The Benefits and Pitfalls of Being a Landlord
The uncertainty of the economy and the fluctuations in the stock market have many people looking at real estate as a good place to invest their money. Being a landlord offers financial benefits, but there are several issues to consider.
Many prospective landlords focus solely on the financial benefits of investing in real estate. The lingering effects of the recession and low interest rates mean property is still relatively inexpensive. Though the market is rebounding, the demand for rental properties remains strong. Purchasing a property and then renting it out for 20 percent more than the monthly mortgage provides some real financial gains for successful landlords.
While having a renter means money in your pocket, it can also mean headaches. As the landlord, you could receive a phone call when the toilet breaks at 1 a.m. or the neighbors are being too loud. You also risk financial liability if the property is damaged or the tenant disappears. Interactions with tenants could also expose you to any number of legal issues, such as discrimination. Even acts meant as a courtesy, such as offering a ground-floor apartment to a disabled tenant, could be grounds for a discrimination lawsuit, according to Janet Portman, author of Every Landlord’s Legal Guide.
Before you take on your first tenant, make sure you do the following:
- Know your state’s laws and follow them closely. Being a landlord is different in every state, and laws vary regarding issues like returned deposits or property/unit inspections. Learning your state’s laws ahead of time will protect you from potential future lawsuits.
- Verify everything. Never take something a tenant gives you as fact. Instead, investigate every document to ensure its accuracy.
- Put it in writing. All leases and rejection letters should be crafted as written documents in case they need to be referenced later. You should also keep paper records of any and all exchanges you’ve had with a tenant.
- Disclose everything. If something is broken, let the tenant know that immediately. Also let him or her know when you plan to fix it. It will start your relationship on the right foot and give you legal protection.
Next, learn how to find a good renter.