So, You’re Thinking About Becoming a Landlord?

By: Michael Safren, Esq.

If you are thinking about becoming a landlord, or have just started a rental business, there can be a lot to think about, especially in these turbulent times.  Most aspiring landlords know that they must find tenants, sign a lease, and collect rent; however, there is more to consider to be a successful and effective Landlord.  Here are some essential steps that you should take to ensure that your personal assets and your new business are protected.

Protect your assets from your liabilities.

It is important to make sure that your rental property is working as hard as it can for you, and that your personal assets are protected from any liability that your investment property might expose you to.  Some examples of liability that landlords may face include: injuries to the tenant and their property that occur on your rental property, damage to surrounding properties resulting from known tenant behavior or landlord negligence, claims by lenders and creditors for money lent to the landlord or for the rental property, and torts that a landlord may commit while operating the rental business.

One of the best solutions to protect your assets, limit your liability to creditors, create clear business boundaries for your rental property business, and assist you in the management of your rental property or properties is to create a limited liability company (an LLC) to own and operate your rental property business. 

The best time to form your LLC is before you acquire the property.  If you are thinking of becoming a property investor, or acquiring a rental property, it is best to form your LLC before you buy the property because issues such as financing, insurance, accounting, operating, and management systems and expenses, and rental agreements should all consistently reflect the name of the LLC.  Making these changes after you start your rental property business becomes more complicated and takes more effort.

The creation of an LLC can take some time and does come with expenses.  The State of Washington charges a fee to register your LLC with the state and you may also need to register your business with the city or county where your property is located.  You will also need to file yearly reports with the State and other jurisdictions.  Although you can create an LLC on your own, it is important to consult with an experienced business attorney to make sure all the necessary steps are completed to ensure your LLC will work as intended.  The cost of an attorney before you start is much smaller than the cost of needing an attorney to fix any issues that arise later on.

Develop a team of professionals.

Having a great team around you is important, whether you’re trying to win the Super Bowl or are a band of superheroes trying to save the world.  Remember being a Landlord is a business.  When you are starting or engaging in business like a renting your property, having a team that knows the business can help you navigate and avoid potential pitfalls.  Your team should include an experienced real estate attorney, a mortgage advisor, a financial advisor, and a tax professional.

Protecting yourself and your property should be priority number one when leasing your land, home or property to a tenant.  Having a lawyer on your side through the process can make all the difference. Hiring a lawyer to draft your lease agreement will save you time, money, and frustration down the line. Real estate lawyers are knowledgeable about both state and local laws, fair housing and state leasing regulations.  

Operating a rental property is a business, and sometimes, you need to make the difficult decision to evict a tenant.  There can be a number of reasons that you, as a landlord, may need to evict a tenant.  Whatever the reason, you should get legal counsel before attempting to evict a tenant because a failure to follow the legal requirements for an eviction will result in the court denying your attempt to evict the tenant and could result in civil liability for you, the landlord. 

Your mortgage, financial, and tax advisors can help you make sure that your money is working as hard as you do, as well as ensuring that you aren’t inadvertently running afoul any financial or tax laws and regulations.  If you are looking for an experienced mortgage, financial, or tax advisor, ask us!  We’d love to help you build your team!

Make sure your estate plan is up to date.

Comprehensive estate planning is more than just signing a Will and calling it a day.  A comprehensive plan considers your current life situation and accounts for the goals you have for your assets and for your family.  These considerations can be especially important for people who own investment properties because of the possible tax burdens, questions over the administration of the investment property, and the potential liability involved in operating an investment property.  Failing to make a plan for your rental property could lead to significant difficulties and conflict over the operation of the investment property, additional taxes, and confusion for your loved ones when it comes time to administer your estate after you die.

Get started right!

Owning rental property is a great way to increase your net worth, increase your monthly income, and provide the valuable service of housing to your community.  But it is important that you take steps to ensure that your personal assets and your new business are protected.  Contact Us if you are a landlord or are thinking of becoming one so we can help you get started right!

Michael Safren is a Partner at The Law Offices of Jenny Ling, PLLC.  His practice focuses on business, real estate, and civil litigation.