There can be no doubt that renting out real estate is a great way to generate a passive income. But it also presents a great risk. If it gets severely damaged you will lose a lot of money, as well as tenants, which will cost you even more in the long term. But fear not, there is some good news coming.
You can reduce those risks to the minimum taking a few clever precautions. In this way you’ll be securing your source of passive income while staying confident of it remaining as or more stable than would be the case with other types of investments, like stocks. This is because rental real estate allows you to control many of the factors that can cause you losses, so making it more predictable and stable. Take the right precautions, like the ones listed below, and you can confidently protect your hard-earned fortune.
Get Landlord Insurance
If you are a landlord, you must have landlord insurance. It’s an essential type of protection which will cover you for common occurrences that can cause property damage. Bear in mind that this type of policy usually only covers the building itself and other structures on the rental property (like sheds or fences).
You should be able to find a policy that will cover a few of the key items as well. These are the items which are used to service the property. This can mean a whole host of things, so study the plan coverage very carefully. Remember also that in the majority of cases, these policies will be extremely limited in this additional protection. It might therefore be better just to get basic landlord insurance and cover the “stuffing” of the house separately.
This policy must also include liability coverage. It will protect you in the event that one of the tenants becomes injured at the property and manages to prove that you are responsible for it in a court of law. The liability insurance will cover their medical bills in this instance.
Buy a Home Warranty Plan
Speaking of protecting the contents of your rental property, a home warranty plan will be more thorough than any insurance policy could be. This is because these plans cover a variety of home systems and appliances in the event of breakdown. This means that if anything your tenants use breaks, you won’t have to pay a huge repair bill out of your own pocket. Instead, the warranty provider will pay for at least a part of the repair.
Another big advantage of home warranties for landlords in particular is that the companies providing them serve as an intermediary between the property owner and contractors. You only need to place one call to the warranty once your tenants have reported a malfunction. Then it is the company that will search for a suitable repair contractor and have them contact you to arrange the best time for a visit. Your involvement is minimal, so you save both time and effort.
As home warranty companies have to work promptly to provide a good level of service, you can be sure that the problem will be fixed fast. Thus your tenants will be happy as well, so it will be easier for you to retain them and to attract better tenants.
It should be noted that there are about 181 providers on the home warranty market today and many of them offer coverage nationwide (or nearly so). The terms offered by these companies vary depending on your location in the USA. Smaller local companies often offer better terms, but you should take the time to study all available offers anyway. Pay attention to the contract terms and coverage, as unreliable home warranty companies often sneak in clauses that will help them avoid payments.
Consider Umbrella Insurance
If you don’t think your landlord insurance is enough or if you just want to be sure that you have the best protection coverage possible, you should consider acquiring umbrella insurance. This will complement your landlord insurance and home warranty to keep your risk to an absolute minimum.
These policies provide liability coverage and can go hand in hand with your landlord policy. In such an instance it will cover you if the amount you are sued for exceeds the limits of the other plan’s coverage.
This type of protection makes the most sense for luxury properties where there’s a risk of very expensive damages and subsequent lawsuits. The same goes for properties with pools, trampolines, and others which contain a higher risk of injury. You should also be mindful that this insurance can be quite expensive in itself. However it is often cheaper if you get it from the same provider that you have your primary landlord policy with.
Note that the size of the base insurance matters for the purposes of calculating this policy. You might not be able to even get it if your basic coverage doesn’t meet the requirements of the provider.
Run Background Checks on Tenants
As a landlord, you know that there are some important mistakes one must avoid when buying a rental property. It gets easier from there because there’s only one other major mistake you must be sure to avoid, and that is getting bad tenants.
Running background checks on any person who applies will allow you to do this. And the fact that it’s rather easy to do this today means it’s a step you really need not skip. Your income depends upon the reliability of the people you let into your property, and how they treat it is as important as them paying on time.
So, start with a basic background check that you can do using your computer and internet connection. Use Equifax to learn their credit score. Then, contact their employer to get an idea of how reliable their current job is.
Next, research criminal convictions databases in your state as well as the country as a whole and check your prospective tenant’s name through them. You should do a country-wide check too because you can’t be sure that people are telling you the truth about their past. There are specialized services which can run these checks for you to save time, but you’ll have to pay them.
Conduct Regular Inspections
There’s no way around it, to be sure that your rental property is in a good condition you will need to check it often. This will not only provide you with some peace of mind, but also keep the tenants more motivated to treat it well.
Depending upon your situation, you can either conduct these surprise visits yourself or have a trusted representative do it. If you are out of state, your property management company should be doing this for you. Make sure it’s written into the terms of service in your contract, as well as a precise outline of what constitutes an inspection.
Note that while you should have routine inspections, an occasional surprise visit is also a must. These will provide you with a better idea of exactly how your tenants behave. Do however make sure that surprises of this kind are covered in the lease agreement.
Final Thoughts on How to Keep Your Rental Property Safe
Being a landlord is a challenge and a risk, but this business is extremely rewarding. Take the necessary precautions to reduce those risks and you’ll be able to enjoy your stable passive income. Insurance policies, home warranty, and careful tenant screening are the main tools that will help protect you as a landlord.