Owning a second property can be a good investment, especially if you decide to turn it into a rental property. However, as with any investment, there are pros and cons, and it is wise to know what you are getting into to ensure you do not run into any legal issues as a landlord.
Essential issues to consider
There are different issues to consider depending on the type of rental you are considering. For example, if you are considering a short-term rental of your primary residence, you may only need to take out insurance for the rental period. If the rental is a one-off, your existing home insurance provider may be able to cover this. However, if the rental of your primary residence is going to be a regular occurrence, you will be starting a business and you would need more than just homeowners insurance.
The most common scenario, though, is for people to rent out their second property, usually their holiday home, which is often a cabin or lake home. In these cases, you become a landlord and require more property protection than a homeowner. Your property will be used by strangers, and although you hope they will treat the place well, there is a possibility that they will damage the building. There is also the possibility that facilities will break down, such as the heating or the plumbing, which could cost you dearly if you lack insurance to cover these. A landlord’s insurance will only provide cover for the building. It will not provide cover for your tenant’s personal possession, so to avoid disputes over personal contents, it is wise to get your tenant to take out renters insurance before the lease is signed.
Not only do you need to protect your property when you rent your home to others, you also need to protect yourself. You may end up renting your home to a tenant who raises a dispute with you over some matter. To keep things clear, you should organize a tenancy agreement that sets out both parties’ rights and responsibilities. To avoid loopholes, you should have such an agreement drawn up by someone, an individual or firm, who knows about the real estate sector. One such company is DLA Piper, who provide advice on all types of real estate litigation, including disputes. More information about the company can be found on Bob Bratt’s blog. Bratt is the company’s chief operating officer.
You will also need to be aware of local laws and relevant tax codes in regards to rental properties. To this end, do your research into state, federal and local housing laws, and employ a certified public accountant to take care of the tax side of things. Always get any agreements in writing rather than relying on a handshake.
A second property that sits empty for most of the year presents a great opportunity to make extra income. Just be sure that you protect yourself against damage and legal infringements by doing your homework and consulting real estate professionals.