The lasting impact from the Great Recession has a direct correlation to the prevalence of working class families who have become rental property owners. Mainstream shows on television like “Income Property” have provided information to people on some of the nuance of renting properties. Some rental property owners have become landlords by accident due to unforeseen circumstances while others willfully choose this route in order to create another income stream. Websites like Airbnb, Zillow, and Craigslist have created an easy way to connect people who need homes with people willing to provide them. However, there are some key considerations that new rental property owners should keep in mind when starting this new adventure.
1. Landlord-Tenant Laws
You’ve decided to take the plunge and become a landlord but do you understand some of the duties and responsibility that is required of you by law. Being a landlord can be an intimidating adventure but don’t let that scare you away. You’ve planned for this moment and with some helpful tips you can be successful.
a. Require a rental agreement from each of your tenants. Although contracts for less than one year are not normally required to be in writing, you will save yourself and your tenants a lot of heartache if you have a well written document that outlines everyone’s expectations and responsibilities.
b. Understand what rights and obligations that the landlord has toward the tenant. Ohio law has a whole section that deals exclusively with landlord obligations.
c. Understand what rights and obligations that the tenant has toward the landlord. Ohio again spells out, in a robust fashion, the obligations of the tenant.
d. Ensure that you are complying with both State and Federal laws concerning Anti-Discrimination and Fair Housing.
2. Liability Protection
I cannot stress enough the importance of protecting yourself from potential liabilities that may arise from being a property owner. Even renting a property to your cousin, who you’ve been best friends with since birth, can potential cause issues for your finances if someone is injured while on the property. There are various ways that you can protect yourself including:
a. Setting up a limited liability entity for every property and placing the property within that entity. Now this can get a little complicated so it may be best to seek the advice of an attorney.
b. Obtain a separate Landlord Insurance policy. Some insurance companies will not cover claims if the homeowner is not living in the property so a separate policy for the property should be sought.
c. Require your tenants to obtain a renter’s insurance policy. Your Landlord Insurance policy should protect you and your property but may not cover damage to the property of the tenant.
So, you’ve gotten your first rent payment from the lovely couple you met last weekend. That can be an exciting feeling until you realize that you don’t get to keep the whole check because your favorite Uncle Sam would like his share. Taxes are something that you “cannot live with and cannot live without.” However, taxes don’t have to be daunting task if you take the time to properly document and understand your obligations.
a. Report all income that you receive from your tenants including rent payments, advance payments, and early termination fees. If you require a security deposit, who wouldn’t, then understand that this may not be earned income and may be required to be reported at a later date (i.e. a breach of the contract by the tenant).
b. Take advantage of various deductions that may be available to you including mortgage interest, property taxes, and depreciation. In addition, you may be able to take a deduction for some of the expenses you’ve incurred to operate your rental property including advertisement, management fees, and maintenance.
c. Unless you’ve created a corporation with a board of directors and a long, solid wood table, your income and deductions will most likely be “passed-through” to your personal income tax return.
If you want to better understand your responsibilities, need assistance with setting up a legal entity, or have questions about your tax obligations as landlord, let Robinson Legal help. We would be happy to discuss your unique situation and help you navigate the complexities. #robinsonltd