An income property is a great way to grow your net worth. It’s also a valuable asset that, like any other, is exposed to a certain degree of risk. If your rental property isn’t properly protected, a disaster could destroy your personal finances. Here’s how to stop that from happening:
Insurance and financial security
There are things that you should do to reduce the risks that face your rental property, but there’s also something that you need to know: There’s no such thing as no risk. There will be a chance that your rental property fails financially, and there will always be a chance that a fire or flood it out. That’s why you need to do two things right away as a landlord: Set yourself up legally and get landlord insurance.
The first thing will require you to hire a lawyer. Make sure that your personal finances are as insulated as possible from any financial disasters that could befall your rental operation. You may want to set yourself up as an LLC, for instance (be sure to ask your lawyer for jurisdiction-specific advice).
As far as insurance goes, focus on the intersection of conservative coverage and cost-effective solutions. You’ll want to make sure that a fire or other disaster doesn’t bankrupt you. Be sure not to forget about liability coverage.
Proactive maintenance and improvements
Insurance will help you protect your finances even if something disastrous happens on your property, and it’s crucial because such disasters can be beyond your control. The degree to which your property is at risk of such disasters is not totally arbitrary. In fact, you can make big changes to your risk through the ways in which you care for your property.
Reducing the chances of things like burst pipes and fires means being proactive about maintenance and repair work on your rental property. Power systems can be fraught with danger in older structures, explain experts who offer electrical design services in vital commercial and industrial spaces. It’s important to bring in the pros and make sure that your property’s existing electrical system is not putting your property and its occupants at risk.
When it comes to important work like this, you get what you pay for. You want to make sure that what you get and pay for is quality work that makes your property safer and better protects you from financial fallout.
Your worst nightmare: Bad tenants
No matter how careful you are about setting up your property to succeed, you could still lose big by allowing the wrong tenant to move into your property.
When things are running smoothly, your tenants are your allies in keeping your income property in tip-top shape. When sinks leak or light switches stop working, you’ll get an email, call, or text from your tenant asking you to fix it. As a good landlord who understands their responsibilities, you’ll make the fix fast. In turn, this means that you’ll have professionals looking at the issue and addressing it before it can become a bigger and pricier problem.
But what if your tenants are neglectful and don’t notify you of issues with the apartment or house? What if they don’t even clean, and what if their habits allow small issues with the space to grow? Worse yet, what if your tenant is actively destructive and is throwing wild parties or committing crimes in the space?
The property itself will begin to suffer from all of the abuse. Getting tenants out of properties they occupy is never cheap or easy, and it can be particularly frustrating in states and municipalities with strong renter protections codified in their laws (things are slightly easier in states that favor landlords). Unfortunately, there’s not much of a way around this in most states: If you rent to the wrong tenant, you will lose a lot of money.
The best thing that you can do is avoid making such a mistake in the first place. Happily, modern landlord software makes this easy enough to do. You’ll be able to set up rental applications and perform tenant screening tasks right in your landlord software. While an empty property may not be making you any money, a property occupied by a bad tenant will cause you to lose money, and fast. Use landlord software and protect yourself and don’t be afraid to be picky.