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Real estate investments require rigorous risk management

June 16, 2015

“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.”

Real Estate InvestmentsFor the most part, that adage attributed decades ago to Marshall Field, the American investor and founder of the Chicago-based Marshall Field department store, still holds true.

Purchase the right properties and you can find yourself enjoying a steady stream of income from an appreciating asset that also has significant tax advantages.

But owning investment real estate property is not like owning a stock or mutual fund. It’s an active investment, one comes with potential pitfalls. In the case of residential property ownership, the best rewards come from minimizing risk.

At Founders we know the top risks residential property owners and managers face. We’ve listed them below.

Failure to properly screen applicant finances — A property can only generate income if tenants are able to pay the rent — in full and on time. Skimping on credit and reference checks is a classic penny wise, pound foolish approach.

Failure to maintain safe conditions and perform repairs at your property — Broken boards on the back deck, windows with a chunk of loose glass, a shaky handrail…These are all accidents waiting to happen and a top source for litigation and insurance claims. Invest in fixing the little things before they add up to big headaches.

Failure to maintain accurate rental records — Your tenant says he paid you three months ago, and you say he didn’t. Do you keep diligent records that you can rely on to prove your case?

Violating housing discrimination laws —In general, Connecticut is a very tenant-friendly state. The Connecticut Fair Housing Act prohibits discrimination on the basis of a number of categories including race, national origin, gender and gender identity, sexual orientation, religion, children or family status, disabilities, and legal source of income (you can’t refuse to accept Section 8). The law is complex and there are exceptions for certain owner-occupied dwellings.

Wrongful eviction — You must follow specific state and local procedures in order to carry out an eviction. Be careful. Taking the law into your own hands is not wise. Connecticut forbids landlords taking measures like changing the locks or turning off utilities. Such actions can get you sued or even arrested.

Zoning and building department violations — The house may have been configured as a two-family when you bought it, but is it legally a two-family under your town’s zoning code? Did that addition onto the garage get built with the right permits in place?

Failure to disclose the potential for lead paint — If your house was built before 1978, it is presumed to have or have had lead paint inside. Connecticut has specific notice protocol you must follow whenever renting an older unit. It’s not difficult to comply, and definitely and definitely not something you want to overlook.

The Founders Insurance Group can help you manage the risks associated with your real estate investments. Give us a call at 860-482-3506.

Linda Robertson

Platinum Accounts Executive

lrobertson@foundersgrp.com

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