Insurance For Rental Property Owners

Owning rental investment property can be a satisfying and lucrative operation. However, there are also several areas which need to be carefully heeded in order to make sure that you are not sued and do not become liable for any issues which may arise in connection with your property. Learning how to protect yourself is the first step in ensuring that your investment does not actually become a liability. 

First, you must always make sure that you have adequate casualty and property insurance as well as liability insurance. These three items are not the same and it should always be remembered that property insurance will not typically protect you in the event someone becomes injured on your property. 

Property and casualty insurance will cover you in the event your property suffers from losses resulting from storm, fire or some other catastrophic loss. Liability insurance is intended to protect you if you should be found to be responsible for someone else’s losses. You may also wish to consider carrying flood insurance if your property is in a community that participates in the National Flood Insurance Program. Umbrella insurance, which will provide you with additional liability insurance beyond a general liability insurance policy, is another worthy option you may consider. 

You may ask yourself under what circumstances you may need liability insurance. There are many instances in which liability insurance could be helpful. For example, liability insurance could protect you in the event a tenant or an employee becomes injured on your property. Liability insurance can also protect you in the event you are sued for discrimination by tenants. 

In the event you hire someone to work on your property, it is a good idea to ensure that all repairmen as well as contractors are able to provide their own certificates of insurance indicating they carry both workers’ compensation as well as liability coverage. 

You should also make sure you review your insurance coverage with your insurance agent on a regular basis. Many people make the good intention of taking out adequate insurance coverage; however, they fail to review their policies and when disaster does strike sometime later they are surprised to discover that they did not have sufficient coverage after all. 

It is also a good idea to make sure that you have formed good working relationships with critical professionals such as an attorney and a good tax accountant. There are many areas of renting property which are regulated by law. If you are not aware of your obligations under these housing laws, you could find yourself facing legal troubles. Therefore, it is certainly a good idea to consult an attorney to make sure you may not be breaking any fair housing laws. It can be entirely too easy to find yourself in trouble because you unknowingly violated one of these laws. Additionally, make sure you meet with a professional tax accountant at least once per year to discuss your tax obligations regarding your property and revenue. 

It is also a good idea to check with your local government to determine whether you are required to have a business license in order to operate a rental property in the local area. While this was rather uncommon at one time, today more and more municipalities are enacting regulations which require a business license for each rental property.

Also, keep in mind that your property insurance policy will not cover the belongings of your renter in the event of damage. It is usually a good idea to make sure you let your tenants know this by putting it in writing. Many landlords not only encourage their tenants to obtain renter’s insurance but also require it. 

Finally, take proactive steps to reduce your liability by making sure that your property is safe. Liability insurance is certainly beneficial but the best way to ensure that you steer clear of trouble is to keep your property well maintained.

Advantages Of Owning Rental Property

The fact that you can be your own boss when you invest in rental property is a benefit which should not be underestimated. Whether you are considering quitting your current job to become a full-time rental property investor or you are looking to supplement your current income, you can benefit from the fact that there is a tremendous amount of independence to enjoy by owning and operating rental property.

More and more people are becoming interested in investing in rental property due to the large number of advantages offered by owning rental property. One of the largest of those advantages is the fact that when you invest in rental property, you are able to take ownership of an asset that is tangible. Compared to other types of investments, this is a tremendous advantage. It can be difficult for many people to get excited about stocks and bonds; however, gazing at a piece of rental property that you personally selected and are maintaining can provide you with the same pride in ownership that you received when you bought your first home. Rental property is also an income-producing asset which can be a much appreciated inheritance for future generations.

Income is another tremendous advantage of investing in rental property. While you will need to deduct the mortgage payment if you finance the property and any relevant expenses, a rental property is often able to produce ongoing income for you.

The value of appreciation should not be overlooked either. Generally, such properties improve in value over time. While appreciation can never be guaranteed, if you take the time to choose a property in an area that is stable then there is a very good chance that the property will continue to increase in value as time goes by.

Rental property owners are also able to take advantage of leverage. This is because you have the ability to purchase a rental property with funds that are borrowed. As a result, you are able to begin taking advantage of the benefits offered by owning rental property while only investing a percentage of the total value of the property. In addition, since the property itself will secure the debt you do not have to worry about using other assets to secure it.

Tax advantages are another important benefit of owning rental property. If you obtain a mortgage on your property, you will frequently be able to deduct your mortgage interest payments. There are also a number of other tax deductions which can potentially be taken when you own rental property including the cost of repairs and improvements.

What To Look For When Buying A Rental Property

Location is always important when it comes to real estate and that is no different when shopping for a rental property than when purchasing a home in which you will live. Properties which are close to amenities such as shopping, schools, worship centers and are generally considered to be in a good neighborhood and will typically make better rentals than homes that are located on busy streets or which are not near such amenities.

Outdated homes are a prime example of properties which do not make the best rentals. One of the main reasons that outdated homes do not often make good rental properties is the fact that they are simply more prone to have things go wrong with them. You will have two choices when dealing with an outdated rental property, you can either spend the money to update it and risk your profit or you can not update. The latter is also quite risky as most renters, if they have a choice, will rent a property that is updated. Renters typically expect the properties they are renting to be safe, secure and have working systems and appliances. Some of the main problems you may run into with outdated problems include plumbing issues, roof leaks, cracks and settling, electrical problems and the ability to obtain parts for appliances. 

Homes with pools also do not frequently make ideal rental properties. At first, you may see a home with a pool as an advantage which would be appealing to prospective tenants; however, this is not always the case. Many prospective tenants, especially if they have young children, do not want to live in a home with a pool because of the risk factor. You should also take into consideration the issue of liability as well as the cost of maintaining the pool. 

In addition, homes that are considered to be high maintenance may not make the best rental properties. Consider how much time you are willing to spend each week working on your own home, if you are a homeowner. You might find the tasks of weeding, mowing the lawn and watering the flowers at least fulfilling if not rewarding. The thing about tenants; however, is that they are often not willing to perform these tasks for a home they do not own. If you have a property that requires all of these tasks consider hiring someone to handle the yard work and then including the price in the rent. You will be able to guarantee that the work is done and your property does not look unkempt without having to actually worry about it yourself. 

It is always important to make sure you take location in mind when choosing a rental property because most prospective tenants will be looking for properties that are in good locations. If there is competition on the market, a tenant will often choose a rental that is in better location even if it means paying a bit more in rent.

Choosing An Investment Property

Before you actually begin looking for the right investment property, make sure that you have gone through your finances and have them in order. Ideally, you should check your credit report several months before you plan to purchase or decide to build the property in order to be certain that there are not any inaccuracies which could prevent you from obtaining a mortgage for the investment property. Finding the right rental property is certainly one of the keys to succeeding with investment rental property. 

Below is a guide to help you get started in finding the right property that will help you to generate additional income. 

First, consider whether you want to look for rental property on your own or whether you wish to use a broker to assist you in the process. There are certainly many advantages to working with a reputable broker when you are looking for investment property. In many cases, brokers may know of properties which have just come on the market and which may not have been noticed by others yet. A broker is also usually well versed about the local neighborhood, which can be important if you are not from that area. 

Click Here To Watch Video on how to Choose An Investment Property

It is also important to do your research about the local market so that you do not overpay for the property you ultimately purchase. When you do purchase a piece of investment property, you need to make sure that the deal you strike allows sufficient room for a profit margin just in case there are times when you do not have a full occupancy. 

Carefully consider both the advantages and disadvantages of purchasing a property that could be labeled as a fixer upper. While you very well may be able to purchase the property for less money than other properties, you may very well find that you have purchased a money pit. In the event that a lot of major repairs and renovations are required, this can equate to a large investment of both time and money. In this case, it would be better to pay more for a property that requires less attention. 

Before you purchase any property, take the time to have it inspected. Even if you have inspected the property on your own, you should still have a professional go over the property to be certain that the electrical wiring meets code, there is no lead in the paint and that overall, the property is safe. An inspection can sometimes turn up problems which you might not notice but which could ultimately cost thousands of dollars to correct. You will typically be required to pay for the inspection; however, it is a wise investment that could save you quite a bit of time and money. 

Finally, do not make the mistake of ‘settling’ for a property simply because you are in a rush to invest in rental property. This could result in an investment that will require you to spend more time and money than you originally planned and detract from your profit margin.

Buying Rental Investment Property

Searching for investment rental property can be exciting and confusing at the same time, depending on the part of the world you are living in. You need to carefully examine potential rental income. If the property has already served as a rental property, you need to take the time to find out how much the property has rented for in the past and then do some research to determine whether that amount is on target or not. In some cases, properties may have rented for lower than they should have while in other cases a property may be over rented. Look at comparables in the area to make sure you know whether the property in question is on target; otherwise you may find that the amount you think you will be receiving in rental income is unrealistic. 

Taxes are another issue. Many people use the taxes from the year in which the property was purchased and assume they can use these figures to estimate expenses. This is not always the cases because taxes do not remain the same; they typically change every year. Usually, taxes go up after a property is purchased. This is especially true if the property was previously owner occupied. So, it is typically a good idea to just assume that the taxes will go up on the property after you purchase it. 

Mortgage interest is another area that should be considered carefully. Make sure you know and understand prevailing interest rates as well as the details of your specific loan because mortgage interest is the biggest cost you will face when purchasing investment property. First, understand that homes and duplexes tend to have loan structures that are similar to any mortgage loan. With a larger property; however, such as a triplex; rates tend to be higher. If you are looking at commercial property with even more units; the matter of terms and rates is completely different. Typically, the more money you are able to put down on the purchase of the property, the less interest you will have to pay.

One area which many people fail to take into consideration is the cost of the property being vacant. While you would certainly hope that your property would remain rented all the time, this simply is not realistic. There will probably be times when your property will be vacant. Generally, you should assume that your property will have an average 10% vacancy rate. 

The cost of tenant turnover should also be taken into consideration. This is often a big surprise to many landlords who assume they will rent out their properties and their tenants will remain in the property for some time. Even more of a surprise is how much it costs to prepare the property to rent out again. Just a few of the costs include not only advertising for a new renter but also repainting, cleaning, etc. If damage was done to the property, the total cost of repair may not be fully covered by the security deposit you charged. 

Of course, the cost of insurance should also be taken into consideration. Keep in mind that the insurance for investment properties is usually higher than an owner occupied property. Make sure you obtain a quote rather than just using the insurance cost for your own home as an estimating guide. In addition, make sure you take into consideration not only property insurance but also liability insurance as well.

Utility costs are another area that is frequently under-estimated. If the property has already served as a rental property make sure you find out exactly what the owner pays for and what the renters pay for. You should also make sure to find out whether you will be responsible for other costs such as trash collection. 

Finally, take into consideration the costs of property management if you will not be managing the property yourself.