In today's economy, it is smart to invest in properties and rent them to tenants. With high foreclosures and home loans becoming hard to come by; many people are turning to rental places to live. While owning rental properties can produce good profits for you, one should protect themselves from risks that could hurt their profits.
For tax purposes, landlords should find and keep in good contact with a trusted real estate lawyer. The lawyer can walk you through the best way to form your company, which will help when filing profits and losses on tax forms. One of the most popular ways to form a company is to create a LLC. With this, you will have limited liability protection and will be able to use a 1040 for your profits and losses. A real estate lawyer can also help you draft your leases that you will have your tenants sign. You want your lease to protect you from damages and theft that a tenant could perform. A good lease will also protect you from unpaid rent and abandonment.
Joining a local Landlord Association is a another great tip. There you can meet other landlords in your area and learn from their experience. They can also give you tips on leases, laws and regulations. Local landlords can help you connect with good lawyers and inspectors in your area.
Doing credit checks on prospective tenants is incredibly important. Many landlords will often rush to fill a vacancy, the tenant may destroy or abandon the unit with non-payment. This leaves the landlord in a deficit. You will want to check to see if the tenant is able to pay bills on time and has enough income to pay the rent. Credit checks will also show if the potential tenant has been evicted before or if he owes another landlord past due rent. Check your local city and state laws; some areas will not allow convicted child molesters live in your unit or may require you to inform the local authorities of your tenant’s status.
As with most rental properties you are responsible for upkeep and repair of your unit. This could range from roofing to appliances. The best rule of thumb is to do maintenance of your unit often; this could help you avoid costly repairs in the future. Many landlords will also hire inspectors to inspect units before they buy as well as continuing inspections annually. Good inspectors should be able to tell you what repairs are needed currently as well as what repairs you may expect in the future for upkeep. Most landlords will set aside an emergency fund in case you do find you need to do costly repairs. One should set aside about twenty percent of profits annually into an emergency fund.
You will also need insurance to cover your rental properties. Talk to your real estate lawyer, banker and other landlords in the area to see which coverage is best for you. Insurance will not only help protect your investments; in many areas it is required to extended a percentage of insurance for your tenants.
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