Becoming a landlord can be a good way to make money if you play your cards right. But it doesn’t happen overnight. Be prepared to do some homework before you get started, or you could end up losing money and put yourself in legal jeopardy.
The price is right
If you live in an area governed by a homeowners association, make sure the association allows rentals. If renting is an option, one of your first tasks will be setting a rent price. Landlords usually get a rough idea of rents in their area by looking at newspaper classified ads.
You’ve been living in the home, so you know what it costs to run and maintain it. Can you rent it for enough to cover those costs? Can you even make a profit? If not, you might want to consider selling the property.
According to the U.S. Census Bureau, 38.4 million homes were rented during the fourth quarter of 1999 — that is about a third of all homes.
Keep in mind that local laws may cap rent amounts and rent increases, so check with your state’s housing services or consumer affairs office before making a final decision to rent out your property.
Making the leap
Joining a local apartment or landlord association can help you stay current with landlord-tenant issues. An association can tell you where vacancies are, enable you to talk with other landlords and provide state-specific lease/rental agreements.
You can have a prospective tenant fill out any application form as long as it asks for the information you want. You need to make sure, however, that the lease or rental agreement upholds state law. Forms dealing with an eviction, a rent increase, or entering the dwelling also vary from state to state.
Know the law
Even though laws vary from state to state, there are two landlord-tenant laws that are the same everywhere: tenants have all the rights of ownership except the right to sell the property or will it to someone. And the tenant has the right to live on the property as long as he can pay the rent. But he says tenants never have the right to trash the property.
A landlord is required to keep the property in a habitable condition, which means you have to have working locks on doors and windows, working heat and a roof that doesn’t leak. But check your states’ laws regarding landlord repair and maintenance responsibilities.
Also, know the terms of the U.S. Department of Housing and Urban Development’s Fair Housing Act, which prohibits discrimination according to race or color, national origin, religion, sex, familial status, and handicap or disability.
Prior to interviewing tenants, it is important to know the discrimination laws and what questions you’re not permitted to ask the tenant. It may not be a good idea to rush through the tenant-selection process. Compile a set of criteria or standards to help you decide who would be a good tenant. Make sure applicants know what the standards are when they apply.
You may want to set standards for the number of occupants, rent price, pets, security deposits, who pays utilities, minimum income requirements and whether you take HUD Section 8 participants. The housing authority gives economically disadvantaged people certificates or vouchers that guarantee the government will pay a portion of their rent.
Standards to consider
When you find a prospective tenant, and they meet your criteria, the next step is to screen the applicant. This can include performing a credit report check, searching public records to see if the applicant has a felony conviction, verifying past employment and contacting previous landlords. Long-term tenancy shows stability, and a good tenant always pays on the first of the month.
It’s a good idea to ask for identification from the applicants so you can make sure the address on their ID matches the address on their application.
The business the landlord is in is to provide housing. Many times they forget landlording is a business. There are only two times when a landlord gets in trouble, when he’s in a hurry and when he feels sorry for somebody. The bad tenants have these incredible sob stories that may or may not be true.
If you’d prefer not to find a tenant yourself, there are tenant-screening services whose cost can range from $3.95 to nearly $100 for a full report on a married couple.
Yet, even a good tenant can go bad. So is it safer to rent to a friend or relative than a stranger?
The problem with renting to friends or relatives is you tend not to look at it from a business standpoint. What you would like to have is an arm’s-length transaction. Then you are not obligated to anybody for anything.
By the same token, if you become friendly with your tenant, it’s strongly cautioned that you not allow the tenant to work on the unit, even if it’s just painting the walls.
If they make repairs on the house and somebody injures themselves, you could be liable for that.
State laws vary regarding rent due dates and collection. But if you’re lax in the beginning, you can have trouble enforcing the lease later. For example, if you accept rent late then turn around and try to enforce the initial due date, then you’ve already waived your right to require the tenant to abide by the rental agreement.
If you eventually find out that you’ve rented to a bad tenant — such as one who is in arrears on rent or posing a danger to others — don’t let the problems get worse. It’s important as a landlord that if you’ve rented to someone you should not have that you take action immediately.
If you treat being a landlord as a business, then good customer service for good tenants wouldn’t be a bad idea either. Take really good care of your good customers because it costs seven times more to find a new tenant than an old one. Perhaps give them gifts at lease renewal time to let them know they’re appreciated.
If you’re leasing your home out-of-state and you can’t manage the property on a regular basis, you may need to consider a property manager. Property manager duties can include cleaning and showing the place, taking maintenance calls, and collecting rent. Costs can be as much as 10 percent of the monthly rent.
Property managers are a good idea if you don’t feel comfortable handling it or if you simply don’t have the time or desire to do so. Such an arrangement might allow you to watch what happens in an eviction without having to do it yourself.
If a landlord wants to remove a tenant, he first terminates the lease and then evicts the tenant. Termination is notice from the landlord that the tenant has to move out by a certain date. There are different types of terminations that vary depending on state law.
Eviction is a legal process in which the landlord has to justify in court why the tenant has to move. Evictions are costly, and in some places you will have to hire an attorney. States have specific laws outlining the eviction process, and if the landlord doesn’t fulfill requirements, they could lose the eviction case. The most common way to lose an eviction is by filling out forms incorrectly or harassing the tenant. You can not bother a tenant once you have filed an eviction. Evictions are frustrating and upsetting for both landlords and tenants.