It should come as no surprise that one of the risks of owning a commercial or residential property is the possibility of legal action. A landlord-tenant act claim, a lease disagreement, or an injured visitor or tenant might end up in court. But, a well-thought-out rental property plan and estate plan help hedge against this danger.
Although rental properties can be valuable assets in an estate, they can also be challenging for executors to manage. Hence, one of the most important choices an investor must make after closing on a rental property is how to manage the property.
Before going into depth about the tips on how to handle rental properties, let’s take a look at essential information on estate planning.
What is Estate Planning?
The act of estate planning involves handling your estate when you die or if you become disabled and unable to manage things on your own.
The estate planning definition in simple words is as follows:
“The process of making plans for the management and the transfer of your estate after your death, using a will, trust, insurance policies and other devices.”
Although estate planning has been around for a while, it is becoming increasingly popular. You can also seek the help of estate planning lawyers who can assist you in any challenging circumstance.
There are many aspects to estate planning, but you must first thoroughly analyze your estate’s assets. Your estate consists of all the things you have, such as:
- Retirement accounts
Planning can start after you are aware of the components of your estate.
5 Tips to Handle Rental Properties in Estate Planning
1. Calculate The Right Market Rent
It is both an art and a science to determine the ideal rent. A rent price that is too high will deter potential tenants, while a rent price below the market can lower earnings.
When determining the rent, the following factors should be taken into account:
- The region’s median per capita and household income
- The median rent that the competition is charging
- The demographics of potential tenants, such as singles or families
- Property features like an oversized garage or a neighborhood pool that justify a higher rent
To get rent comparisons for a home, use one of the many web services available. Rent is comparable by establishing a fair rent based on a number of things including recent listings, market trends, and nearby service facilities.
2. Leave Your Properties to Your Beneficiaries
Leave the assets to your beneficiaries in your will. But a will-transferred help must go through the probate procedure. Probate is a lengthy, open process that can be expensive. Probate and legal costs will amount to five to fifteen percent of the estate’s value.
The beneficiary or beneficiaries who inherit your rental properties may experience temporary financial hardship because renting out properties while in probate in several states is illegal.
3. Defend Your Other Assets from The Obligations of the Rental
You run the danger of facing legal action—and financial responsibilities if you own rental property. You may need to pay a judgment when someone is disheartening on your property. And you might have a lease disagreement with a renter or receive a fine for breaking the law.
If you own the real estate, creditors may be able to seize your assets to cover absolute estate-related obligations.
Many landlords opt to hold their property in a corporation, trust, or limited liability company (LLC). Your assets may be better protected from creditors with certain beliefs than without them.
4. Maintain The House
Once the renter moves in, the landlord’s duties begin. There will be maintenance and repair issues. The happier the tenant will be, the more likely they are to renew the lease.
It can be a good idea to drive by the property sometimes without disturbing the tenant to check for exterior damage.
Doing routine inspections of the inside and outside of the property after providing the renter appropriate notice helps to catch tiny faults before they become significant and expensive.
Last but not least, completing yearly maintenance on the roof, heating, cooling system, water heater, and appliances can help keep capital expenses under budget. Plus, it can extend their useful life.
Many do-it-yourself landlords use the following strategies to speed up repairs and address maintenance complaints from tenants:
- Create a list of issues that a landlord or cheap handyman can resolve.
- Create a list of qualified people and insured contractors to maintain the plumbing, electrical, heating and cooling systems.
- Get recommendations for reputable contractors and vendors from other area landlords.
- Consistently maintain an emergency fund or CapEx (capital expense) account to prevent having to pay for significant repairs out of pocket.
5. Place the Assets into a Living Trust for Estate Planning
This tactic will bring about many advantages. Privacy comes foremost. By changing the title of the deed to reflect the name of the trust, you can increase anonymity in the database used to look for public land records.
Although the property will now belong to the trust, you can still serve as the trustee if you are of sound mind. This enables you to keep running the investment the same way you did before it was placed in trust.
You can also continue to be the beneficiary of any money earned from the property. The beneficiary you choose in the trust will receive ownership of the assets following your death. This is why wills trusts and estate planning plays an important part.
You put a lot of effort into developing and acquiring your other assets throughout the years and your rental property. As a result, you need to ensure every investment is in your estate plan.
The most advantages and security for you and your family come from careful estate planning considering rental property.