The idea behind owning rental property is to have good tenants provide you with cash flow every month. Even though this is how the process should work, it doesn’t always happen that way. There are many instances where a landlord will blame their tenants for not paying or leaving them high and dry, but in reality, they have nobody to blame but themselves. The most important thing for any landlord is to be protected at all times. This starts with the lease and continues through the move-in stage and ends when they move out. A lot can happen during the nine months of a lease. If you are not protected you can quickly run into trouble.
The most important layer of protection you have is your lease. Even though this is universally known, there are still many landlords that will spend little to no time reading their lease and reviewing it with their tenants. You should not get your lease from a template you see at a supply store. Each lease should be custom to your specific property and your specific desires for the property. A property you rent to mostly college students may not have the same language as a property you rent in a different part of town. You want protection and clauses for damage and other preventative measures for college students. You probably don’t need to have an attorney mock up a new lease, but you also shouldn’t use a lease you can download for free online either.
Once you have a lease that you feel comfortable with, you need to go over it with your tenants. On the simplest level, you have to have the lease signed as soon as you are ready to commit to rent to them. This sounds basic enough, but conflicting schedules one weekend can lead to the next week which can lead to them signing it after they move in. The lease is your legal protection from eviction and early termination. It may not prevent them from leaving on a dime, but if they do you can go after them with your lease. If your lease is not signed, you may not have a leg to stand on. Your tenant cannot move in unless the lease is signed, under no exceptions.
In addition to a signed lease, you have some financial protection from the security deposit received. You can get a perfect tenant who demonstrates great personality, but if they don’t have the full security when it is time to sign the lease you should look elsewhere. This is not a case of you being greedy or not having a heart, but rather looking out for the best interest of your real estate business. It is one thing not to have a signed lease, but not to have full security leaves you financially vulnerable if a tenant moves out. This security also acts as a deterrent not to damage your property. If you think that you can hand over a receipt on move out day for the damage and expect to get compensated, you are not being very realistic. Accidents will always happen with rental properties, but as a rule of thumb the higher the security the less chance of a tenant suddenly leaving or ruining your property.
Sometimes a lease and security is not enough to settle a dispute. It is important that you verify and note the condition of the property when they move in and out. If it comes down to your word vs. theirs in a damage dispute, you can have a difficult time proving your case. This can be alleviated by supplying pictures or email receipts acknowledging the condition. When your tenant moves in you should take pictures of every room in the house and email them over to your tenant. This may take more time moving in, but you will know you are protected at the end of the lease.
Your last layer of protection is insurance. Insurance coverage for rental properties can be difficult to obtain and is usually more expensive than owner occupied properties. Spending a few extra bucks a month for the proper coverage is worth it in the event of an accident at your property. Nobody ever thinks issues will happen on their properties, but the reality is that they happen more than we may think. Between weather related issues and accidents with tenants, you can expect your insurance to be used every year or so. In addition, you can utilize warranties that protect your appliances and other items in your property. It is important to tell your tenants that they will need their own specific rental insurance, but it is up to them whether they want it or not. You should stay updated on your insurance policies and warranties and if you need to spend money to upgrade them they will be worth it in times of need.
You need to treat your rental properties like the investment they are and protect them at all times. The minute you let your guard down is when problems usually happen. Between your lease, security and insurance, you are fairly well protected, but this protection is only good if you take advantage of it. All it takes is one unsigned lease, one reduced security deposit or one lapse in your insurance to cripple your business.