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6 Mistakes to Avoid if You Own Rental Property

Posted by Shawna Murray | May 28, 2018 | 0 Comments

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Many people have discovered that an investment in rental property or an apartment building is a great investment and a good source of additional income. However, holding an investment property is not a passive-income sort of investment. It is a business. Thus, you will find that there are many traps for the uninformed landlord.

Here is a list of six mistakes that many landlords should avoid if they want their tenants to pay rent and remain happy:

Failing to maintain the property.

Stuff doesn't last 15-20 years anymore – if it ever did with renters – so things are going to need to be repaired or replaced. Landlords must keep the property habitable. If you supply any appliances they should be kept in good repair and they need to be replaced when broken. Water heaters should be strapped down and in a secure location with a water pan underneath. Don't have them installed on top of worn out wooden surfaces that are about to collapse. The goal is to prevent accidents and injuries that the clients might sue you for.

Pest Control.

If you have reports from tenants about pests, you need to take care of it promptly. Also, use a licensed company and one that can disclose what chemicals are being used, should the tenants ask. Again, Landlords must keep the property habitable.

Hiring management.

Careful hiring is important. Check them out, especially because they are entering your tenant's homes. You do not want some crazy apartment manager who is regularly yelling at your tenants; or worse. Also, provide a method for your tenants to give you feedback concerning the manager. Of course, you will need to listen to tenants who complain about the resident manager or other workers – after all, you are legally responsible for their actions.

Inspect Your Property.

Visit the properties occasionally – at least twice a year if you have professional managers. You should get out to the property and do random inspections, especially before new tenants move in. Check out your manager's work. Ensure that the unit has a smoke detector and a carbon monoxide detector that are operational.

Dealing with Tenants.

Both retaliation and discrimination are going to spell trouble for you. If a tenant calls the city and makes a complaint about your property, you cannot retaliate. So, if a tenant complains, sending that tenant a notice to vacate within the next 180 days is presumed to be retaliation. Have a way for tenants to send you complaints & suggestions so that they do not complain to the city.

Collect Rent as Agreed.

In your Lease Agreement, you should have a due date for rent. Collect the rent on that date and serve the 3-Day Notice to Quit promptly. When your tenants are allowed to regularly pay the rent late, it changes the date rent is due and that can affect the validity of your 3-Day Notice to Quit.

All of the things that a landlord should have done but did not, can become a defense used by a tenant to win their eviction case. Generally, evictions are a slam dunk for landlords but not so if your tenant has a good defense.

Protect Yourself with an LLC.

As you can imagine, there are many traps for the unwary. Besides keeping up on the latest laws and fulfilling your legal duties as a landlord, you can also limit your personal liability by forming a Limited Liability Company (an “LLC”) to hold the property. This way, you can prevent a potential financial disaster from devastating your personal finances. For example, if your tenant is injured on your property or if you have a bad apple for a manager and he ends up assaulting one of your tenants, you can be held liable. 

One last recommendation.

Put the LLC ownership interests into your Trust. This way your LLC can be gifted to your family in the manner which best suits the family's needs and your trustee can ensure that your property is taken care of if you become incapacitated.

My list contains only a few of the traps that landlords will want to avoid. This blog was not able to cover them all, so I highly recommend working with a lawyer who is familiar with residential real estate property laws. I also recommend using a professional property management service if you do not want to be overly active in the day-to-day management of your properties.

About the Author

Shawna Murray

My estate planning practice is devoted to protecting individuals and families by creating and implementing customized estate plans. The knowledge that you have prepared for the times when you are not able to be there for your loved ones will provide you with peace of mind and provide your loved ones with security.

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Shawna Murray is licensed to practice law within the State of California. The information on this website is attorney advertising and has been created for informational purposes only. It is not legal advice nor does it predict the outcome of your case. An attorney-client relationship is formed only after we sign a written client services agreement.

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