The rental market is potentially profitable and satisfying. But not if you get caught up in a lawsuit or other legal problem. Avoiding these five pitfalls will help you enjoy your business instead of dreading going to work every day.
Please note that laws change from time to time and it is important to keep up with the times and current laws and regulations. But as of now, you can get right with these ideas.
Do not have your property in your own name. There are many other options besides opening yourself up to losing your own good credit and possibly being personally sued as well. Some options are using an LLC (Limited Liability Company) or a Land Trust. You can also place the LLC as a trustee of the Land Trust, which provides privacy, while the LLC, which acts as a trustee, provides personal protection against lawsuits and other misfortunes.
Never borrow with your own money. Again, there is no point in opening up your credit and putting yourself in personal debt and liability. Loans of private money from private investors leave you free from bank scrutiny and also from credit companies. Borrowing credit lines through your entities (LLC, companies and corporations, etc.) keeps you away from later problems. Seller financing, where the seller lends the money to you or your entity, is one of the best, as you can get very low interest and you can negotiate with the financier.
Always use a property manager or introduce yourself as a property manager (if you’re acting like one). You are NEVER the owner. This is to provide a barrier between you and the tenant for your legal protection and privacy. You are not the owner at that time, you are an employee of the entity that owns the property. You make decisions as a PROPERTY MANAGER, not as an owner.
Shop in neighborhoods that are in a rising market. Not shopping in an area with gangs, drugs and rampant crime is a given. But a neighborhood that looks perfect can still be a death trap for an investor (you) if the area’s market / economy is poor or falling. Do your research and make sure the area is improving and not degrading. Since one person can’t shore up an entire economy, you can’t shore up an entire neighborhood either.
In the words of Ronald Reagan, trust but verify. Check your tenants. It is okay if you are on good terms with your tenants, however you MUST check your credit. They might be the nicest people in the world, but if they don’t pay, they’re not good tenants. Feel free to evict them if they are not suitable for the house or its conditions. As cruel as it may sound, you are not a charity, you are a business, and you are not doing them or yourself any favors by going into debt.
You are not here to be your tenants’ best friend or to overpay and lose your business. You are here to make money, plain and simple. And that’s good, it’s the main goal of being in business and your responsibility to your employees and your family is to provide. So avoid these mistakes and enjoy the real benefits of working with rental properties!