Consider the tax equation: One of the biggest mistakes new landlords make is failing to keep track of every cent they spend on their properties, whether it is the cost of repairs or the money spent to pay a gardener, says Stephen Fishman, author of "Every Landlord's Tax Deduction Guide." Even the money you spend paying the mortgage between tenants is deductible as long as you make an honest attempt to rent the place out.
"Put an ad in the local penny saver or on Craigslist, or list it with brokers," says Fishman. You just want to show that you haven't just left the property sitting abandoned. If you earn less than $150,000 per year, you also can take a loss on rental property against your other income, but you have to prove that you actively participated in the business, "which means you're the person who makes the final decisions about everything related to the property," Fishman says.
Find maintenance partners: No matter how handy you may think you are around the house, it's a different story when it comes to maintaining rental property. Tenants will expect you to respond to their needs immediately, and they'll expect the work to be done quickly. If you don't keep up your end of the bargain, not only is it possible that your tenants won't renew their leases, but you could be sued for letting repairs get out of control.
"I'm an expert witness on a lot of cases where landlords are being sued, and they're often being sued based on mold or water intrusion or some other kind of inhabitability item," says Griswold. To avoid problems, you want to find trustworthy general contractors and other maintenance professionals who will not only respond to tenants' emergencies, but who will also perform regular maintenance tasks, such as making sure the smoke alarms are working.
Consider a management company: If you don't have time to screen potential tenants, collect the rent and handle maintenance problems, you might want to consider hiring a property management company. While such firms charge up to 10 percent, they may actually save rental property owners money in the long run, Griswold says.
"A good manager will actually increase the owner's bottom line, even after paying the management fee," says Tony A. Drost, owner of First Rate Property Management Inc., a management company in Boise, Idaho.
For one thing, private citizens cannot legally access credit reports and in-depth criminal reports. To access credit reports, for example, an owner would be subject to an on-site visit to ensure that the owner is operating a business and has measures in place to protect tenants' credit files from identity theft. Property management companies could ease the entire screening process because they have procedures already in place.
Property management companies can also save rental owners money on maintenance companies, Drost says. "Most have a host of maintenance personnel that offer discounted services due to the volume of business that the property manger gives them," he says. If you have residential properties, find a property manager through a trade group such as the National Association of Residential Property Managers or the Institute of Real Estate Management.
Learning the ins and outs of the property rental business can take some time, but with recession fears making every dollar count, the time will pay for itself. "Like anything, if you're going to do it you need to do it right," Griswold says.