Now more than ever, looking out for your investments is critical. Real estate has been considered one of the safest places to park your hard-earned money for quite some time, but owning property requires some good hygiene to avoid losing money.
There are lots of ways you can protect your rental property. Some are more physical, while others require the drudgery of paperwork and big institutions. Ultimately, you should probably do as many of these things as possible if you plan to keep your property for a long time.
1. Address Initial Maintenance Items Before Buying
You want to make a good deal when purchasing a property to rent. However, failure to address glaring issues now could lead to high repair costs in the future.
Often, a seller will negotiate the replacement of aging or in-need-of-help items such as HVAC systems, floors, weatherstripping, and windows as part of negotiating a sale. Either they will subtract the money to complete the needed maintenance from the final sale price, or they will agree to complete it for you before closing.
Either way, the last thing you want is to be stuck with a remodeling project you were not planning on.
2. Increase Your Liability Insurance
For a relatively low cost, you can take out additional liability insurance to provide you with some support if anything does happen to the property. Rates can be very manageable, in the range of $200 to $300 per $1 million of value.
Your policy should cover at least the full net worth of your new real estate holding. Although you hope to never need it, it’s good to have in case something happens.
3. Refinance Often
Using debt to make your property less attractive is simple and effective. Revisit the terms of your loan regularly to pull equity out of your holdings. That will make them less likely to be the target of acquisition during a legal battle.
4. Protect Your Property Physically From the Elements
Irresponsible tenants are one thing, but severe weather can damage property in ways humans simply aren’t capable of. If you own a residence in an area that’s prone to hurricanes, tornados or other severe weather, get to know the patterns in the area and keep a close watch on the forecast.
If things look bad, you’ll either need to have quick access to the property so you can deploy a physical barrier, board up windows and turn off running water, or have a trusted friend or asset available on short notice.
This might seem like a hassle, but failing to do it can prove disastrous. It’s a good reason to give real thought to where you want to purchase a rental property.
5. Create a Business Entity
If you only own a single rental unit, you may not think of yourself as a company. However, you are doing business by having the property and renting it to tenants. If something goes wrong and a lawsuit is filed, the renters could receive access to all your personal assets. Creating a business entity such as an LLC can protect you from this scenario by making the rental property the sole possession of your business.
If you rent multiple properties, there could be a scenario where the repercussions of a lawsuit impact your business assets. However, your personal home, car and holdings would still be protected.
6. Split the Title
Do you and your spouse co-own a property? Chances are, the title is in one of your names. You can declare it as split-interest and protect yourself from certain precarious situations.
If you face a lawsuit, the suing party cannot claim the house because your spouse holds an interest in it. That’s a major protection that is afforded by only a small change to the logistics of your purchase.
7. Create an Anonymous Land Trust
Through the use of a trustee, you can remove your name from records associated with the property. This adds a layer of friction for anyone who wants to pursue you legally. Investigating who is behind the trust might be enough to discourage them from filing suit entirely.
It costs a significant amount of money to dig up who is the guarantor and requires trudging through lots of legal red tape. That works to your advantage if ever you should fall into a bad situation.
Protect Your Rental Property
With a little luck and some time, a rental property can be one of the single greatest investments you ever make. However, the importance of protecting it cannot be understated.
Make the extra effort to keep your unit safe. It might have you pulling your hair out for a day or two, but that’s a lot better than looking back and wishing you hadn’t squandered your retirement by failing to take precautions.
Dylan Bartlett is a men’s lifestyle blogger from the City of Brotherly Love. He runs the site Just a Regular Guide, looking at other topics related to health and wellness, relationships, the outdoors and DIY. You can follow him on Twitter @a_regular_guide to get frequent updates on his work.
