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Becoming an accidental landlord can occur through the inheritance of property, job relocation, market fluctuations, or financial obligations. The new role will bring you new responsibilities, risks, and opportunities, not to mention a lot of rental property knowledge to catch up on!
Understanding the basics of landlordship, including property management and local landlord-tenant laws, is crucial to establishing a successful business. Going in headfirst without the necessary knowledge can lead to a loss of income, or worse, a loss of property.
1. Knowing Essential Landlord-Tenant Laws
You need to be aware of the federal, state, and local laws governing the rental of a property. Some of the most common laws include Fair Housing regulations, which require you to respect tenant rights by not discriminating based on factors such as race, color, national origin, religion, sex, familial status, and disability.
Since many accidental landlords rarely have the opportunity to conduct thorough due diligence, hiring a property manager is a prudent move to ensure legal compliance. If not, you should at least consult legal professionals to protect your investment.
2. Analyze the Rental Market Trends
Analyzing the local market can help you make informed decisions about your rental property, such as identifying your target market and determining the most effective marketing strategies for your listing. This can be one of the most common challenges you may encounter, which is why new landlords often seek experts to handle the task.
Consider hiring a professional property management company to handle the research on your behalf. Many accidental landlords require significant assistance due to their unique situations, and investing a little can greatly enhance your property's profitability by establishing competitive rates.
3. Calculating Rental Income and Expenses
The primary advantage of converting your real estate into a rental property is the rental income; however, you must also account for the expenses associated with running a rental business. In addition to mortgage payments and property taxes, you also need to consider rental-related expenses.
That includes repair costs for property damage and maintenance costs for regular upkeep. Many landlords also acquire landlord insurance to protect their rental property. You need to ensure that you still have a positive cash flow after deducting all your necessary expenses.
4. Preparing Your Rental Property
Before you start renting out the place, ensure that everything is in order, meaning you have created a habitable and comfortable living environment for potential residents. Stay compliant with regulations and laws by checking smoke alarms, HVAC systems, plumbing, and electrical systems. This is the first step to creating a positive landlord-tenant relationship.
Accidental landlords who used to live in the premises tend to think that, because they were comfortable before, it means that the place is viable for renting. If you're unsure, hire a professional property manager to make the property rent-ready.
5. Drafting Your Lease Agreement
The tenancy agreement is a legally binding contract that provides your tenants with details about the rent amount, dates for rent collection, how they can submit maintenance requests, property maintenance, and other responsibilities they have for the rental property.
A small tip for accidental landlords: don't just copy a lease agreement template you can source online. You're better off creating a rental agreement tailored to your business and your residents, keeping both you and your tenants happy.
6. Organizing Your Records
Once you start your rental business, you'll have documents piling up quickly. Regardless, it's crucial to keep detailed records for many reasons, including tax obligations and clear communication during disputes.
It's a smart investment practice, as it can keep you out of legal trouble, and it's especially essential for accidental landlords when they are presented with an unexpected role. Records include income, maintenance costs, utility bills, and other expenses. This can be beneficial when determining tax-deductible expenses of your business.
7. Conducting Tenant Screening
While keeping Fair Housing laws in mind, you must conduct thorough tenant screening to ensure that you rent to quality tenants. That means checking criteria such as credit scores, criminal history, rental history, and calls to previous landlords, among others.
Tenant screening is a fundamental task in property management and a crucial step in safeguarding your investment. A responsible tenant will maintain your property's condition, pay rent punctually, and adhere to all the rules you establish.
Accidental Landlord FAQs
Should I tell my mortgage lender if I'm renting out my property?
- Yes. Converting an owner-occupied home into a rental property can change the mortgage terms. In some cases, your current mortgage might not even allow you to turn your home into a rental.
Should I create a written lease agreement?
- While oral agreements are legal in Indianapolis, a written lease is recommended to protect your investment and encourage tenants to follow your terms.
Do I have to pay taxes on rental income?
- Yes. Your rental income must be reported to the Internal Revenue Service (IRS). However, there are tax benefits to consider, such as deductions for expenses related to repairs, mortgage interest, and depreciation.
Can accidental landlords self-manage rental properties?
- Of course. You can learn the basics and pick up the knowledge you need, the longer you manage a rental business. It is still recommended to hire a property manager who already has prior and expert knowledge in handling a rental business.
Do I need to acquire a license to be a landlord?
- Yes. Indianapolis landlords need a landlord registration and a permit from an inspection program to begin operating. Furthermore, you need to register your property as well to ensure compliance with building codes and regulations.
How You Can Be a Stress-Free Landlord
Being an accidental landlord comes with a plethora of responsibilities, not to mention risks when you miss a crucial step. Hiring a property manager like ES Property Management can help you maintain your property and gain a steady source of income.
We understand how difficult managing a rental can be, and we will do our best to make your new role as a landlord easier. With the help of professional property management, you can maximize the potential of your property and earn extra income.
The first step is to contact us, and you can determine whether we're the right fit for your new rental journey!
