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 Do you have
what it takes to be a landlord?
The decision to become a landlord should not be
taken lightly. Contrary to popular belief, this is not the type of
job where you just sit back and watch the cash flow in. Regardless
of the challenges, more than half of landlords are self-employed.
Doing it yourself will mean you take on the responsibilities of a small
business owner. You need to have great communication skills.
You will be working with all types of people; sometimes even the
difficult ones. Being an effective communicator in person and in
writing is vital. You are an accountant. This
includes everything from rent payments and deposits to repair and
maintenance costs. You are a manager. You may
have staff to train and watch over. Their professional behavior
reflects upon you and your property. If they are inconsistent with
your policies they can damage your business or even get you into legal
trouble. You may also need to contract repair or maintenance jobs you
cannot complete on your own. You will need to project manage these
items through to completion. You are a marketing director.
Getting your place advertised and your units filled is an ongoing
challenge. Advertising also includes many legal regulations that
you should know (more on this below). Your
knowledge of this business should also include legal knowledge.
Consulting a lawyer is recommended for anyone starting as a landlord,
especially since every state has specialized landlord/tenant laws.
But in addition to this, you will be responsible in making sure any
staff or contractors you use also know the laws when working with
tenants. You should be dedicated and
patient. Being a landlord is a tough road to start.
You
should be prepared for hard work with a slow, trickle-in type of income,
especially at the beginning. On average, a landlord should only
expect about a 10% profit annually. The rest of the monies will be
recycled into items such as mortgage payments, taxes, repairs,
management costs, insurance, advertising and a rainy day fund (to name a few).
There are tax breaks available to landlords, however, these are not
enough to turn your profit margins sky-high. These qualities
listed above will
help you become a great landlord.
Perhaps there is a trait above that gives you pause.
"I really don't want to manage all the accounting." or "I don't want to
live onsite or nearby." All is not lost. You can hire a
property manager. Doing so will cost you about 10%/month of any
monies the property takes in. However, it can be a wonderful way
to manage your business. When looking for a project manager, treat
it like any other contracted service. Perform rigorous interviews,
check references and make sure you have the same ideas about
responsibilities of each party. Find out if they are insured, if
they already have working contracts with maintenance and repair
companies, and if they charge any extra fees for these contacts.
Once you decide on a property manager, be certain to create a detailed
contract covering all responsibilities. As with any of your other
endeavors with your rental property, keep all your records and
agreements in writing! Other professionals you may use to help
manage your property include accountants, maintenance specialists,
marketing directors and lawyers. Of course all of these will eat into
your profit, but be honest with yourself and utilize these people when
you need them. You can save yourself headaches down the road if
you strengthen any weaknesses at the beginning.
What
makes a good rental property?
When purchasing a
rental property, there are some important questions to ask:
- Do you have a enough for a down payment?
Because rental property is viewed by lenders as a higher risk, you
may be asked to put as much as 25-40% down on the property.
Lenders calculate about 75% of your mortgage payment will come from renters.
This leaves you with 25% to make up and even more if you cannot rent
all the units. They may give you the option for a lower down
payment at a higher interest rate. However, the higher interest rate may defeat any benefits.
- Could you live on the property? If
you use one of the units as your own residence this will help lower
the risk factor for lenders. Lenders can offer a lower down
payment and you can learn the ropes of being a landlord without
being far from your investment.
- Can you get the rent you need for the
mortgage? Take a look at the neighborhood and compare the
rental costs. Your rental rate needed to cover mortgage should not be too far above the market or
you will lose your ability to rent units.
- If you inherited or already own the property, you should consider
if you can meet current mortgage payments. It may be more beneficial
to sell the owned/inherited property and reinvest in another
neighborhood.
- Is the building up to code? Make
sure to hire a home/building inspector before purchasing the
property. Make sure the inspector is aware that you hope to
rent the place as this may change some safety and code requirements.
Take time to make yourself familiar with codes for your locality.
This will help you ask better questions and understand any
improvements you may need to make.
- Is the property maintained? At
first you may think it won't be a problem to repaint, re-roof,
update the wiring and plumbing, etc. until your list becomes too
long for the investment to be worthwhile. Again, hire a home
inspector and make certain you know what needs repair and the
estimated cost of repairs before you buy.
- Is the property secure? Review
reports on neighborhood safety. Check for ample lighting,
especially at entrances and in parking areas. Make sure
windows and doors are solid. Consider the cost to change all
the locks and add window locks. Think about the security of
your tenants in the property.
What are the
responsibilities of a landlord?
Let's assume you are going to take on most of the business yourself
and have found a wonderful property to rent. Now, what are some of
the responsibilities you have as a landlord?
Tenant
Screening: Your first interaction with possible tenants will be the
background check that includes a financial review and calling
references. Overall, you must perform background checks fairly.
You should not do the check on one person and not on the other as this
favoritism, or "trusting your gut feeling," is a disservice to all
involved. You owe it to yourself, possible tenants and current tenants
to perform fair background checks. For yourself, you can avoid
headaches with tenants that don't pay the rent or have caused problems,
such as costly repairs, in the past. For possible tenants, you may
be providing that reality check - can they really afford your rental?
For your current tenants, consistent background checks let them know you
are looking after your investment giving them a sense of security.
On average, working with an agency, this will cost you about $20 per
check; an investment well worth the cost.
 Clear,
Consistent Communication: To avoid any misunderstandings, make
sure all your interactions with tenants are clear.
-
HAVE A CONTRACT!
Make sure you supply the tenant with a copy of the contract so they
may reference it if any questions arise. Review the contract
with a renewing tenant and discuss any questions they may have over
the language or meaning.
-
Collect rent on a schedule.
Keeping consistency with your tenants is imperative. If you
are too lax one month, you may have a hard time collecting rent the
next month. Or, if you are lax with one renter and not another
you can create tension or even a legal issue.
-
Always provide written notice before
entering a tenants space. This varies from state to state.
However, for good business practice and common curtsey, let the
tenant know when you need to enter the property they call home.
-
Use signs, flyers or other WRITTEN
communication to inform tenants of policies and policy changes.
Provide all tenants with copies and/or make clear postings around
the complex.
-
Serve notices and warnings in writing.
Verbal notices will not protect you if a situation deteriorates.
Make certain to give your notices in writing and make yourself
available for questions or discussion. Serving a notice and
then disappearing from sight does not offer clear communication and
can aggravate a situation!
Provide a Safe and
Maintained Environment: Every landlord should offer tenants a living
space that is up to
code, safe for habitation and in working order. Even if you decide
to contract out maintenance services, you should provide your tenants
with repairs in a reasonable amount of time. Make good
relationships with contractors that understand the nature of the work
and are willing to come out after normal working hours. Save money
for a rainy day so you can pay for emergency repairs when they arise.
Maintaining the property will encourage tenants to take pride in their
home and maintain their surroundings. Also, strive to make your
tenants safe. You cannot control all conditions. However,
changing locks, providing ample lighting for parking and having
emergency procedures written and distributed are a few of the ways you
can keep your tenants safe.
How do you advertise a rental property?
Advertising a rental property is important for getting units filled.
Today you can use everything from word of mouth to online sites to
advertise your property. In larger cities, you may even use
"finding agencies" or real estate agents/brokers to advertise.
When advertising your property, keep a clear list of amenities and
useful services in the neighborhood. When composing your
advertisement you must watch your wording as you cannot exclude any
demographic.
There are many federal laws/protections that regulate
how you advertise your rental. The fair housing laws make it
illegal
"To make,
print, or publish, or cause to be made, printed, or published any
notice, statement, or advertisement, with respect to the sale or rental
of a dwelling that indicates any preference, limitation, or
discrimination based on race, color, religion, sex, handicap, familial
status, or national origin, or an intention to make any such preference,
limitation, or discrimination." (Source: U.S. Code Collection - Cornell
University Law School).
In addition to this clause, many states and cities may also prohibit
discrimination based on marital status and sexual orientation.
Most landlords have good intentions to rent to all qualified tenants.
However, there are certain ways of wording advertisements which may be
perceived as discriminatory. For this reason, you should carefully
choose your wording when advertising your rental property. Avoid
words and phrases such as: prefer, suitable for, ideal for, ethnic
neighborhood [or other cultural identifiers]. For a good list,
take a look at the
Pennsylvanian Human Relations Commission's Reading Between the Lines:
A guide for housing and commercial property advertisements
as they
include a list of terms to avoid. Another resource for examples is
the
Guidance Regarding Advertisements Under §804(c) of the Fair Housing Act
by the US Department of Housing and Urban
Development. Keep in mind this
good rule of thumb: always describe property, never describe
people.
 What
are some legal pitfalls to avoid?
There are a lot of legal concerns when renting
out property. As we have seen, the law influences advertisements
of rentals. In addition to this, you create a contract agreement
with your tenants every time you rent. Therefore, it is important
to have sound legal advice as a landlord. Establish a relationship
with a lawyer who you may hire for any contract questions or possible
representation. No one ever wants anything to get as far as a
lawsuit. So here are some ways to avoid legal pitfalls in the
first place:
-
Always perform background checks with every
possible tenant.
-
Call tenant references.
-
Treat every tenant the same in process; never
cut a corner for one tenant because of a "gut feeling" or personal
relationship.
-
Keep all notices in writing.
-
Keep all due dates consistent from month to
month and from tenant to tenant.
-
Always perform background checks on any staff.
-
Make certain all staff are trained. They
should know what they can and cannot do for tenants. If they
are handling rental paperwork or advertising, they should know fair
housing laws.
-
If you contract out maintenance work, make
certain they treat your tenants professionally. Although they
don't work for you full time, they do represent you since you hired
them.
-
Keep housing up to code and safe for living.
-
Investigate any complaints against your staff
immediately.
-
If a situation arises, consult a lawyer.
Know how to legally proceed before taking any action.
How do you evict a tenant?
Evicting a tenant is one thing all landlords would rather avoid.
However, sometimes circumstances deteriorate and eviction is the
only feasible solution. If you have tried open communication
but cannot get the tenant to pay rent or obey rules of the property
it may be time to start the eviction process. The rules behind
evicting a tenant vary from state to state. It is therefore
imperative you discuss your options with a lawyer. Indeed, for
the best security, you may want to do the whole eviction process
through your lawyer. Regardless of the ups and downs involved
with evicting a tenant, make certain to always maintain a
professional decorum. Do not allow personal emotions to
collide as this can only lead to further legal issues. Keep
all of you requests in writing. The first step to any eviction
is to send a written notice for them to pay back rent, fix problem
behavior or move out. For example, in some states you may send
a Demand for Rent or Notice to Quit form to a tenant who is behind
rent payments. Or you may send a Notice to Cure Breach of
Lease to inform the tenant that they must fix behavior that is
contrary to your rental agreement. A Notice Regarding
Termination of Lease may be used in some states when there is no
chance for reconciliation. For example, the tenant is involved
in illegal activity on the premises such as drug trafficking.
If problems have not be rectified after notices have been given,
then a suit is filed against the tenant. Upon winning this, it
is law enforcement personnel who deliver written notice when the
tenant may remove their items from the premises. You should
never remove a tenant's items yourself. Using the police will ensure that you cannot be accused of taking or damaging
any of the tenant's property. Essentially, make certain to
obtain legal advice, serve warning notices required by your state, keep all notices and communication in writing
and use local law enforcement to help keep you protected from any
accusations of unfairness.
None of the above is a
substitute for legal advice. An attorney should be consulted. |
FREE Rental Agreement Forms
In
cooperation with our partners at
Lawchek® and
Lawsonline™,
Homecheck is pleased to provide a sample Rental Agreement Forms for
FREE. This is not a substitute for legal advice. It is never
recommended that an individual undertake his or her own
representation in such matters as real estate law, even though most
states do permit such activity. Any individual who is serious about
proper real estate transactions would want to have capable legal
assistance. An attorney must be consulted.
"This work is protected under the copyright laws of the United
States. No reproduction, use, or disclosure of this work shall be
permitted without the prior express written authorization of the
copyright owner. Copyright © 2008 by
LAWCHEK, LTD."
Resourceful Links
Fair Housing by CivilRights.org
www.fairhousinglaw.org
The Fair Housing National Multimedia Campaign is designed to increase
public awareness of the Fair Housing Act and its protections, encourage
the reporting of fair housing discrimination to the appropriate
agencies, and provide information and resources to help communities and
institutions support individuals and families who exercise their fair
housing rights.
Landlord.com
www.landlord.com
In early 1998 the decision was made to spin Landlord.com off as a
separate entity, dedicated to providing services to landlords and other
real estate professionals on-line.
National Fair Housing Advocate Online
www.fairhousing.com
The National Fair Housing Advocate Online is a resource designed to
serve both the fair housing advocacy community and the general public
with timely news and information regarding the issues of housing
discrimination. Find local organizations to help with any Fair
Housing questions:
http://www.fairhousing.com/index.cfm?method=agency.search
National Fair Housing Alliance
www.nationalfairhousing.org
The National Fair Housing Alliance (NFHA) is the only national
organization dedicated solely to ending discrimination in housing.
US Department of Housing - Home &
Communities
www.hud.gov/offices/fheo/
The Office of Fair Housing and Equal Opportunity (FHEO) administers and
enforces federal laws and establishes policies that make sure all
Americans have equal access to the housing of their choice. We can help
you with your housing discrimination problem. If you feel your rights
have been violated, let us know.
US Department of Justice - Fair Housing
Act
http://www.usdoj.gov/crt/housing/housing_coverage.htm
The Fair Housing Act, 42 U.S.C. 3601 et seq., prohibits discrimination
by direct providers of housing, such as landlords and real estate
companies as well as other entities, such as municipalities, banks or
other lending institutions and homeowners insurance companies whose
discriminatory practices make housing unavailable to persons because of:
race or color, religion, sex, national origin, familial status, or
disability.
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