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The responsibility of the owner of a real estate property are not transferable to the tenant once the property is rented. The owner is the ultimate party responsible for the property and can share some of these responsibilities with the tenant if the contract is structured properly.
Before we decide to rent a real estate property it is recommended to comply with certain general and economic points that should be avoided.
1) Have the property in habitable condition for use.
2) You are unable to evict tenants before the end of the contract, or extensions if there isn't a breach of contract by the tenant.
3) The liability for damage caused by the real estate to the community is on the owner.
4) The owner hold a responsibility to the other tenants and members of the neighborhood association.
5) You must pay attention and control tenants to comply with the rules of the community of neighbors and caring of real estate property.
6) It is advisable to keep the unit in good condition so that the rental is more feasible. When renting is advisable to invest in paint, review and care of furniture, and appliances
7) The overall costs of real estate correspond to the owner. It is possible to agree with the tenant to take over him, but the control is still the owner responsibility.
9) Spills and other waste coming from improvement jobs in the building are the responsibility of the owner of the real estate.
However, the costs for the owner are deductible (under the conditions that mark the tax) and also enjoys significant rental deductions. - It is advisable to have at least one real estate insurance -multi-hazard and if possible with default rent insurance, which means additional expenses to consider.
Management companies are a viable solution to delegate all the tasks associated with the responsibilities of owning a rental real estate property, although the legal accountability can not be transferred to the management company, the task can. Management companies usually charge a percent of the rent, this expense should be calculated in the property annualized expenses to find out whether the property will yield positive cash flow. Management companies will for the most part handle everything from maintenance of the property to collecting the rent; this type of service allow the investor to produce passive cash flow, thus allowing the investor to emulate the same process as many times as desired.
Although management companies do not eliminate the legality of being a owner, forming a limited liability company can reduce it. Essentially instead of buy real estate investments under ones name, one simply forms a limited liability company and operate the investment under the new entity. This can reduce the risk of losing everything the owner of the property is sued. This is the method used by most big time investors, it allow to diversify the risk among different legal entities thus limiting the financial damage that any single entity can suffer. If you already own real estate investment properties under your name there might be tax implications to transfer them to a new entity, therefore it is better to just buy the real estate under the name of the entity that will hold it for the projected time of the investment.
Insurance can also provide some protections in the event of damages caused to other from resulting from the property. Insurance comes in various forms and they offer different protection levels, but some insurance companies offer coverage people injured in the property.
Delegation in the form of management companies and protection in the form of limited liability companies and insurance can provide a robust model from implementing an investment strategy that protects the investment and allow for a remote management architecture. Although one can not be protected from all events the remaining risks are very manageable and rarely encountered. This is one of the advantages of investing in real estate in a developed country where laws are matured and professional companies exist to perform otherwise tedious tasks. At the same time the enforceability of laws in developed countries is more exist, thus making investors more liable for mishandled responsibilities, but that's what give credibility to the market, showing that laws are enforced fairly and consistently. The real benefit of investing is realized when outcomes can be predictable and a clear separation of responsibilities is understood by everyone.
Lastly no matter how much you delegate your responsibility as a real estate owner always stay informed of law changes and review and audit the contract and work of the management company to ensure, after all it in your best interest to do so. Also review the insurance policy once a year to ensure recent circumstances are not leaving exposed to unnecessary risks.
