Know the Laws
Before getting involved in real estate ownership, know and understand the local and state laws – this includes laws pertaining to landlord-tenant relationships and property ownership. For example, there is no income tax for properties in Nevada. However, if you live in Nevada, and own rental property in California, you are required to pay income tax to the state of California. This knowledge can deter one from investing outside of Nevada, if they have residency in the state.
Also, get familiar with the Fair Housing Act, which is federally identified. This act prohibits discrimination in real estate transactions on account of race, color, religion, sex or national origin. However, some states create additional rules related to the Fair Housing Act. The stricter law of the two will apply to your property.
Additional aspects to familiarize yourself with regarding the law includes agency laws, license laws, limitations on land use, ownership rights and forms, property disclosure requirements, tenant’s rights and rent control, transfer of ownership restrictions, and more.
Make Sure Your Lease Agreement Covers Everything
As a remote landlord you are at a disadvantage – you are not present to ensure your property is running smoothly. One way to provide peace of mind is to create a lease agreement for your tenants that covers all aspects of their tenancy. The agreement should cover the basics including amount of rent, when rent is due, consequences for failure to pay, procedure for approval of pets, consequences for damages to the property, security deposit, and notice requirement for vacating the property. It should also outline the laws pertinent to landlord-tenant relationships.
Some long-distance landlords may find themselves renting an apartment to a new tenant without the opportunity to show them the apartment or home. If this is the case, include in your lease agreement a “Sight Unseen Clause.” This clause will outline that the tenant is accepting the property “as-is,” recognizing that he or she has not seen the unit, and that the tenant takes responsibility for the cosmetic condition of the unit. Although this is not recommended, it is imperative to include in such cases.
For all landlord-tenant agreements, it is recommended to seek the assistance of an attorney. They can ensure that the agreement protects the landlord and the property.
Get Insured: Landlord Insurance, and Personal and Property Liability Insurance
Insurance is recommended for all landlords (read our article about landlord insurance), whether you live across the country or next door. Insurance policies provide added protection for financial loss and obligations, beyond what homeowners insurance covers. Long distance landlords however may want to add additional coverage since they are not able to complete inspections often.
Beyond landlord insurance, a distant landlord will want to have personal and property liability insurance. As a general rule, landlords much be prepared for the worse – false allegations from tenants, illegal activities by tenants, or injuries on the property. Proper insurance will protect landlords from financial loss due to unexpected circumstances.
For insurance best suited for your situation, consult with an insurance broker. They will be familiar with potential issues as well as the market, and provide you as a landlord with the most protection.
For further protection, get references from your tenants. If they treated their last property well, they are more likely to take care of your property.
Know the Market
When investing in markets outside of your comfort zone, it is important to stay up to date. Identifying appropriate market rents can ensure revenue and keep your units prices competitive, yet appropriate.
Prior to purchasing an asset in any market, know that trends and expected vacancy. If vacancy is high in the area, ask yourself if the property is right for you.
Invest in Finding Tenants
The key to success is finding trustworthy tenants – they can make or break you as a landlord. A tenant has the ability to destroy property and refuse rent. Although laws prohibit these actions, a long legal process can create a financial burden for any landlord confronted with irresponsible tenants. Therefore finding good, long term tenants is essential, especially for long distance landlords.
The further you are from your property, the more challenging it is to determine the actions of the tenants – are they taking care of the property? If you invest the time and money in finding honest, low-key tenants, it will pay off in the long run.
Always meet your potential tenant – do not rent to someone over the phone or internet. Getting a feel for them in person can be a strong indicator of who they are and what you can expect from them. Once you have met them (or before, however this can become more expensive), check their financial stability and rental history. Through credit reports, rental references, income sources, and background checks, you can complete an in-depth assessment of who they are. Only if they pass your comprehensive assessment should you sign the lease with them.
Although at times you may feel rushed to “just get a tenant in,” this could ultimately backfire in the end. Make sure you have someone move into your property that you have full confidence in.
Don’t Be A Stranger And Visit Your Property
Whether you decide to hire a property manager (which we will get into later), or not, be sure to stay present in the lives of your tenants – keep your lines of communication open. This will benefit both you and the tenant. They can report to you any issues with the property, and you can have peace of mind that things are running smoothly at your property. Regular communication also demonstrates hands-on management, which creates accountability for your tenants.
On top of staying in communication, visit your property often. It can be challenging if you live far away, but regular check-ins at the property provide tenants with an inclination to keep the property nice. And remember, travel expenses to the property can be deducted as a business expense!
Keep It Simple – Accept Automated Rent Payments
Although you may be inclined to accept checks for rental payments, this only creates opportunities for tenants to miss payments. The risk for the tenants “lost in the mail” excuse provides opportunity for you to not get paid. Today, there are management softwares that allow tenants to pay via ACH or credit card. Although this is an additional expense, it can ensure payments are made monthly and on time. Be sure to include this requirement in your lease agreement.
Have Connections in the Area
Make local connections so that they can check up on the property for you. If you have friends and family in the area, great! That is an easy resource to provide certainty that your property is best being taken care of. If not, find someone you trust.
As a distant landlord, you will need to have someone available who can provide support to tenants in case of emergency – for example, if someone locks themselves out of the unit.
Again, Invest – This Time In Maintenance
There is a twofold process that can help reduce hazards related to maintenance. First, prioritize inspections. Personally complete routine inspections – check out the condition of the property, complete seasonal maintenance, and confirm tenants are living up to their expected terms of the lease. Completing the inspections both creates certainty that your property is well maintained, and allows the tenant to understand that you as the landlord you are present and aware of the conditions of the property. Secondly, hire someone within a close proximity to be your maintenance person. Having a hired worker in the area can ensure timely service on your part, and save you the hassle of driving or flying to the property for reported issues. Once again, these costs will be considered business expenses.
Make It Easy – Hire A Great Property Manager
To reduce hassle and guarantee your property is suitably managed, hire a property manager. Whether your are 10 or 100 miles away, a professional can be a beneficial asset to your team and ensure revenue is maximized.
When hiring a property manager, take your time and find a trustworthy company – remember, you are placing your future in the hands of this company. Vet their services and get referrals. Once you have found the company that best suits your needs, pass the management responsibilities onto them. Although your may incur additional monthly expenses, most likely in the long run you will be saving money.
Investing in properties outside your market can be a smart decision – just be sure that you as the landlord, you are educated and effective to provide security for your future.