You are a landlord with all the rights, privileges, and responsibilities that pertain to that position. Before your hat size changes, I need you to understand that you are now a potential target for every disgruntled tenant, wannabe tenant, bureaucrat, contractor, employee, and ambulance-chasing attorney on the planet.
Sorry to Burst Your Bubble
I know that you have worked hard, made sacrifices, and struggled to reach your goals, and there is an understandable temptation to enjoy the fruits of your labors, buy those fine clothes, drive that fast car, and generally, “strut your stuff.”
Still, don’t do this! Think of it in these terms. The deeper your pockets become, the more hands you will find trying to get in them. What’s a successful landlord to do?
Step 1: Keep a Low Profile
Forget the “if you’ve got it, flaunt it” attitude. Your tenants are probably living paycheck to paycheck, and there is no point in arousing their baser instincts by rubbing their collective noses in your success, so display a little humility. After all, part of your success is on their dime. Develop the mindset that you are a target. Consequently, the smartest thing you can do is to make that target as small as possible. Your goal is to foster their respect, not their envy, resentment, and jealousy.
Step 2: Take Preemptive Measures
You can do a number of things to reduce your risk of financial liability, and we’ll highlight the most important. A “No Pet” rule is important. Pets can cause physical damage to your property. Pets can also be the root cause of litigation. Pets can bite, bark, whine, scratch, and claw people. They also carry disease. As a landlord, all these things represent a potential for financial loss. Regardless of your personal feelings, a “no pet” rule can insulate you from a great deal of financial heartache.
Keep your property free from hazards. Loose railings, broken windows, and exposed wiring are just a few examples of maintenance issues that leave the landlord exposed to lawsuits. It is much less costly, in the long run, to keep your property well maintained. This also means happier tenants. Happy tenants litigate less and are more likely to pay on time. At the very least, you have deprived them of a litany of excuses.
Require your tenants to carry renter’s insurance. Make it part of the lease. It is much better for tenants that have suffered a loss to be covered by their insurance company as opposed to yours. This should help hold your insurance costs and financial exposure to a minimum.
Insist that any contractor or repair people provide proof of liability insurance coverage and workers compensation coverage. This shifts financial responsibility away from you and your insurer to them and their insurer. The result—you save money and avoid financial loss.
Step 3: Make Sure to Have Adequate Insurance
The purpose of insurance is to transfer risk. Simply put, you pay an insurance company to assume risks of loss that are unacceptable to you. Maintain property and casual insurance coverage, general liability insurance, and umbrella insurance coverage. If your property is in a flood zone, coverage is available through private insurers through the auspices of the federally administrated National Flood Insurance Program.
I recommend using an independent agent. The independent agent is in a better to position to check different insurance companies for the best rates and terms.
Step 4: Limit Your Personal Liability
You can accomplish this in a number of ways. You can create an LLC (Limited Liability Corporation), a Subchapter-S corporation, or a real estate property trust to hold title to your rental property. This removes you, personally, one-step from your property. Although this can reduce your risk, don’t be lulled into the notion it eliminates your risk.
You should take the steps outlined above. Enjoy your success but don’t flaunt it. Keeping your conduct honest, ethical, and professional is the smart way to ensure lasting success, and keeping a low profile makes you a smaller target for any potential adversary.
Are you a successful landlord? Can you offer our readers additional thoughts on this subject? Please comment!