Whether you lease property for rental or own your property, there are important laws and rules that every landlord should know. Everyone desires to own property. It is perceived as a smart investment that brings returns in the sale or passive income in the future. While appreciation usually makes property increase return on investment, depreciation over the years could make it fall short of the purchasing capital. Either way, renting out property can be a good investment and help you recover any upfront money you might have put into the property.
Owning private property is different from leasing one for rental. The impact is different. At face value, real estate and rental property look lucrative. However, from an insurance standpoint, buying a rental property may cost you loads of money if certain basic rules are not carefully followed.
Here are some rules that landlords must follow when buying or leasing a rental property.
- Do Your Homework on the Rental Property
Purchasing a piece of property is a considerable investment. You could be burning money, servicing debt, or facing a lawsuit on that property, if due diligence is not done. Many people rush into buying rental property just because of the attractive price, but the price could be due to a problem or many. Investigate why a property is so cheap. Learn about the problems with the property.
Don’t go for foreclosed or abandoned properties just because they are cheap. These types of property are harder to insure and may not be worth the added trouble. Hire a third-party home inspector to double-check plumbing, heating, and wiring to ensure they are free of problems. Also, don’t assume there is no mold. Make sure to test and document every observation.
- Prepare a Written Contract
Having done due diligence on the property, you need to get a lawyer’s service to write a contract for you. Don’t undervalue or underestimate the importance of having an expert to walk you through the process. An expert can help you define all your terms and protect your interests. If possible, don’t offer less than 12 months lease. Have your tenant sign the contract. It shows that you are serious, which will save you a lot of time, money, and hassle. Contracts are essential in rental agreements and offer much-needed protection for both parties.
- Screen Your Tenants Thoroughly
One of the most important guidelines landlords must follow is tenant screening. Don’t be in a rush to get the money. Do a background check on your tenant. At least know that your tenant has renters insurance, good credit, and ensure they have a clean background check. Let them know that your insurance doesn’t cover their property. You should try to have a reliable and trustworthy tenant. It is up to you whether you will allow smoking or pets. However, they could increase liability risks with fires and dog bites.
- Have Rental Property Insurance
Sadly, conventional homeowners insurance does not cover a rental property. Hence, you will need a customized Landlord or Dwelling Fire policy. Though the coverage for rental property insurance isn’t as broad as for traditional homeowners, it is important to have one to qualify for a claim. Always ensure your rental property does not stay vacant for 30-60 days, as most landlord policies may severely reduce and even eliminate coverage if your property remains vacant. If it will be vacant for more than 30-60 days, let your insurance carrier know.
- Be Informed about Your Rental Property
How old is the roof? When last was the heating updated? You need to know these types of details about your property. Have all repairs recorded and make visits to your investment every 3-6 months. Your insurance carrier will need this information when the time is right.
Owning a rental property can be an excellent investment and requires a landlord policy and coverage to ensure proper rules and guidelines are followed. For assistance with all your rental property insurance needs, contact the experts at Pierce Insurance Group today. We look forward to answering all your insurance questions and helping you get the right coverage.