2. Only if it makes your life easier
2a. Money is money and its all yours. pay how you prefer. If you do a separate bank account it could be easier. That way you dont accidentally spend your mortgage payment.
3. Escrow account is pretty common.
4. all depends on the contract. You can make them take care of it how ever you layout in the contract and impose penalties if they dont.
1. Join your local rental association (Illinois Rental Property Owners Association and affiliates). They may offer classes for beginners (Landlording 101). They will also keep you abreast of laws that affect you. Find someone there who can be your local mentor.
2. Invest in a few good books about landlording. Many recommendations from other landlords can be found here on BP.
3. Listen to BP podcasts about landlording; there are a few, including mine :-)
4. Create a mission statement and establish a management style that suits you.
5. Rental Agreement - Whether you decide to go with a Month-to-Month agreement or long-term lease, make sure it's a good one. We prefer MTM.
6. Insurance - Talk to your insurance broker. If the home isn't owner occupied, there's more risk to the insurer, so they need to know. They will typically require a landlord policy or fire policy, the name depends on the insurer. Also, require your tenants to have renter's insurance.
7. Banking - Establish a separate bank account for your rental property business. We find it best to have a checking account (for operations), savings account (for capital expenses), and a money market account (to keep security deposits). Mortgage payments are an operations expense.
8. Taxes - At tax time you will be filing a Schedule E, so simplify your bookkeeping by using categories that match well with that form. This would be a good time to talk with a qualified tax professional, well versed in working with landlords and rental properties. Prepare strategies now for tax savings later.
9. Lawn Care - It's up to you. Whatever you decide, make sure the terms are clear in your rental agreement. Here's what's in ours:
LANDSCAPING/YARD CARE. Regular landscaping/yard care (mowing, edging, trimming, fertilizer, weed control) will be provided by ____(check one)____ [ ] Landlord [ ] Tenant .
For all Tenants:
a.Tenant agrees to keep yards, walkways, patios and decks clear and to keep premises free of junk and debris.
b.Tenant accepts liability for all landscape damage and/or replacement of such, if caused by neglect, abuse or lack of water.
c.Tenant may plant the beds adjacent to their dwelling to their liking, but only with those plants that are of appropriate size and type for the beds.All plants brought or caused to be brought to the property by Tenant will be cared for by Tenant.
d.Tenant agrees not to cut or prune trees, hedges and shrubs.This will be Landlord’s responsibility.
e.Tenant agrees to properly dispose of all plant debris and agrees to not leave such on the property.
f.Landlord will consider special Tenant requests for planting and removal of plants, shrubbery and trees, but reserves the right to determine the make-up of the landscaping.
g.Tenant agrees not to grow marijuana on the premises, indoors or outdoors.
For Tenants of single family homes only:
a.Tenant agrees to mow, water, and keep the grass, lawn, flowers and shrubbery thereon in good order and condition, applying fertilizers and weed retardant as needed.
b.If Tenant fails to keep the landscaping in good order and to follow these guidelines, Landlord reserves the right to hire a landscaping service at Tenant’s expense (after a 10-day notice to perform covenant).
c.Landlord reserves the right to restore the landscaping to its initial condition, as it was at the time Tenant began occupancy, or if improved during Tenant’s occupancy, to the level of such improvement. Restoration will be at Tenant’s expense.
2. Should I open a separate bank account for all rental income and expenses that will occur?
From my understanding you should have a separate account for all rental property expenses. It prepares you for tax season and allows you to easily determine whether or not you have a cash-flowing property.
2a. Do I then pay my mortgage from that account?
4. Lawn care, is it the tenants responsibility? What if they don't take care of it, as I would like?
You can put lawn care in the contract for t to be the tenants’ responsibility. But, if I’m being honest from personal experience the tenant is renting to not have to take care of anything outside of the home and they will either neglect or do the bare minimum to the lawn. Therefore, when they move out of the property you will have to re-landscape because it will not have been maintained to a level that you would approve of.
5. What else am I forgetting?
Listen to Real Estate podcasts (BP included) and buy/rent from the library some books to give you a glimpse into some of the questions and answers you may have not even considered up to this point.
I hope your first rental goes smoothly!
Locate the Chicago Creative Investors Association. Run by Jane Garvey they meet in Lombard and are a Chapter of the National Real Estate Investors Association. Join that REIA.
Tell your current insurance carrier that you are "considering" making your home a rental property and that you would like a quote to see if it is possible. Get other quotes as well. Jane's group has a members only insurance program that is very, very affordable.
Starting out don't get real concerned with business entity's. Go to the court house and file to be a sole proprietor. When that process is complete go to irs.gov and get a tax ID number. This will then be a schedule E entry on your personal income tax return.
NEVER PAY PERSONAL EXPENSES OUT OF YOUR BUSINESS ACCOUNT! You can reimburse yourself or have an owners draw. So yes open a business account with the new tax ID number.
Open a savings account to hold their deposit. Once you get to ten rental units or acquire a mulit-family unit you may be required to pay interest on resident deposits. Check with your lawyer.
Lawn Care - What does your lease say. They fail give them a 10 day warning and advise them what it will cost you to have it done. Then if your lease is worded properly you can apply the next rental payment to that amount and charge them a late fee on the rent.
Get a lawyer to review all contracts before signing one or offering a lease to someone else. Don't have a lawyer? Send me a PM for a referral.