Being a landlord can mean extra freedoms in your career and higher profits. It’s a great investment to make for your future as long as you buy property in a good market and keep units filled.
However, the job is not without its risks. Some landlords worry that they’ve made a mistake with their rental.
“On the surface, it seems likes like a surefire bet,” Lisa Smith of Investopedia says in an article. “In reality, it’s usually more headache than it’s worth. The challenges start early, and they almost always involve time and money.”
Smith is vocalizing concerns that many landlords experience. However, she points out that with the right plan and careful risk mitigation, most landlords discover that owning and operating a rental property is an excellent investment.
Preparing yourself for this plunge starts with understanding some of the key risks you face. Consider these three:
1. Tenants Who Cause Problems
Not all tenants will be angels. Some won’t pay the rent on time and others will miss rent payments altogether. Bad tenants can cause other problems like breaking the lease agreement, damaging the property, causing noise problems, and participating in illegal activities, which gives your property a bad reputation.
In most of these scenarios, you’ll face significant financial losses. This is the moment when you feel like being a landlord is “more headache than it’s worth.” However, if you know how to prevent bad tenants from moving into your property, you’ll be in much better shape.
It all starts with a good rental application and adequate screening. You can use an online rental application and tenant screening report free of charge to help you weed through the tenants that will cause the most problem. Screening reports check their credit and rental history to determine whether or not they’ll be a good tenant for you. A good screening report prevents serious profit loss.
2. Personal Injury Lawsuits
If you have not done your due diligence to prevent hazards that can cause personal injury, you might be facing a personal injury lawsuit. The contract that your tenant signed (along with the law) states that you have a responsibility to make the property habitable. This includes removing hazardous materials or safety issues that could result in an injury.
If you fail to do your due diligence and a tenant or their guest is injured as result, they have every right to hire a personal injury attorney to sue you for compensation of medical bills and pain and suffering.
Try to remove potential hazards such as debris in your yard, heaving cracks in the sidewalk, or dead trees that could fall. Swimming pools, tree houses, play structures, wood-burning fireplaces, and other potential hazards should also be taken care of to minimize the potential for injury.
3. Costly Maintenance and Repairs
A major threat to your profits is the cost of maintenance and repairs to your property. Most real estate will eventually need repairs, and maintenance is essential to keep the property habitable and hazard-free. However, if you’re not careful, these can eat into your profits.
First and foremost, look for a property that’s already in good repair before purchasing. Make updates before the tenant moves in to avoid costly disasters down the road. For example, if you repair the roof right away, you’ll avoid water damage inside the home after a nasty rain storm.
Additionally, keep a list of repair contractors on hand in case of an emergency. A good commercial HVAC contractor, for example, can save you big in the long run if you call them right away to make repairs to a heating system. Their prompt service will prevent bigger disasters like frozen pipes.
Keep up with all maintenance regularly. If the home is in good repair and the yard is well-manicured, it will significantly reduce your risks of loss.