• Shawna Murray, Attorney

6 Mistakes to Avoid if You Own Rental Property

Updated: Jan 26, 2019

Real estate investment properties can provide you with an additional source of income, but you must not be a passive landlord. You will find that there are many traps for landlords and this article discusses a number of those traps.

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:

1. 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 they start falling apart. Water heaters should be strapped down and in a secure location with a water pan underneath. Don't keep them on top of worn out wooden surfaces that are about to collapse - that is an accident waiting to happen. Your goal should be to prevent accidents and injuries that the clients might sue you for.

2. Pest Control

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

3. Hiring Management

Careful hiring is important. Check out potential manager, 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 want listen to tenants who complain about the resident manager or other workers – after all, you are legally responsible for their actions.

4. 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 the proper number of smoke detectors and carbon monoxide detectors and that are operational.

5. 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.

6. 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 the tenants to win their eviction case. Generally, evictions are a slam dunk for landlords but not so if your tenant has a good defense or two.

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. Then Tenant will have to sue the business and cannot (as a general rule) hold you personally 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 is 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.

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