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6 Tips for Managing Your First Rental Property

If you want to invest in a rental property, it’s not enough to buy a house and stick a “For Rent” sign out front. A lot can go wrong when you’re renting an investment property — and when it does, it’s expensive. Before making your first real estate investment, use these tips from the Berkshire Hathaway Realianty Group to learn how to manage your rental profitably.

Don’t Over-Invest

Spending too much on your rental property could make it a few years before you see a profit, if you ever do. While it’s tempting to buy a rental in a hot location, skip negotiating a better price to expedite the purchase process, and furnish it with all the best amenities, you need to balance market appeal with market price. Renters may not be willing to pay the higher price necessary to recoup costs on an expensive unit. Look at average rental prices and compare them with home prices and median incomes in the same neighborhood to estimate a unit’s gross revenue.

Know Your ROI

House payments are just the start of your costs as a property owner. You’re also responsible for property taxes, landlord insurance, maintenance and repairs, property management fees, and other costs of operating a rental. There may also be times when your property is vacant. Factor all of these costs when calculating the return on investment of any rental property.

Screen Tenants Thoroughly

Nothing ruins rental profits faster than bad tenants. Whether it’s unpaid rent, legal fees, or property damage, bad tenants are expensive. Performing background checks on prospective tenants, on the other hand, costs less than $50. In addition to a background check, screen tenants by calling previous landlords to learn their rental history. To verify income, ask renters for a copy of a recent pay stub. While it’s possible to contact employers for references, they can only tell you whether or not a tenant is an employee, not what the employee earns.

Invest in Home Security

While bad tenants can bring crime to the property, even the best tenants in the world can’t prevent your home from being a target. Prevent property crime by investing in security. While you can’t install surveillance cameras inside a rental home, there are a variety of low-tech measures landlords can take to improve home security. Cacti near windows, for example, deter break-ins while motion-activated lights stop anyone from sneaking up in the dark. An alarm system is a worthy investment in areas prone to property crime, but keep in mind you’ll have to pay for monitoring in addition to installation, which runs about $675. Some landlords give renters the option to add monitoring costs to rent or self-monitor.

Decide if You’ll Allow Pets

The pros and cons of pet-friendly properties are a hot topic in the rental community. While allowing pets dramatically increases your tenant pool — 72 percent of renters own pets — many property owners fear pets will cause damage that’s expensive or impossible to repair. Rather than banning pets outright, consider allowing pets on a conditional basis. Pet owners with well-behaved pets make great long-term renters, but it’s important to ask for references and meet a pet before signing a contract.

Understand the Laws

Before you sign your first tenant, it’s important to familiarize yourself with landlord-tenant laws. Landlords have certain responsibilities to their renters, just like renters have certain responsibilities to their landlords. Once you understand the basics, meet with an attorney to compose a rental agreement.

Also on the legal side of things, you need to register your business with the state. Fortunately, this is easy when you partner with an online service. For instance, if you decide on an LLC — a popular choice thanks to LLC taxes in Florida being low, not to mention the flexibility and asset protection this structure provides — you can register in just 5 steps in the Sunshine State. You skip the hefty attorney fee and in just a couple of hours, you’re ready to accept renters.

Rental properties can be a great investment, but managing a rental is a business just like any other. And like other businesses, the mistakes you make as a landlord can be the difference between growing your income and losing money. Before jumping into the rental market, make sure you have a winning strategy for managing your investment profitably.

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