Investing in real estate and real estate-backed assets is one of the smartest long-term moves. Residential properties give an average of 10.6% return on investment (ROI), while REITs provide a whopping 11.8% average ROI. Returns like this are far higher than the profit margins of the average business and are far more stable than any stock you could buy.
However, becoming a rental owner isn’t just money for nothing. Apart from the up-front financing costs, you also have some (albeit less) work. Find out what your five primary responsibilities will be in this quick guide.
1. Providing a Habitable Space
International law (that’s right, the UN, not just the Federal Government) imposes a minimum core standard for housing as part of human rights law. The Federal Government burdens landlords by requiring them to ensure their properties are habitable. A landlord must provide a place with adequate heating, water, and a safe structure that is free from harmful toxins or infestations.
2. Sticking to Fair Housing Laws
The same family of laws has an anti-discrimination rule. A property owner is not allowed to block tenants based on sex, orientation, race, religion, or any other innate traits they may have.
That’s why most landlords outsource their tenant screening to property managers. Professionals know how to screen for and pick the best tenants while being fair.
3. Handling the Security Deposit
You don’t have to collect a security deposit, but it’s an excellent idea. Once you do, however, most States have laws that tell you exactly how you should store the money.
It varies between States, but they usually require you to keep the security deposit in a separate bank account at a bank within that state’s borders. State laws also prescribe when and how to withhold security deposits to cover property damage and unpaid rent.
4. Drawing Up the Lease Contract
Tenant leases can be problematic because most landlords aren’t contract law specialists. There are many terms you think you can put into a lease agreement but are illegal. Enforcing legal terms can also be a complicated issue.
First, you should have a property management service, contract service, or lawyer review your lease agreement. You can even hire them to handle the lease agreement for you. Then, you only have to worry about finding an expert for more advice if a tenant breaks their side of the deal.
5. Giving Tenants Their Privacy
Tenants have tenant rights for the entire rental period. This means that you can’t do surprise inspections or spy on your renters.
You must give tenants notice in advance for inspections and leave them in peace (as long as they make their rent payments). This isn’t just sound legal advice; it’ll also keep them happier. Happier tenants mean a more successful real estate business.
Learn to Be a Great Rental Owner
A rental owner has critical responsibilities, but it’s not all doom and gloom. Each point requires only a few hours of work every couple of months. Drawing up the contract and handling the security deposit require active work, but giving tenants their privacy and staying legal requires zero effort!
However, you first have to buy the investment property. Learn how to put in the hard work to invest in a rental unit (or the cheaper REIT alternative) by reading the rest of our business blog.