You are thinking of buying your first property or you already have bought your first property and want to rent it out to someone and start making some passive income! So now what??? What do you have to do as a first time landlord? Here are some tips for the first time landlord.
It is easy to just hire a property manager and let him or her do everything…. but it costs so much money…. property manager usually costs 5% to 10% depending on what you ask them to do.
You are wondering if you can manage by yourself but you do not know what to do. Here, we cover the basics (Legal, Accounting, and Property Management) of what a real estate landlord has to do to manage properties.
- Set up an LLC for each property
- Yes it costs money to set up an LLC but if anything serious happens to your tenants or property, they will come after you personally and may take your other assets away even. If you have set up an LLC and prepare the legal documents such as deed or lease in the same of the LLC, the biggest loss you will get is the property that your LLC owns.
- Another benefit of creating an LLC is an operational benefit. It is recommended to keep the record separately for each property. Creating an LLC will force you to keep the record separately. Have an independent bank account and accounting record for each property, it will be so much easier for you to manage your properties because you can
- Check regulations
- You may think you can do whatever you want because you are the owner and tenants have to follow the rules created by you. That is unfortunately wrong. Here are some sources that could help you. Federal Anti-Discrimination Law, Federal Housing Law, Fair Credit Reporting Act, and some state and local laws.
- It is almost impossible to cover your legal matters on your on. It may cost some money but it is highly recommended to speak with lawyers who have high expertise in real estate.
Accounting / Tax
- Ugh, so tedious and this is the last thing you want to do. There are so many softwares out there such as Quickbooks or Freshbooks. What is important in bookkeeping? The accuracy is the most important factor in bookkeeping.
- Tax filing
- Most of the independent real estate landlords file Schedule E, which is a part of your 1040, your individual tax return. If you are running a full time real estate company, you may consider Schedule C or K-1 for your tax return. Use a software like Beaver to bookkeep your record with high accuracy and security and easy tax filing.
- Collect rent
- You can collect rent from you tenants in any way such as cash, credit card payment, check, wire transfer. You should make sure to keep the dates the rent is received.
- Maintenance request
- Tenants will email, text, or call you when something is broken in the property. First thing you should do is who is responsible for the repair. Check your lease and decide whether you will pay for the repair.
- Recurring matters
- Renewals or recurring payment of insurance, property management fee, and inspections are the parts of your job as well. If you miss it, you may have to pay some penalties
- Be careful with the renewal of the lease with tenant. It is easy to raise rent if they take it. If they do not take it, it may cost you a lot of money during the period you cant find the next tenant. Keep checking the market in the area and have a good strategy on your rent.
- Deal with issues..
- Prepare for small little things here and there. The most frequent issue that landlords face are the complaints about the tenants’ neighbors. Even little things could be a trouble between tenants living next to each other. It is unfortunate but its a part of your job.
It is so much work!! yes it is! who told you it will be easy to manage your properties. Golden rule is :
- Set up an LLC for each property.
- Find some professionals such as accountants or lawyers you can go ask when you have questions.
- Use a high quality software to bookkeep your record accurately.
- File tax return on time.
- Deal with issues time to time. If you do not want to do this, hire a property manager.