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Managing Your Rental Property Investing Risk

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Rental property investing does indeed carry some risk, and as such a good risk management strategy must permeate everything you do.  The good news is that 90% of this risk is manageable and somewhat within your control. 

Obviously the most important thing is to have adequate insurance, which includes property, liability, and umbrella coverage.  Read my page on rental property insurance for complete details and recommendations.

The second most important thing is to manage your rental property investing activities like a business.  This includes forming a legal entity such as an LLC and putting as much as you can under the name of the business, such as the property titles, insurance policies, checking accounts, landlord-paid utilities, etc.  Note that the mortgage itself is not something you will be able to put into the name of your business entity, but that’s ok as long as the property titles are held in the name of the business.  Read my rental property business page for an extreme amount of detail on this.

There are a few other things you can do to manage your risk as well.  For example, make sure there are no hazardous conditions on the property that could cause injury.  Things like loose steps and handrails in particular should be addressed as soon as you become aware of them.  Also, hire licensed contractors to perform anything beyond minor repairs, and never barter with tenants to allow them to make repairs for you in lieu of paying rent.

Also, take the time needed to screen potential tenants as thoroughly as possible.  Although sometimes you just never know, at least doing a thorough job should weed out the vast majority of bad apples.  Finally, get a PO-box from the post office so your tenants do not have your home address.  It certainly does not hurt to retain as much anonymity as possible.

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