to success, here are five things experienced landlords wish they’d done differently, and how you can learn from their mistakes:

1. ALWAYS Screen Your Tenants

Even if it’s a friend of a friend. This isn’t about mistrust; it’s about covering all your bases. If you had a friend who you knew never returned things they borrowed, how likely would you be to loan them something of yours? It’s the same concept, but in real estate the stakes are even higher. It’s an unfortunate truth, but you can’t rely on instinct alone or your belief in the goodness of others when you’re renting out your property. Instead, you have to look at the data and draw your conclusions from there. 

There are a few common practices when you’re screening tenants. These include:

• Using a Good Rental Application Form
• Asking about employment both past and current
• Verifying income
• Looking at previous rental experience
• Inquiring about evictions and/or late rent payments
• Running a background and credit check
• Optional: contact previous landlord(s) and employer(s)

Not every landlord will feel the need to go through all of these points, but if you want to have the most informed picture of your tenants and any possible hiccups that could occur down the road, each one is necessary. It might be more work in the beginning, but if you find out something that you only would have known through a thorough screening process, you’ll save yourself a lot of headache and expense in the future. 
If you’re not sure where to start with tenant screening, visit our tenant screening partner Avail here.

2. Make Sure You’re Prepared for Vacancies

As optimistic as you might feel, you should always be prepared to have vacancies. When you’re first renting out your property you’ll have a vacancy period of course, but many more can happen and they’re not always planned out. Unexpected move-outs, little to no notice, and evictions can all lead to longer periods of vacancy that you aren’t ready to deal with. 

Unless, of course, you prepare beforehand.

During a vacancy, not only will you not have rental income, you will also be responsible for utilities and upkeep if you weren’t already. See if you can find out the average vacancy rate for your area to get an idea of the potential yearly cost. This is part of budgeting for a rental property; if you can’t afford vacancies, this form of investment might be too high risk. 

To prepare for vacancies, set aside a separate savings account that acts as your emergency fund specifically for rental-related issues. You should already have this for general repairs and such, but keep enough in there for at least a three month vacancy. 

You can also look at things you’re doing that might extend the vacancy period, such as not including adequate pictures in online listings or charging too much. It’s all well and good to hold out for the right tenants, but if you’re charging way more than other landlords in your area, you’ll end up losing more than you could potentially make.

3. Read the Fine Print, Even if You Wrote the Rental Agreement

No matter what type of contract you’re signing, ALWAYS read the fine print. There is almost a 100% guarantee that something in there could come back to bite you. This applies to rental agreements as well, even if you’re the one who drew it up. If you have an issue with a tenant and they exploit a loophole you didn’t realize was there, you’re going to wish you had paid more attention. 

This is especially common when you find a template online to create your rental agreement from. Depending on the source, there might be a lot of legal jargon that you’re not sure you understand, or provisions you think will never be applicable to your situation. If you’re not sure what it means, do not include it. 

Reading the fine print also has an opposite point you should consider too; don’t let your agreement be too sparse. A one page rental agreement that says, “You’ll use this property and in exchange you’ll pay me this much in rent” is not a well thought-out document. At the very least, your rental agreement should cover:

• The agreed upon rental amount
• Late fees and on which date the fees will be applied
• Total move-in costs and how much of that is refundable
• Conditions for which the refund is applicable (what kind of damage will result in deposits being withheld, how the value will be assessed, etc.)
• A severability clause
• Rules regarding pets
• Rules regarding visitors and overnight guests

There are so many more important points to include, so do your research. We have an entire article devoted to lease agreements that you can check out for more information.

4. Don’t Rule Out a Property Manager

To make the most profit, you will probably decide against a property manager or property management company, at least early on. Many new landlords go into the process confident that they can handle a single rental property with ease, but sometimes it can turn into more of a day job than a side project. When this happens, don’t dig your heels in and refuse to even consider a property manager. 

There are factors to consider when deciding if one is actually necessary or just a convenience, and everyone will come to a different conclusion based on their situation. You might not mind a little stress and have more free time than other landlords to devote to your rental(s). Or, you might be a mess of anxiety and nerves desperately wishing you had never entered into real estate. 

If you fall into the latter category, a property manager might be exactly what you need to make real estate fun again. You will have to meet with a few property managers to find the right fit, and you want to ensure that the people you choose will represent you well and take care of your tenants just as you would. Many potential renters shy away from homes that are managed by companies because there are so many nightmare stories out there. If you choose the right company, however, you can potentially keep tenants for longer because their problems will be dealt with right away. 

So, if it can save you time, money, and mental health, a property manager can be a smart choice.

5. Rentals Are Businesses

There are a lot of activities that make good hobbies: reading, knitting, making model airplanes, etc. Owning rental properties is not one of those activities. If you want a side project that doesn’t take up much time and never leads to surprises, real estate is not the game you want to be in. When you commit to becoming a landlord, you’re essentially starting a business. 

This means you need to be keeping track of profit and loss, evaluating to determine how you can increase profit, and managing your customer service end (whether you’re customer service or a property manager is). If you treat it as a hobby, you will quickly be overwhelmed by all the details and could potentially lose a lot of money if you don’t work to find and keep tenants. Sure, you’ve probably heard stories about landlords who put in 10 or so hours upfront to get their property ready and find good tenants, then after that it was pretty much hands off other than minor repairs. These are the lucky cases, and they’re not all that common. 

As a landlord, you’re in charge of three areas: tenants, the property, and your finances. Each of these pieces can take up a lot of your attention, but they require balance. Don’t focus so much on finances that you lose tenants due to ridiculous costs, and don’t try so hard to please your tenants that your finances take a hit. Decide how much to put into each area to maximize benefits in all three, and you’ll have a successful business that brings in the money for years to come.

You can also take advantage of Online Property Management Software tools such as Landlord Studio, which helps you keep track of finances, set reminders for specific properties, and even screen tenants. 
Entering into the real estate realm is like stepping into a foreign country without a guidebook. You don’t know where to go, and you probably don’t even speak the language. In both cases, others are your greatest resource. By listening to advice and following the tips of those that are more experienced, you can continue on, confident that what you seek is right around the corner.

The post Top 5 Things Experienced Landlords Wish They’d Done Differently appeared first on Landlord Guidance.

Making the decision to put your property up for rent is nerve-wracking and exciting. While visions of dollar bills might be dancing in your head, the reality is that you have some work to put in before you can begin to think about profits.

You might think that you can simply snap a few photos and put your listing on a real estate site, but going this route skips so many important steps that will come back to haunt you later on.

Every piece of property, whether for sale or for rent, needs to be prepared before it hits the market. Some landlords call this a “Make Ready.” Not only will it ensure you cover all your bases to keep yourself, as the landlord, protected, you’ll also have an opportunity to increase your revenue by attracting the right tenants.

Here’s a look at the steps you need to take to get your property ready to rent out and start your journey as a landlord on the right foot.

Do a Walkthrough

Before you do anything else, walk around your entire property, inside and out, and try to see it through the eyes of a potential tenant. What features might they love, and what can they do without? Are there any safety hazards to consider, or areas that might not be suitable for children? Also make note of anything you might want to take out, such as furniture or equipment. If you wouldn’t want someone using it or breaking it, it should go elsewhere.

Use the walkthrough as an opportunity to write down repairs and things that need to be cleaned. Examine everything, from bathroom light bulbs to the stove and even heating/cooling systems. Everything should be in working order when your tenants move in. Also be sure to keep in mind legalities and things that you’re obligated to include, such as smoke and carbon monoxide detectors.

You can find information on your state’s specific requirements in this area here. The walkthrough gives you a chance to mentally prepare and visualize all that you need to do, so take your time and be thorough.

Make All Repairs, Major and Minor

After your walkthrough, take your list of repairs and get to it. Don’t overlook anything, because your tenants won’t. It might seem obvious that the washer and dryer will need to be in working order, but you might not realize that a leaky faucet or broken window screen can affect quality of living and thus the happiness of your tenants.

Think about how you would feel moving into a rental in such a condition. This not only comes down to tenant happiness, but also general home maintenance. Never forget that you own this property. It is yours to take care of, and every repair you make is a preventative measure.

Some things to ensure you check and repair if necessary include:

• All appliances, including the washer and dryer, stove, dishwasher, garbage disposal, etc.
• Light bulbs in every room as well as outdoor lights
• Leaky faucets
• Poorly draining showers
• Broken cabinets and doors
• Torn window screens
• Walkway trip hazards

Clean, Clean, and then Clean Again

Most rental agreements include a provision stating that the dwelling must be left in the condition it was found. This means that if you let your tenants move into a pigsty, they are under no obligation to leave it in any better shape.

If you want to make a good impression, attract quality tenants, and be left with little to no mess when someone moves out, you need to invest the time and/or money to thoroughly clean it. You can either take the time to do this yourself or hire professional cleaners.

If your rental has carpets, definitely get them deep cleaned, particularly if someone else lived in it recently. This is not only an aesthetics factor, but a health and safety one as well. If your future tenants have young children who are crawling all over the floor, they’ll feel at ease knowing it has been cleaned.

If you’re taking care of the cleaning on your own, don’t neglect the hidden corners and hard-to-reach places such as:

• The tops of fans
• Inside kitchen and bathroom drawers
• Underneath the sink
• In the corners of closets

All of these places can attract dust, mold, and all forms of debris. Speaking of mold, if you encounter any, it absolutely must be cleaned as it is a safety hazard. Black mold in particular is dangerous, so contact a professional if you feel the issue is beyond your control (if you’re not sure how to identify black mold, check out this resource). Mold can be a sign of water damage and leaks as well, and those types of repairs should not be put off.

Curb Appeal Applies to Rentals, Too

The inside has been repaired, cleaned, and is now ready to be rented out. Right? Not just yet! Many landlords fail to take into account a very important concept in all real estate deals: curb appeal.

Your tenants might not be the owners, but that doesn’t mean they won’t take pride in where they live. If the property looks run-down, outdated, or unsafe, prospective tenants will be less likely to bother viewing the interior because they will expect the same level of neglect.

In addition, a property that doesn’t look like it has been well taken care of can indicate to a tenant that the landlord is lax about repairs and maintenance, and no one wants to land in that kind of rental situation.

You don’t have to do a full-on remodel, but at the very least get the exterior cleaned or slap on a fresh coat of paint, spruce up the landscaping, add in a fence if you’re on a busy street, and make the house look and feel welcoming.

Make Sure You Keep Your Lender and Insurance Informed

The final step before you start looking for tenants is ensuring you’ve followed all the procedures required by your mortgage lender and your insurance company. There may be information in your mortgage contract about rental properties, so check there first if you’re unsure. In any case, you may need to notify your lender in case they have stipulations regarding renting out a property you still owe on. You definitely don’t want to be dealing with lender issues after you’ve found the perfect tenants.

After you’ve gotten approval from your lender (if necessary), you absolutely must look into insurance options. Being a landlord comes with a lot of risk and responsibility, and the proper insurance can help offset the cost of any mishaps.

Landlord insurance is similar to your typical homeowners insurance and will cover things like fires and hailstorms. However, it also protects against landlord-specific situations such as loss of rental income and increased injury liability. These are things that would not be covered under your ordinary homeowners insurance policy. For more information on landlord insurance, talk to your current insurance provider or take a look here.

At the end of the day, preparing your property for rent is all about seeing things from the perspective of a tenant. Everything you do has the goal of attracting the right tenant and/or keeping them living in your property for the foreseeable future.

It might cost you some money upfront to prepare, and it’ll definitely take some time, but once you find a quality, long-term tenant, you won’t regret it one little bit.

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The short answer is “YES” because it protects you.

I have all my rental properties grouped into a few different LLC’s. I’ll elaborate on the reasons below, but if you own a rental property and want to protect your personal assets, starting an LLC is definitely something you should do. I recommend using Swyft Filings to incorporate your LLC. It is vastly less expensive than using an attorney, and they will handle everything for you.

Asset Protection

The top reason to put your rental properties into an LLC is to protect your other assets.

Let’s look at an example. Your tenant trips and falls down the stairs suffering a serious injury. They hire a lawyer and decide to sue you. If your rental property is in your own name, they will be suing you personally, going after your personal assets, savings, etc. You are not protected.

Now lets say a year ago you were smart and had started and LLC called “ABC LLC.” You had deeded your rental property (learn about this here) into the LLC. The lease signed with the tenant names the Landlord as ABC LLC, not you. So the same tenant falls down the stairs and decides to sue. They will now only be able to sue ABC LLC. If they win, the most they could take from you would be the assets owned by the LLC (the house). They could not go after your personal savings, investments, or get a judgment against you personally. So the small cost of starting an LLC literally saved you from financial ruin.

Remaining Somewhat Anonymous

Where I live in Texas, if someone wants to snoop on someone else, they go to the County appraisal district website and type in that person’s name. If that person owns real estate in their own name, you can see all their properties and the value of those properties. Do you really want the world to easily access how many properties you own and the value of them? I’d rather have people think I’m broke. Imagine if a lawyer is trying to decide whether or not to sue you. He may do a quick search there to see if you own real estate he can go after. It’s better if he finds nothing. Keep in mind that nothing is totally anonymous because if someone digs deep enough they could still figure out the owner of the LLC.

Tax Reasons

This will depend on each person’s individual situation, but generally there will be some kind of tax advantages you can find. Some examples that could apply to you would be avoiding double taxation (pass through taxation), reducing self employment taxes, and other allowable write-offs. My tax guy had me do the “Subchapter-S election” (makes the LLC be taxed as an S-corp) so any profit from my LLC just passes thru and shows up on my personal return.

What are  The Steps to Put Your Rental in an LLC?

It’s really quite simple. Here are the steps:

1. Pick a name (Fun Part)

Use a service like Swyft Filings to find a name that nobody else is using. Swyft Filings even offers a Free Corporate Name Search. You really should have fun with this, but also pick something that sounds professional. Many people pick a random word (maybe “pencil”) the word “properties,” so for example “Pencil Properties, LLC” would be the business name. I like to browse through thousands of names of paint colors to get ideas for LLC names. Once you nail down the name, follow the directions and order the LLC. All the paperwork you need will be sent to you.

2. Take it to the Bank

Once you get the LLC Paperwork, take it to your bank and open a business bank account. This is important. If you are ever sued, you need to show that you kept the LLC finances separate from your personal finances. So from now on, when you collect rent, it goes into the business account. When you pay mortgages or other expenses, do it from the business account. Keep your rental business separate from your personal finances. Of course when the money builds up in your business account, you will transfer it to your personal account (that’s the reason we do all this work, right).

3. Put the Property into the LLC

Now it’s time to protect yourself! Simply create a quitclaim deed that “deeds” or transfers the ownership of the property from your own name to the LLC. The deed will list you as the “Grantor” and the LLC as the “Grantee.” This deed then must be filed in your county records (you can do this by mail). This part is easier than it sounds- you can do this. To create a simple quitclaim deed, check out this eForms Quitclaim Deed Form. Then go to the website of your County Clerk and look for instructions on how to “record” or file a deed. There is usually a small filing fee.

4. Changes future Leases

So now you own an LLC and the LLC owns the rental property. Therefore the Landlord is now the LLC. So when you sign a lease with a tenant, on the lease the Landlord should be “ABC LLC,” NOT you. So if a tenant ever wants to sue over something, and goes to visit an attorney with this lease, the attorney will see that he needs to sue ABC LLC (let’s still hope your LLC never gets sued!).

In conclusion, putting your rental properties in an LLC protects you and helps you in many ways.

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