Oh, and what about taxes? How do I deal with that now? Do I need a business name and incorporate or what? Insurance?
This is something I'd like to hear more about too, especially the federal tax aspect. Are taxes a wash with any and all deductions?
It very much depends on your tax situation, the property itself, etc. With some properties that are very expensive and just above break-even the depreciation will let you show a paper loss and can actually help shelter some of your ordinary W2 income as well. (Of course, it will all be recaptured at some point, besides w/ probate.) With a cheaper property that cash flows a lot, the depreciation barely covers any of the property's profits itself, so you'll be paying taxes.
You can, of course, write off expenses related to it, but you wouldn't have incurred those otherwise, so I don't see that as a huge "benefit," just getting back the cost of doing business in most cases.
Check with your accountant to see how a particular property will affect your tax situation, it's a bit too broad to give a blanket one size fits all answer to. :)
I've also read that since you're now a landlord and running a business, this apparently could open you up for a higher change of being audited, so it seems that keeping honest and good records would be a good idea. Can anyone else chime in on this?
I heard that initially as well, but I don't believe it's true, and have since heard subsequent statements from the IRS that they don't target due to that. In a related example, it used to be the case that taking a home office deduction could raise your chance of an audit, but the IRS no longer raises a flag on that. You definitely want to keep good records, however. 1) It never hurts, because you might be audited just like anyone else, but (more importantly, in my mind), 2) It forces you to treat it like a business. Keeping track of what's profitable, and what isn't. Keeping track of how it ought to be run, rather than letting things slide. What's measured is managed, and all that.
Concerning insurance, from what I've been researching, the insurance would be a rental insurance policy, and it seems many landlords have an umbrella liability insurance policy. Is this what more experienced landlords are doing?
I do, personally. A lawyer, and many of the seminars, will sell you on complex legal structures to protect your assets. And again, talk to a lawyer, don't listen to some random on the internet for legal advice. It will depend on your scenario. But I do recommend the rental insurance policy (a good one) and an umbrella on top of it.
As far as the rest of the hubbub in this thread: I took a tenant/landlord law seminar and the speaker, a tenant lawyer, said that the biggest thing he would be afraid of as a landlord would be discrimination. Everything I've read and researched echos this, as well as keeping a clear list of rental criteria and sticking to it, having a solid, lawyer-vetted lease, and maintaining your property. The devil's in the details.
Yup, that is one thing many of us have had drilled into our head. Thanks for the confirmation from your experience.