Occasionally I am asked by homeowners if they should consider renting v. selling. There are a number of considerations that need to be made in deciding if you are going to be a landlord. Here are a few tips for new landlords and some things to think about if you are going to be renting your property.
Get it in Writing: No matter whom you rent to get the agreement in writing. Put together a lease agreement either through a REALTOR® who has access to documents specific to your state or with your real estate attorney. Each state has slightly different laws that impact a landlord-tenant relationship. Therefore, use a state-specific lease instead of a general lease to best protect yourself.
Know your Tenant: Thoroughly screen each prospective renter to avoid problems down the road. First, conduct a professional credit check to learn an applicant’s credit history. Next, ask for references from past landlords. Make sure you go back to the landlord prior to the one they are renting from now. If they are a poor tenant, their current landlord may say great things about them in order to get them out of their home. Verify the applicants’ credit, employment, income and criminal background. By running these checks, not only can they determine the best rental applicant, but also the landlord can defend against any discrimination lawsuits by producing hard data used to choose one rental applicant over another.
Fair Housing Act: As a landlord you need to know how it applies to your rental. When advertising for a new tenant, it is critical that you understand and comply with the Fair Housing Act. The Fair Housing Act prohibits landlords from using any of the following criteria when evaluating potential tenants: race, color, national heritage, religion, gender, disability, and familial status. You are probably thinking, this is easy, I would never discriminate. BUT would you write the following ad: “perfect for a single professional”? If so you would violate this Act (bias against familial status). What if walking out of church with the newsletter and seeing ads there gave you the idea that it would be a great place to advertise. Think again. If this is ONLY place you are advertising it is a violation by discriminating against religion. Evaluate potential tenants by financial info, credit histories, and other background data (rental history for example).
Procedures: Make sure your tenant knows what is expected of them. Give them a list of local service providers (electric company, cable, etc.) and have them sign off that it was received. Make sure that you do a comprehensive walk-through. This document, signed by both tenant and landlord will be used to walk through the rental unit with the tenant and document the condition of the unit upon move-in and move-out.
Relationships: Establish relationships with at least two good contractors. Electricians and plumbers are two other relationships you want to have at the ready. Do not wait until the water heater breaks or lights don’t work to start calling these people. Form these relationships before you actually need them, and then you will simply be able to make a phone call and have the problem resolved immediately.
Keep Your Money: Please understand that you will need money on hand to fix some of the problems mentioned in the previous paragraph. Can you still pay the mortgage if one or more of your tenants decide not to pay their rent? Understand that many tenants will not pay exactly on the first of the month; can you wait each month for a late tenant?
Know the Eviction Process: You must know what your rights are when a tenant doesn’t pay. If you think just asking them nicely or not so nicely to leave is going to work, it may not. You can give them a copy of their lease and show they are in default but with the worst tenants that may not be enough to get them to leave. What is your next step? It is important to become familiar with the eviction process and be ready to start the process immediately when a tenant violates the lease. While the specific documents required are different in each state, all states involve the same general eviction process. The landlord gives the tenant eviction notice, waits a specified period of time, files in court, attends a court hearing, schedules a date for the actual eviction, and so on. Please understand this process before actually having to go through it, because it can be extremely expensive and takes much longer than most landlords anticipate.
While being a landlord can be a terrific way to create extra income, get a tax break, ride out a bad market, or give you an opportunity to come back to an area you aren’t 110% sure you are willing to leave, it can also be a difficult proposition. Knowing all the pros and cons before deciding to rent your property will help you make a decision on whether it is the right thing for you.
If you have any questions about this article, real estate in general or are looking to buy or sell a home please contact me, John McCarthy at Rowley Realty, 165 Main St., Rowley, MA 01969, Phone: 978 948-2758, Cell 978 835-2573 or via email at firstname.lastname@example.org