In part 1 of this 3 part blog, we reviewed steps needed to understand what you own or have inherited. Now that you have an understanding of the property, you may have decided to keep the property and operate it for income purposes. This blog will review issues relating to owning and operating the property.
In addition to developing a relationship with an accountant, an attorney, and a real estate broker/agent, you will also want to develop a relationship with an insurance agent, a property management company and/or a maintenance company.
Insurance: The largest risk to most landlords is injury to property, people or tenants. Review available insurance policies, costs, deductibles and risks with an agent to understand what you need, want and can afford. While insurance is not a sure fire safe guard, it is a property owner’s first line of protection.
Leases: Now that you are a landlord, the lease agreement between you and your tenants will be of paramount importance. Taking the time to negotiate a good lease that provides clear delineation of obligations and rights of the landlord and the tenant and that allocates the risks between the parties is worth the upfront time and effort. As the saying goes “an ounce of prevention is worth a pound of medicine” – in this case, an attorney-drafted lease will provide you with a customized lease that you know will both conform to California law, but also provide you with protections and options in the event of a default by the tenant. An attorney will work with you and the brokers/agents leasing the property to develop a lease that fits the deal terms negotiated by the broker/agent, while legally protecting your interests.
Management Company: Smaller properties can be self-managed if you have the time, but the larger the property, the more time intensive the management becomes. Electing to retain the services of a professional management company will save you personal time, may add value to the property and serve as a go between for you and your tenants. Management companies can also make arranges for repairs, maintenance, landscape and improvements to the property.
Maintenance Company: Especially if you decide to manage the property yourself, working with a contractor/maintenance company to provide for routine repairs, maintenance and replacement of the property will help avoid tenant complaints and delays in making repairs. Further, establishing the relationship with a contractor can streamline any tenant improvements that may be needed when bringing in a new tenant or re-positioning a space.
Ariel Bedell is a Shareholder at The Loftin Firm. For questions relating to any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at 760-814-9649.