The Business of Being a Landlord
Working as a landlord for a property you own, whether as your main occupation or as a side venture, makes you the operator of a small business. And every business requires organization and a professional approach to avoid making costly mistakes. There’s considerable focus on managing the basics of the landlord-tenant relationship like collecting rent and making repairs, but landlords shouldn’t neglect the business side of the job, or the legal issues that may arise.
All businesses have basic responsibilities for obtaining the proper business licenses, insurance, and filing plus paying taxes. Beyond that, here are some important areas to review.
Many of the elements of being a landlord, whether it’s accounting, taxes, or marketing your property, should make it evident that you’re running a business. One of the most important things for any business is its contracts. The specifics of each of those contracts are vital, to be sure, but equally as important is the insistence upon simply having contracts with everyone you do business with. Don’t hire a superintendent or contractor on a handshake, and certainly don’t rent to tenants without a written lease, no matter how long or how well you know any of those involved.
Contracts protect all parties, and when you’re running even a small business, you can’t afford to take risks. Ensure that you consult with a lawyer for all your contracts and don’t just download generic forms from the internet!
As a matter of course, it’s wise to conduct a yearly inspection of rental properties to ensure overall habitability and condition of major systems. An inspection provides an opportunity for both tenant and landlord to get on the same page; tenants can highlight any needed maintenance or repairs, while you can ensure that upkeep is being done and there are no apparent lease violations.
With regular inspections, landlords avoid any surprises at the end of a lease term, making it easier and less expensive to fix the problems that inevitably crop up. Any inspection should be by-the-book — tenants need to be given appropriate notice ahead of time, you shouldn’t invade the space or their privacy any more than necessary, and the walkthrough should be documented and shared with the tenants.
As with any business, you may have to consider hiring outside help to oversee your properties particularly if there is more than a single unit/tenant. If you bring on someone as a superintendent, that brings the attendant work of being an employer, with employment contracts plus payroll and tax considerations.
You can also make use of a property management company to handle the day-to-day of renting and maintaining the property, with the benefit that, as an independent contracting entity, there aren’t any administrative burdens associated with employees. Property management companies can be expensive, however, and likely of greater benefit for property owners with multiple units or properties to manage and greater profits to draw from.
All but the most skilled landlords are probably limited in what repairs they can handle themselves, and even then some jobs require the labor and supplies only a licensed contractor can provide. In hiring people to do repair or renovation work on your rental property, be sure that you have a contract with any contractors, and that the contract provides for the completion of specified work at an agreed-upon price, or under a master services agreement.
You also want to make sure that dispute resolution is included as well — any provisions that should exist in a contract between businesses.
Early Conflict Resolution
Whether it’s contractors, tenants, or anyone else you may find yourself signing a contract with, disputes over the terms or fulfillment of that contract are a possibility. With that in mind, it’s wise to plan for disputes by including provision in your contract detailing how they’re to be resolved. It’s particularly important to have good communication to solve any problems before they escalate into a conflict requiring legal intervention. There are different options as to how to handle actual disputes, with negotiation, mediation, and arbitration each offering their own benefits and drawbacks. Regardless, make sure that your contracts have specifics so that both parties are aware of how to go about seeking resolution.
Don’t leave the business aspects of your landlord business up to chance, particularly when it comes to contracts. LegalShield members can work with a real estate expert provider lawyer for document review to avoid critical and costly mistakes.
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