This guest post is written by Stephanie, who blogs at XennialBlogger.com. She writes about real estate, side hustles and life in general. Wealth is a long journey for the average individual, and that’s the perspective she takes on her blog. She also hustles as a virtual assistant, loves her Boston Terriers and is a nomad at heart.
7 Ways To Protect Your Rental Property Investment
Buying property is one of the biggest purchases you will ever make, and real estate investing is a hot topic right now. Rentals can be difficult for the strongest investor, never mind the cautious one! If you self-manage your properties, these tips are really key for keeping your investment profitable.
My personal experience of property management and owning rentals has given me insight into these tips. I hope they work for you too.
Note: these are written from a Canadian perspective. Some of these terms may be a bit different than what’s available in other countries. Check it out with your lawyer if you have any questions.
1. Create an Incorporated Company that Will Manage Your Property.
By creating an incorporated company, and designating it as your agent for property management, you allow some distance between yourself and the tenant. As a personal owner of a property, you are still liable for any lawsuits or escalated issues that come your way, but having an agent as a middle man can create privacy for you, and a little space between you and the tenant. If the tenant has an issue, they are dealing with a company, not you as a personal individual. It also creates a more professional image, and less like the tenant can take Joe the Landlord for a ride. (See: Does An LLC Really Protect You)
2. Do Your Due Diligence in Selecting Tenants.
I delve into this in much more detail in a post I wrote, but here are the salient points:
- Have an application for tenants to fill out
- Be observant: How are your potential tenants representing themselves? Are they presentable? Are they late? Do they have an odor of recreational activities?
- Listen and hear what they are saying. Read between the lines. Be aware of the drama creators, and steer clear.
- Ask questions. In Ontario, you must give 60 days’ notice to vacate a unit. If you are renting out a unit and the potential tenant is considering places with less than 60 days until moving in, you automatically know this was not a plan that was executed with precision. I have always wondered why tenants would give notice at one place and wait 30 days to find another, and there’s usually a tall tale behind that. (Sometimes it’s because of work, moving to another area, or simply the circumstances, but the majority of the time it’s an eviction or midnight move that they are contemplating.)
- Ask for references. Speaking to a reference is not as necessary as seeing the quality of the references. If they can only come up with mom and best friend, that is completely different than an employer and previous landlord. Also, keep these reference contacts – it’s also a great incentive to pay rent when you have their employer or mother’s number on hand!
3. Have a Properly Executed Lease.
Some areas have started to mandate specific leases as part of the rental process. If you do not know about the mandatory lease rules, you could find yourself in a position where your tenant is not obligated to pay rent until the correct lease is provided. (See Ontario for that one!)
Further, make sure your tenant has a copy of the lease, and spell out exactly what they are responsible for. If they must have utilities in their name, make sure it says exactly that.
4. Make Sure You are up to Date on Legislation and Bylaws in Your Area Concerning Rentals
Be aware that some tenants can smell a dirty plan. If you are a slumlord who doesn’t have a license for rentals or don’t know the rules of renting (ie: giving notice before entering a unit), you have given your tenant a loophole for not paying rent or causing you much grief. Remember that you are responsible for their home, not just to receive their money.
Again, in Ontario, the property owner is ultimately responsible for water bills, lawn maintenance, and snow removal. Your area may be the same. Even if your tenant promises to cut the grass and shovel snow, you could be responsible for the fines from the city bylaw department if the tenant fails to follow through.
5. Property Maintenance
Go beyond the obvious. Cutting the grass and removing snow is not enough. Examine the furnace annually. Have someone do a walkthrough of the home to look for maintenance issues and repair opportunities. This is also a great time to ensure your tenants are caring for the property. Usually, tenants will clean the home before an agent does a walkthrough. If you walk through the property and it’s a sty, you know there’s going to be issues when they move out. You can plan to set aside a repair fund now or take action to have the tenants evicted if it’s out of control.
Additionally, by keeping up the exterior of the property, your neighbors will appreciate your efforts. Traditionally, rentals are low maintenance exteriors – no flower gardens, no trees, just plain house, and grass. If you take a few moments to ensure there’s no graffiti or garbage, plant a tree, and show concern for your property, you may find that your tenants have interest in keeping up the efforts to have a nice looking home. At the very least, you do not want to be the house bringing down property values – no good can come from being that property owner!
6. Pay Your Property Taxes
There are times that we all get strapped for cash, or forget a bill. Property taxes are one bill you do not want to forget. Imagine your tenants receiving a notice from the city citing that taxes are late and they are considering foreclosure! Granted, that’s not over just one bill, but it doesn’t take much for unpaid taxes to snowball and become a big issue. Plus, your mortgage company could decide to call the mortgage loan if your taxes remain unpaid.
One more note: If your tenants are responsible for lawn care, and they do not cut the grass, you may think that they are the ones to live with it. Think again: if the municipality or city comes to your property and cuts it for you (which they will do if you do not), you can expect an additional fee to be added to your tax bill. Not just the $20 the kid down the street charges! I’ve seen charges at $300 – $400 for one visit.
7. Reach out to the Neighbors.
Provided that you have followed the previous tips, you are an upstanding citizen who is doing well enough to have rental properties (in the eyes of your neighbors). Reach out to them, knock on doors and introduce yourself. Give your neighbors your number, and tell them to call you if there are any concerns. It’s not about asking them to babysit your property. It’s about letting your neighbors know that you are responsible, and if there are any issues with your tenants, you will deal with it.
When good fences make good neighbors, good rentals can be just as effective!