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5 Quick Tips for First-Time Landlords

These five tips will help you start your landlord journey the right way, whether you are self-managing or hiring a property manager. 

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Video Transcript

So you’ve decided to rent out your property! Now what? Managing a rental property can be very rewarding, but you need to make sure you are setting yourself up for success, even before you put the home on the market.

These five tips will help you start your landlord journey on the right foot, whether you are self-managing or hiring a property manager. 

Ownership of the Property

The first step to being a successful landlord is to have the property owned correctly. You may want to consider starting a trust or an LLC. Either of these options will help insulate you from the property and keep your business items separate from your personal ones. This will be especially helpful if you own multiple properties or plan to in the future.

Find a Good Accountant

Finding the right accountant is a crucial step in your journey to becoming a landlord. Once you start managing a rental property, your tax situation will change. Unless you’re a CPA or have extensive accounting knowledge, navigating these changes will be difficult.

While owning a rental property can open you up to a lot of new tax deductions, the added rental income can also create tax situations you’re unfamiliar with. Having a reliable, experienced accountant will be helpful during this time. 

Organize Your Finances

One of the best ways to stay organized is by opening up separate bank accounts for your rental properties. This prevents any potential crossover between your personal expenses and expenses between properties. Keeping everything separate will also make things easier during tax season. 

Prepare for Maintenance Costs

Your maintenance expenses for your property will depend on a couple of factors. First, the age of the property will determine how much maintenance needs to be done on a regular basis. Older properties typically require more work and have a higher likelihood of things breaking or needing replacement.

Next, you will need to ask yourself how much deferred maintenance needs to be addressed at your property. Deferred maintenance is maintenance on the home that you’ve been putting off due to lack of funds or because it was not urgent at the time of discovery.

Something that landlords struggle to understand is that appliances or fixtures that have quirks are not acceptable in a rental property. Things like having to jiggle a cabinet handle so it opens or one of the burners on the stove not working properly need to be resolved prior to putting the home on the market. 

There are two main ways that owners typically prepare for maintenance costs at their property. The first is the 1% rule. This is when you set aside 1% of the purchase price of the property for the year’s maintenance fund. 

The other tactic is to set aside one month of the property’s rent for the annual maintenance. This tends to be easier for most property owners. Keep in mind that if your property is older or has a lot of deferred maintenance, this number may be slightly higher for your first year. 

Set Up Your Insurance

Our last tip is to get your insurance set up and for the right amount. Speak with your insurance agent and let them know that you’re going to be renting out your property. They’ll be able to make recommendations based on how many properties you plan to rent out and where the property is located.

Olivia

Olivia

Content Marketing Manager at Good Life Property Management
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Hey guys, Adam Manley here from Good Life Property Management. Here today to talk to you guys about five things you need to do before you become a rental property owner. Now this applies whether you’re working with a property manager or not. These are five things all rental property owners should consider before they make that foretay into renting their property out and becoming a landlord. So the first step is having it owned correctly. And what I mean by that is the actual ownership of the property. Consider some things like starting a trust or an LLC. Both of these two options will help insulate you from the property. Should something happen to you guys. It’s just a good way to keep things separate. Your business and your personal items separate. So that’s number one is actually having it owned correctly. Now the second thing you’ll want to consider is finding the right accountant. Unless you’re a CPA or do this for a living, your tax situation, once you start renting out your property, could be very different from your current one. Owning a rental property opens you up to a lot of additional tax deductions that you can take advantage of and the additional income that you may be generating from this property may create some unforeseen tax situation. So it’s highly encouraged that you find a really solid accountant before you start off on this process to really help you fully understand those challenges. Now the third thing you’re going to want to consider is organization. And there’s lots of things to organize, but one of the best ways to keep yourself organized when owning a rental property is by actually creating a separate bank account for each rental property that you have. This is a really good tool because you’ll know anytime you write a check from that account, it belongs to that property, you’ll know with a very high degree of certainty that it’s an expense associated with running that rental property. And this just helps tax time. It just makes tax time a lot easier at the end of the year when you know that everything in this account was an expense for this property, everything in this account was an expense for that property and it will just help create a much more clear tax experience for you at the end of the year. So the best way to organize is by creating separate bank accounts for each property. Now the fourth item you’ll want to take into consideration is maintenance. So as a rental property owner, the amount of money you spend on maintenance is actually going to differ on a few different factors. Of course, how much deferred maintenance you’ve actually done over the years. The other one is the age of the property. There are a couple of different tools or tactics that you can gauge or estimate how much you’ll spend in maintenance. One of them is the 1% rule where you take 1% of the purchase price of the property and you use that as your annual maintenance cost for the year. The other way is just budgeting about one month’s rent. That’s kind of a little bit of an easier way to do it. And again, depending on the year and the deferred maintenance, you might need to make some smaller adjustments, but those are two ways that you can budget appropriately for maintenance before you become a rental property owner or a landlord. And finally wrapping it all up, the last thing you’ll really want to do, and this is one of the most important ones, is getting the right insurance amount. Speak with your insurance agent directly. Let them know you’re going to be renting out your property. They’ll make some really good coverage recommendations to you. That’s going to also depend on if you own other properties or the size of your portfolio. I would recommend considering at least a million dollars in liability coverage if you own a property here in San Diego or California, but definitely cross-reference that with your licensed insurance agent so they can make different or more appropriate recommendations depending on your situation. So just to wrap it up, all wrap it up, guys, the five things you’ll want to do before you become a rental property owner, get it owned correctly, get the accounting picture figured out, get yourself organized with some separate bank accounts, budget for about one month of maintenance, and then get your insurance all squared away. These five tips will set you off on a great starting path to become a successful rental property owner. And if you guys have any other questions, feel free to drop it in a comment below or reach out to us directly. Thank you.