The Security Deposit Takes Care of it in Selected Cases.

I have been saying for many years that property investments are your best bet for what I call “remote control riches.” You take a loan to buy a house, rent it out, and then sit back and earn rent that helps repay that loan – creating wealth for you in the long run. Whether you invest in one house or ten houses, you have the pride of ownership and you want your property to be well looked after and in good shape. However, a lot of investors wonder – what if the tenant damages the property?

Difference between damage and regular wear and tear.

Let me just clarify here, that the various states in the United States do have different laws and regulations pertaining to tenancy. However, some things are more or less uniform. Regular wear and tear is something that is recognized in most states and is permitted as being a part of day to day use of a property. So, if a tenant hammered a few nails to hang up some pictures, for instance, this is usually OK. Everyday use and such reasonable modifications are generally not considered ‘damage’.
However, if there is damage that results out of unreasonable actions of a tenant, or some extreme modifications made to the property, the tenant is bound to pay for these. Typically, tenants will ensure that the house is in decent shape when they vacate it, because of something called the security deposit. When the landlord and tenant enter into the lease agreement, the tenant is required to put down a security deposit for exactly this reason – possible damage to the property. If there is substantial damage, this can be paid for from the security deposit amount. The tenant will receive their deposit amount minus the costs incurred towards repairing the damage.

Legal recourse available to landlords.

However, what if the damage is extensive and the costs incurred are higher than the security deposit? Well, in that case the property owner has recourse to the small claims court. Typically, the court will award damages in favor of the landlord. In cases, it can happen that the damage is significant – more than the security deposit amount will pay for and then the tenant goes missing. When the tenant absconds, the court can award suitable compensation to the landlord, in cases even ordering the garnishing of wages.
So, if you are a real estate investor and landlord (or are planning to assume this role), you don’t have to worry about tenants causing damage to your property. A vast majority of tenants would rather not endanger their security deposit or blot their copybook as a tenant, and will keep the premises in good condition. If they do not, there is always legal recourse available. In the end, these are just minor speed bumps on your road to retirement riches. 

Do You Pay Utility Bills For Your Investment Property Or Does Your Tenant Pay?

So here’s a question that I get sometimes from careful investors – about utility payments in the case of investment properties. If you own a property and you live in it, there is no question that you pay for the utilities. But, if you're the owner of a home you’ve bought as an investment and there is a tenant you’ve leased the property to, who pays in these cases?

Payment of utility bills of an investment property.

There are a lot of recurring /monthly payments that one has to make in respect of any property. As the owner of the property you are typically required to make timely payments of your mortgage installments, property taxes and insurance premiums. You would also pay for property management, and as owner, repair expenses as and when required. However, this is all you have to pay for. As owner or lessor, you are generally not required to pay for the utility bills.
Apart from the other expenses, there are these utility bill payments to be made: There are electricity bills, gas bills and water bills, payments to be made for garbage collection or disposal, sewage management etc. You pay for what you use – this is the rule of thumb. So in the case of rented properties, nine times out of 10, it is the tenant who pays for these utilities. In the case of practically all single family homes or duplexes, it is the tenant who will pick up the tab for the utilities. However, there are exceptions.
In some of the big apartment complexes, it is the landlord or property owner who pays for utilities. The reason for this is that a lot of these complexes do not have separate meters. This means a lot of extra expense for the landlord that invests in apartments rather than single family homes. Suppose you have a tenant who loves having tub baths twice a day or who has no regard for shutting off electrical appliances – this would mean a lot of extra expenses for the landlord. Knowing that the landlord is picking up the utilities tab could be why that tenant doesn’t care.

Another reason to opt for single family homes.

And this brings me to one of my favorite bits of advice to give real estate investors: choose to invest in single family homes rather than condos or flats in big apartment complexes. Right now, it is the sunbelt states that are offering good opportunities for real estate investors.
The large metropolitan areas in the sunbelt states are where the commercial activity is, where the industries are. This is where the jobs are, and where young people and families are looking to rent homes. With COVID still lurking in corners, people are still wary of being in close proximity with others; they prefer independent homes to apartments with common or shared areas.
So for these and more reasons, the single family home is your best bet if you're looking to invest in real estate. Tune in to my latest video for more details.
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