The purchase of an investment property brings a lot more to your plate than merely paying the mortgage and insurance payments. If you plan on renting out the home, you open yourself to a new set of problems, many of which are avoidable with common sense and knowledge. The following tips may seem basic, but it’s surprising how many landlords, especially new ones, neglect even the most basic tasks.
1. Know the laws
It is important that you learn Wisconsin’s laws regarding your rights and duties as well as tenant’s rights. You can find additional information here, here and here. Then, sit down with your attorney if you have any legal questions, questions about Fair Housing Laws or about your rental agreement.
2. Learn how to screen tenants
Choosing your tenants wisely is the key to fewer headaches during their tenancy. First impressions aren’t something to rely on – always vet tenants thoroughly. The screening may include:
- Credit history
- Criminal background
- Employment verification
- Rental history check
To avoid Fair Housing complaints, make your screening procedures consistent for all prospective tenants.
3. Protect yourself with the right rental agreement
Even if your tenants are renting on a month-to-month basis, put the rental agreement in writing. The agreement should clearly state the terms of the lease and the responsibilities of all parties. At the very least, the agreement should include the following:
Names – name each adult tenant in the rental agreement. This makes them each responsible if one of the others can’t pay the rent.
Terms – clearly explain the terms of the tenancy, whether it’s month-to-month or for a specified period of time.
Rent – list the amount that is due each month, when it is due and how the tenants should deliver the rent to you. Also make note of what forms of payment you accept and the date on which any late charges will occur, and the amount, if rent is late.
Deposits – Landlords collect money for a number of reasons including security, cleaning, pets, keys and others. List these and the amounts in the lease. Also make it clear which are refundable and under what circumstances.
Maintenance – The lease should contain a clause about maintenance ― who is responsible for what, how to contact you in case of emergency maintenance needs and the procedures to follow for non-emergency maintenance requests.
Pets – If you do not allow pets, this must be clearly detailed in the rental agreement. If you do allow pets with size or breed restrictions, spell that out in the rental agreement as well.
Right of entry – Detail your legal right to enter the unit to make needed repairs and specify the amount of notice you will give the tenant (according to Wisconsin law).
4. Make needed repairs
As the landlord your primary duty is to maintain the property so that it remains a healthy and safe place to live by making the needed repairs to keep it that way.
Making timely repairs is also in your best interest; small problems have a tendency to mushroom into exorbitantly expensive fixes and, besides, making repairs in a timely manner helps you retain good tenants.
5. Respond to emergencies quickly
Let’s face it, whether in our own homes or in rentals, emergencies happen. Maybe it’s a broken pipe or a natural gas emergency. Preparing for the unexpected by having an emergency fund is crucial if you plan on remaining a landlord.
Most experts recommend that we have cash reserves to cover our minimum personal expenses for six months. This is good advice for the landlord emergency fund as well. In fact, it’s a good idea to have at least 5 to 10 percent of the property’s value in an emergency fund.
To make it less painful to build the fund, set aside a certain amount of the rent received each month until you reach your goal. MrLandlord.com has a handy calculator that helps you determine if you’re setting aside enough money and how long it will take to build your emergency fund.
Remember to keep the emergency money separate from your personal funds.
Investing in rental properties in Madison is an excellent way to build wealth. While you’ll hear many horror stories from fellow landlords, if you bone up on Wisconsin law, have a hefty emergency fund and properly and adequately screen potential tenants you will make money.
Posted by Jolenta Averill on