What to know and what to have when becoming a landlord

Question

Hi all

So I will become a landlord soon and I just wanted to know what should I have or need to get as a landlord. For example what type of account should I open to hold my tenants first, last and deposit, etc?

Dan Travieso · Answer

Anthony - Each state has slightly different laws. I live in North Carolina and I am required to keep deposits separate from my normal checking account. if you keep the security deposit in a account that accrues interest some states require you to pay the interest to the tenant when you refund their deposit. That being said, step 1 would be to identify the tenant/ landlord laws for the state you have the property. Second step would be to develop your application and screening process. Ensure your criteria is well communicated to avoid being accused of discrimination. I would also strongly recommend background/ credit check. The little bit of upfront work will save you tons of money, headache, and time if you rent to the wrong tenant. Trust me, I have learned that the hard way.

Kenneth Garrett · Answer

@Anthony Walker

Rent checks should be placed in one checking account and security deposits should be placed in another.  Do not put in your personal account.  Make sure you separate your personal funds from business funds.  You will pay your bills out out of the checking account that collects the rents.  This acts as if it were your pm account.

Mark Fries · Answer

@Anthony Walker

Dont worry about bank accounts at this point, means nothing.

I would develop very thick shin, and leave your emotions at home, almost become a robot when it comes to dealing with tenants and becoming a landlord. Bank accounts and this side of landlording will get figured out overtime.

Anna Sagatelova · Answer

More important than your bank account (if you are self-managing only, and not providing services as a third party manager), are your procedures and documents.

As a landlord, you want to have procedures established for each task you will be performing (rent collection, marketing, showings, leasing process, move-in day, move-out day, maintenance calls, utility switches...) in order to treat your tenants equally and fairly. You will also want to document everything to keep yourself protected.

My recommendation is to work on organizing yourself first. Make sure you are well versed on your responsibilities and local, state, and federal laws (landlord tenant, fair housing, etc). It's shocking how many investors are unaware whether their municipality or county requires a rental registration/license, or of laws pertaining to security deposits and late fees in their city or state.

Get your lease and all addenda organized and vetted by a LOCAL real estate attorney. Local meaning not just to your state, but to the municipalities (and thus housing court jurisdictions) where you will be operating.

Make sure you have an attorney you would feel comfortable contacting with inevitable questions about enforcing some part of your lease or complaints from your tenants. Hopefully it doesn't come up, but if it does, you want to have a reliable and experienced professional in your corner.

Most importantly, be ready to understand that while this is a business for you, for your tenants it is their home - their shelter and most personal space. You will need to be able to strike a balance of professionalism and compassion to truly succeed. You do not want to get wrapped up in your tenants' personal dramas, but you also don't want to wind up as one of the horror story landlords that doesn't seem to have a beating heart. Having processes outlined before you put your first property up for rent will greatly help with this!

Good luck!

Stephen J Davis · Answer

Have you taken a course on property management yet? You are not going to get everything you need from a forum post. Find a local real estate investor group and join. You should have done this already. Take their class on property management. Also, make sure you understand every word of the lease. You may want to sit with an attorney to review it before your first use of it.

Yes. Use a separate bank account for rents and deposits and pay all bills out of the rent account. Do not use your personal account.

Carry $300,000 liability insurance on each rental and a $1 million umbrella policy. You don't need an LLC for single-family as a rule.

Tony Wilcox · Answer

I would recommend having the tenant acquire renters insurance ($10/month) and list you as the additional interest as well. This way if there is a liability claim against them you can file it and the check goes straight to you. Also it keeps your insurance from being effected.

Anna Sagatelova · Answer

@Dante’ Wray good luck on your journey as well.

I am not qualified to give tax advice - I am an employee of a licensed management company and have no experience in self-managing any rentals, nor am I an accountant.

There are many guides to self-management out there, including resources here on BiggerPockets, but there is not one formula or schedule for you to follow. You want to create a guideline for things such as, what kinds of maintenance requests are deemed "urgent" or "emergency" - and how will you handle those differently from an "ordinary" or "non-urgent" request? Who will you dispatch if an emergency request comes in at 4 am? On Christmas morning? While you are on vacation 3 time zones away?

Reading these forums will give you ideas of what kinds of scenarios arise and then you can think of what to prepare for. But you won't be able to prepare for every possible situation - this is why I also advocate for organized and consistent documentation as well as a trusted attorney.

Patrick McGrath · Answer

@Anthony Walker

Open a completely separate account for deposit (savings) and rent (checking). Put everything in your lease. Do a background, credit check and call job and landlord references. I know this sounds simple but this will save you so much. You would be surprised how people lie about jobs and everything else.

Make sure to if you are not handy to have a good handyman to handle the small issues that come up when people first move in.  If you can go with month to month that can be converted to year lease if you so chose. This covers you if things go south after a few months. And remember being a landlord is a people business as much as a real estate business. You can be a good human and business person at the same time.

Just my 2 cents.

Patrick McGrath · Answer

@Anna Sagatelova

This right here! 100% great advise and actually what I said.

Ventura Fentura · Answer

@Anthony Walker

If you can afford it, let a property management (PM) do it for you. Most headaches will be transferred to them. We did this for ours.

What to know and what to have when becoming a landlord

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