Yep, there are disadvantages to every situation, but don’t let that prevent you from getting into the real estate investment game. You just need to know how to protect yourself and your rental property. Here are five major mistakes to avoid when you own and rent a home (or even just a room), so you can focus on making money—not pouring more money into a poorly managed investment. However, you have to request permission in writing to run a background check. So be sure to have a separate form from the rental application for this. You also must run background checks on all applicants. Do not pick and choose which ones; this is against Fair Housing Laws. You can charge a rental application fee to cover the screening costs. (This fee serves double duty by likely weeding out candidates who aren’t that serious about renting from you). Be sure to disclose the cost of the fee in your rental listing—and again when showing the unit. Although the screening process can be a bit lengthy, it’s definitely worth the time and investment to find qualified renters. There are a variety of ways to verify proof of income. Some applicants may supply pay stubs, tax returns, or bank statements. Make sure their proof of income is current and verify with the employer by phone to ensure they are still employed. Not verifying proof of income can be a costly mistake. Don’t forget to specify the renewal terms as well. For instance, does the lease automatically renew for the same terms, and if so, how far in advance do you require notification of the tenant moving? This clause is applied to you as a landlord as well; if you decide not to renew the lease, then the tenant needs an allotted amount of time to move out. The lease should also mention any late fees, eviction clauses, and details about the deposit. Be as specific as possible. You can ask the reference relevant questions, such as whether the tenant paid their rent on time, left the apartment or house damaged, or gave proper notice to vacate. This knowledge can help you weed out unreliable applicants so you can rent to someone responsible. Of course, sometimes unforeseen things happen, but this will help you determine whether an issue is likely a one-time thing or repetitive behavior. So unless you can afford to house your relatives for free, be sure to write up a lease just like you would with any other applicant. Before renting to a family member or friend, you should first consider whether it’s worth risking the relationship—similar to deciding whether to loan a loved one money. What could this do to your relationship if the transaction doesn’t work out well?
