There is no method of wealth-building that’s more proven or historically successful than real estate. And in terms of accessibility, buying rental properties is the most feasible option for everyday folks.
However, that isn’t to say that owning rental properties doesn’t come without risk. There are certainly challenges and issues that must be dealt with in order to increase your likelihood of success.
In this article, we’ll explore a few practices, tips, and techniques that can help insulate you from these risk factors.
8 Ways to Lower Your Risk & Find Success
It’s impossible to totally eliminate all risk factors related to owning and renting real estate. Anytime there’s money, law, regulations, and people involved, there’s the potential that something could go wrong. But if you do the following, you won’t have to lay awake at night with worry and anxiety.
1. Have a Team of Professionals on Your Side
As a landlord, it can be difficult to handle all aspects of owning a rental property on your own. Having a team of professionals, like a property management company, accountant, lawyer, and contractor can help you protect yourself from all angles.
When partnering with a property manager, try to use a company that’s local to the area and has a good reputation over a period of several years (or decades, preferably). Your property manager is the primary connection point between you and your tenants – make sure you’re well represented.
2. Conduct Thorough Tenant Screening
One of the biggest risks when owning a rental property is having tenants who are not responsible or do not pay their rent on time. Conducting thorough tenant screening helps reduce this risk by ensuring that you are renting to responsible and financially stable tenants. This includes running background checks, credit checks, and references. Furthermore, it’s important to check for red flags like previous evictions and criminal records.
3. Have a Written Lease Agreement
Having a written lease agreement is essential for reducing risk as it lays out the expectations and rights of both the landlord and the tenant. It should include information such as the rental amount, due date, and late fees, as well as the responsibilities of both parties. It should also include terms like the notice periods for move-in and move-out and the rules and regulations of the property. Written lease agreements can protect you legally in case of a dispute.
4. Maintain Accurate Financial Records
Keeping accurate financial records of your rental income and expenses can help you stay on top of your finances and reduce the risk of financial mismanagement. By keeping track of your income and expenses, you ensure you’re making a profit and identifying any potential problems early on. It’s also important to ensure that your taxes are filed on time and accurately to avoid any potential legal issues.
5. Have Adequate Insurance Coverage
Owning a rental property comes with its own set of risks, and it’s important to have the proper insurance coverage to protect yourself from these potential issues. This includes liability insurance to protect you from claims made by tenants or visitors, as well as insurance to cover any damage to the property or loss of rental income due to natural disasters.
(Note: When purchasing insurance, always review the policy regularly, as the coverage might change over time.)
6. Properly Maintain the Property
Regularly maintaining the property is essential for reducing risk, as it helps to keep the property in good condition and reduces the likelihood of costly repairs or legal disputes. This includes tasks like fixing leaks, maintaining appliances, and keeping the property clean and safe.
Regular safety checks are also crucial, as is following the necessary codes and regulations. By keeping the property well-maintained, you can attract better tenants and reduce the risk of legal disputes or accidents.
7. Be Aware of Local Laws and Regulations
Being aware of local laws and regulations can help you reduce the risk of legal disputes with tenants or other parties. This includes laws related to fair housing, rent control, and eviction procedures. It’s important to be aware of and abide by these laws and regulations to ensure that you are operating your rental property legally and ethically.
It’s one thing to Google some laws and interpret what they mean. But if you want to fully protect yourself, it’s a smart idea to hire a lawyer or a property management company for additional guidance.
8. Plan for Vacancy
Vacancy is another risk that landlords face, and having a plan in place can help mitigate this risk. This includes having a plan for marketing your property to potential tenants, as well as having reserves set aside to cover the mortgage and other expenses in case of a vacancy.
As a general rule of thumb, plan for at least one month of vacancy per year. If you bake this into your operating costs, you won’t have to stress over short-term vacancies and turnover.
Are Rental Properties Right for You?
At the end of the day, you have to ask yourself whether or not owning rental properties is the right fit for you. This means looking beyond the financials and thinking about how it aligns with your lifestyle, goals, and vision for where you want to be in the future. If it is – and if you choose to follow the guidance outlined above – this could be a great option for you and your family!