Just because you find a potential rental property that is in your price range doesn’t mean you should go out and buy it. There are some factors that make one property more attractive as a potential rental than others, and some mistakes that should be avoided. When you know what you are looking at and what to avoid, you can be more assured that your investment will be a success. As a good property manager, you will want to know what you are up against.

As an example, very old homes may not make the best rental investments. Older homes are definitely more likely to have major problems or need expensive repairs. This can certainly add up, especially if there are multiple issues that arise. Renters have the right to expect a property to be safe and free from major problems, and your likelihood of problems such as plumbing or electrical issues, leaks, or settling increases with very old homes. If you can spend the money to renovate and update, however, older homes can make for an excellent investment if they are well constructed. Homes with plumbing, electrical or other systems that can break down, or homes with old appliances will end up costing you money, in almost every case.

Another consideration is that homes with pools, either inground or above ground, do not usually make good rental properties. While it may be an attractive option for some renters to have a pool on the premises for their use, many renters with young children may see this as a potential danger that they do not want to deal with. Additionally, you will need to consider the insurance liability issues, as well as the various costs that are associated with the maintenance of the pool.

A high maintenance home will not make for a good rental. You need to decide how much time you are willing to spend each week or each month maintaining the home. The chores of mowing the lawn, taking care of the landscaping or grounds, shoveling snow, or other routine maintenance need to be planned for. Sometimes you can get your tenants to take care of these tasks, but many times tenants are renting for reasons that include not having to maintain their own property. If you want the work done, you should be prepared to take care of it yourself or be willing to hire someone to do it for you. You definitely do not want a rental property that appears to need work or one that looks run down in any way.

One of the most important considerations when purchasing a rental property is the location. This is similar to choosing a location for the home in which you will live in yourself. A property that is close to important life amenities such as schools, shopping centers, churches, parks or other community areas are generally more desirable than those that are far removed. When competing for tenants, it is much like competing for buyers—location matters.

Avoid properties that are less desirable, and make some decisions ahead of time that will help you with property management. Knowing the potential pitfalls can help your real estate investment be far more profitable.

When you invest in rental properties, you will be collecting money every month from your tenants. This is part of the property management. Not only do you need to collect the rent, but it is very wise to insist upon a security deposit from your tenants when the begin living on your property. A security deposit will protect you from the financial hardships that can accompany damages done by your tenants. In addition, if they should attempt to leave without paying you some money they owe you, then you can retain their security deposit in exchange. So, a security deposit can protect you, the investor, in multiple ways.

What you charge for a security deposit can vary, depending on the individual circumstances. For instance, there are some states that have specific regulations regarding how much money you can collect. It is in your best interest to collect the highest amount allowed by law, to prevent any hassles down the road. Many landlords demand a security deposit that is equal to one and a half times the amount of the monthly rent. There are a couple of circumstances that may change the amount you collect from your tenants.

One potential situation that may require a security deposit adjustment is when your tenants have pets. If you are going to allow pets, then you are placing your property at an increased risk of damage. Another situation that would require a higher security deposit is when your tenant has a waterbed. Poor references may be another circumstance that could prompt you to demand more. In any of these situations, you will want to have more money as a security deposit, provided it is still within the legal limit.

All security deposits should be collected before you allow your tenant to move in. Do not hand over the keys to the rental property until you have collected the full amount of the security deposit, or else you run the risk of not collecting the security deposit and this totally defeats the purpose. Allowing a tenant to make monthly payments toward a security deposit is a bad idea, as well. And, common sense dictates that you should not accept a personal check for a security deposit unless you cash it prior to the tenant moving in and ensure that there are adequate funds in the account.

Be sure to verify any local or state guidelines regarding collection of security deposits, and how you must account for it while the money is in your possession. Some landlords will complicate matters by breaking down the entire security deposit into smaller fees: such as “key deposit,” “final month’s rent,” or “cleaning deposit.” While this may make sense at the beginning of the process, it will quickly become very cumbersome and confusing. Charging one lump sum and determining at the time the tenant leaves what is owed is much wiser. Additionally, formally including a statement in the lease that the security deposit is not intended to be the last month’s rent is wise—people who intend to use the deposit for this purpose are far more likely to leave your property in poor condition. If you have to use the security deposit for the last month’s rent, then you get stuck with the cost of any repairs or cleaning fees coming out of your own pocket.

If you are going to be in charge of your own property management, then you will need to learn many “tricks of the trade,” including how to best handle matters involving security deposits.

Those property owners and investors who fail to plan for maintenance and repair costs in their budgets will find themselves disappointed in their profits. Not all income that is over and above the actual mortgage payment is profit, you must consider routine maintenance as part of your investment cost. It doesn’t matter how well-maintained a property is, there are always going to be maintenance to keep up the property and repairs when things break, as they inevitably will. Budgeting for these expenses will make them less likely to dip as far into your profits.

Consider maintenance and repair costs prior to actually purchasing the home. All of the budget numbers need to be incorporated into your calculations as you make your investment—including maintenance and repairs. Many investors do not allocate the proper funds for this purpose and only include those costs that are associated with the actual mortgage, insurance and taxes.

Being observant will help you to identify may of the repairs that you may need to do. A huge consideration is the age of the roof. If you can make an estimated guess about when the roof may need to be replaced, then you can plan accordingly. Additionally, all of the main systems of the home should be carefully inspected to estimate their lifespan and guess when you may need to pay for the repairs.

When shopping for property, you should be careful to consider certain factors. The first is the type of property, because this will have an effect on property repair costs. For example, a property with a brick exterior will never require the exterior upkeep that painted siding will.

Secondly, you need to consider the size of the property. Obviously, smaller properties are easier and less expensive to maintain than larger properties. The larger the property, the more expensive things like a new roof, siding or painting will be.

The location of the property will also play a role in the budget for maintenance and repair. Consider how far the property is from where you live, because you will be likely to make many trips during the maintenance or repair stages, which can certainly add up to a huge expense if you are not careful.

Third, decide whether you will be using a manager for the property or if you will be handling the maintenance work and repairs by yourself. When you hire outside help, it will no doubt be more expensive, but it will save you tremendous amounts of time and effort, depending on your skill and experience.

Some problems will arise from time to time that you will not be able to plan for or handle by yourself. Budgeting for these “emergency” types of repairs, such as sewer backup, storm damage, leaks, or appliance breakage is important and variable. To be safe, it is smart to prepare to spend 1-2% annually (based on the property value) for unexpected repairs.

Planning ahead by budgeting for repairs and maintenance issues, you will be better prepared when these things pop up and it will be less of a financial surprise or hardship. For assistance, contact a Michigan property management company.

Anytime that you invest in a rental property, you need to have a clear understanding that there are strict local, state and federal regulations that will govern much of what you do. These regulations are in place to protect both landlords and tenants alike. These regulations are a legal matter and must be disclosed to both parties. Failure to make proper notice and disclosure can result in significant legal trouble and be quite expensive to fix.

Some required disclosures do vary among different localities, and it is always wise to do adequate research regarding any regulations for a specific area. However, there are certain regulations that are commonly found in most areas.

1. Lead Paint: Lead disclosure is a federal regulation. You are required to know when the property was built, especially if it was constructed before 1978, when lead paint was commonly used. If there is lead paint on the premises, you are required to provide a specific federally published booklet to your tenants and have them sign a disclosure stating they are aware. The booklet is entitled, “Protect Your Family from Lead in Your Home,” and can be obtained from the Environmental Protection Agency (EPA).

2. Hazardous Materials: Some localities require this notice which essentially is intended to notify tenants regarding various potentially toxic or hazardous materials were used in the construction of the property.

3. Mold: The presence of mold can result in huge liability for the property owner. Be sure to check for the regulations regarding mold notification in your area.

Certain addendums that you provide to your tenants may not be related to anything harmful or potentially hazardous. Many times, addendums are related to specific rules that you have as a landlord, that they need to be notified about.

A common addendum that is used by landlords is a roommate addendum. Many landlords will notify their tenants that each and every roommate that lives in the unit will be held liable for any damage done to the property. This will protect the landlord from having to make repairs when one roommate takes off, leaving the remaining roommates who claim they are not responsible for damages.

Pet addendums are also very common. If, as a landlord, you are planning to permit your tenants to have pets, then it is imperative that you get a full description of the pet that will be living on the property. Deciding to allow a tenant to keep their mature, well-trained dog is far different than discovering the presence of a puppy who is chewing and soiling. Having an addendum in place ahead of time will protect you. Additionally, even landlords who allow pets may have limitations regarding certain sizes or breeds of animals, and try to avoid pets such as aggressive dogs that may pose a biting risk to other tenants or neighbors.

There are a few other considerations as you try to put addendums or notifications in place to protect your property. If you are planning to allow tenants to have pets, you would be wise to require a higher security deposit. It can also be very helpful to get references from previous landlords to determine whether the tenant has proven to be a responsible pet owner in the past. It is also within your rights to require that the tenants show registration papers or vaccination records for their pets. For assistance, contact a Michigan property management company.

When you make a serious investment like the purchase of an investment rental property, you should be well aware of the potential risks associated. Being sued as a landlord is expensive and time consuming, and you do not want to be found liable for problems or issues that arise related to your property. Here are a few tips to help you learn about protecting your investment and yourself and avoiding potential liability.

The first thing that you need to take care of is ensuring that you have the proper insurance for liability, casualty and property. Each of these three types of insurance is different and you need to make sure that you have adequate coverage in each area. Remember that if someone should sustain an injury on your property, it is not your property insurance that covers the damages, you need liability coverage as well.

Most damage that can arise from storm, fire, or other catastrophic occurrence will be covered by your property or casualty insurance. The liability portion of your insurance policy intends to protect you and your assets in the event that you are found to be responsible for an injury or loss sustained by another person while on your property. Certain areas will also require that you carry flood insurance in addition to your standard coverage. An umbrella insurance policy is wise when you are at risk for sustaining greater liability than your policy may cover.

There are several circumstances in which you may require liability insurance. If a tenant or employee is injured on your property, liability insurance will protect you. Additionally, liability insurance can help to protect you if you are ever sued regarding alleged discrimination by applicants or renters.

Whenever you hire someone to do any work on your property, be sure to check that they have their own proof of insurance. Most contractors will quickly provide you this evidence, indicating that they not only carry liability insurance, but also workers’ compensation coverage.

Schedule a regular review with your insurance agent to verify that you have adequate protection. Even if you initially take out a policy that has adequate coverage, your circumstances can change over time and you do not want to find out the hard way that your coverage is less than you need.

Be sure to have an attorney that you trust, as well as a tax advisor or accountant that can help you track costs and deductions adequately. Plenty of federal and state regulations govern rental property ownership, and you should always keep yourself informed about housing laws, insurance issues, and tax information. Unknowingly violating these laws will not prevent you from getting into legal trouble.

Find out if you need a specific business license in order to run rental properties in your area. More and more municipalities are requiring this as a regulation. For assistance, contact a Michigan property management company.