Rental income investing is great when done properly. It’s lucrative. More millionaires have been made from real estate investing than any other field.
It’s also fun to focus on what investors get out of the deal. There’s a check in the mail, the property appreciates, and someone else pays down your mortgage. There are a lot of great benefits. But, keep in mind that as you are renting out this property, you’re entering into a contract. You need to be prepared to be a landlord.
I was an investor long before I became a property manager for other people. Good judgment comes from experience, but experience unfortunately comes from bad judgment. There are mistakes to be made. If you’re wise, you’ll do your research and learn from the mistakes of people like me so you don’t have to make them yourself.
Today, we’re talking about the three main categories and responsibilities of being a landlord: maintenance, accounting, and compliance.
Landlord Responsibilities: Maintenance
Maintenance is the most obvious and requires the most work. It’s not just paying for things to be fixed. You need licensed vendors who are ready to go. Working with unlicensed vendors can result in a lawsuit, especially if there are injuries or the work isn’t done well. If repair work is not up to code and something happens at the property, your insurance may not cover your claim.
Screen your vendors, and make sure you have a way the tenants can contact you. Tenants will expect more from your property than you would if you were living there. You might look at a minor maintenance need and decide to put it off until next year. Maybe there’s a high light bulb in your closet that burned out and it just doesn’t feel important to you. Tenants will demand that it be taken care of. You need to be prepared to deal with all that. If you get a call in the middle of the night, be sure you have an all-night plumber, electrician, and handyman who can help.
Landlord Responsibilities: Accounting
Your accounting responsibilities go further than just collecting a check. You have to remember that rent is due. That may sound silly, but when I was managing my own property, I had another business, and I was working full time. Some months, I would forget that my tenants needed to pay rent. If they didn’t pay, it would be the 16th before I followed up. You can lose some authority trying to chase someone down when rent is two weeks late. This sounds obvious, but you won’t always remember. It is easy to not think about the property, especially if it’s not taking you a lot of time.
Be prepared for accounting requirements. Itemize your expenses, write down everything you spend on your property, and keep track of your income, including rent and late fees.
Landlord Responsibilities: Compliance
In the Bay area, we have strict rent control, and it’s changing almost daily. New cities are continually adding teeth to existing rent control laws. Make sure you know how it affects your property. For example, San Jose now caps late fees at five percent. Landlords must be up to date on these things. If you’re not, you’ll get into a lot of trouble.
This is not meant to scare you off. I’m a huge believer in rental properties and investing. This is a great way to invest money. Just be prepared and ready to deal with what will come from it.