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DIY

Keeping It Legal for DIY Landlords

A legal hammer.

ALWAYS have everything in writing. Specific terms should spell out exactly what is expected and legal from all parties involved

Working through the web of renting your properties can be mind boggling when you realize the details involved with signing a tenant. Knowing federal laws and local regulations will help keep you in business and profitable. Working from a template and a detailed checklist is a good way to keep everything legal from Day 1. If properly thought out, it can save you from the high cost of defending yourself in court.

Proper Documentation

ALWAYS have everything in writing. Specific terms should spell out exactly what is expected from all parties involved. Have a lawyer draft your lease agreement to help avoid the pitfalls of cookie cutter online forms. Rental agreements are legally binding contracts, know the rights tenants have and familiarize yourself with the Federal Fair Housing Act.

Advertising, Showings & Applicant Screening

You must study, and pretty much memorize, the Fair Housing Act to avoid discrimination violations. Your advertising, how you handle inquiries, showings and applicant screenings must all conform. Make one mistake and you could wind up in court.

Don’t forget about the Fair Credit Reporting Act and what your required to do if you deny an application or an applicant disappears.

Once you figure out how to legally operate — be consistent! Avoid potential discrimination lawsuits by treating everyone the same and avoid shortcuts — even when you know what the outcome will be.

Deposits and Fees

Check your state and local requirements regarding application fees, pet fees, security deposits, etc. Decide what you’ll charge and again, be consistent to avoid discrimination claims.

Keep In mind a security deposit is just that, a deposit, so it technically still belongs to the tenant, you are just holding it. Don’t go out and spend it. You may want to keep it in a separate account to make it easier to keep track of and explain when needed. Remember, the security deposit is used as a guarantee against possible damages or unpaid bills, but even during an eviction proceeding, it still legally belongs to the tenant.

Required Disclosures

Federal law requires disclosure to a tenant about potential lead-based paint issues. Make sure this disclosure is included in your lease and that you also have the government required lead-based paint pamphlet to hand out.

Your tenants may also have the right to disclosures regarding building ownership, landlord, or management company that acts on behalf of the landlord. Provide them with proper contact information for rent collection, complaints, maintenance issues, etc.

There’s also required disclosures like the Move-In Checklist, specific tenant notifications required in a lease like; Truth-In-Renting Act, Security Deposit Rights, Domestic Violence and Senior Living clauses. All are another reason to engage an attorney to at least review your lease annually.

Property Maintenance

Check your local ordinances for landlord obligations regarding property maintenance. Many cities consider it illegal to collect rent if a property hasn’t passed a city inspection. In addition to issuing tickets, they may also arrest an owner who fails to comply.

Know Your Landlord Rights

When dealing with landlord-tenant issues, there is usually more focus on protecting the tenant. As we all know, there are two sides to every problem, and as a landlord, you have rights, as well. Though not a complete list, here a few biggies:

  • Eviction – Depending on your lease agreement and state & local laws, you have any number of valid reasons for choosing to evict a tenant.  Keep it legal here, abide by all local laws and ordinances to prevent making the situation any worse.
  • Home Entry – You certainly don’t have unlimited access to a tenant’s home, but with proper notification to complete repairs or an emergency the law allows entry as needed.
  • Rent Increases – Many states and cities are passing laws limiting rent increases. Be sure to check and conform as needed. If there are no laws, you can legally raise the rent as much as you want, as often as your lease allows.

Housing is a highly regulated industry and need to be clear on fair housing laws and other local ordinances that affect your business. Pleading ignorance will not keep you out of trouble. Of course, you want your real estate investments to be profitable, but ignoring the laws set in place to protect the landlord-tenant relationship, will only do more harm than good in the end.  Before making any legal missteps, consult your attorney for clarification for any landlord-tenant issue.

Categories
DIY

Tips for Novice Landlords

People dream of becoming landlords, how hard can it be to walk to the mailbox every month, and cash rent checks?

 Tips for Novice Landlords.

Let’s get it out of the way early — making money as a DIY landlord is NOT going to be as passive you envisioned. Expect to spend many of your evenings and weekends dealing with property and tenants issues.

The whole point of investing in rental housing is to collect monthly rent payments, yet this can be one of the most challenging aspects for a newbie landlord. There will be times when you have to hound tenants for the rent. Be firm about rent payments, you rely on them for running your business. Being lenient with your tenants will open the door to a slew of problems. If they don’t pay, follow your state’s laws, and if needed, start the eviction process.

So you’ve got your first rental ready to go. You’re eager to start renting and making some money. Resist the urge to rent to just anyone because you’re concerned with vacancy. Make sure to stick your plan — be vigilant about screening new tenants. Leasing to a tenant that doesn’t meet your standards will only bring more problems than it’s worth, it’s better to be patient and wait for the right candidate.

Fair housing laws are in place to protect the tenant — they are a big deal. Don’t put yourself in a position where you’ll have to defend yourself in court. If you’re not sure about something, consult an attorney, or better yet, read up and educate yourself, it’s bound to come up again.

You want your rentals to be the best they can be to attract prospective tenants, but remodeling to your (expensive) tastes is not a good business decision. It’s fine to remodel but resist the urge to go overboard. Unless your property is in an area where you can charge appropriate rental rates, it will be difficult to recoup your investment.

The right marketing strategy will make a world of difference. Make sure to use the right avenues to market your vacancies. Newspaper ads are on life support. You need to place your ads where the right clientele will see it.

Place online ads and use dedicated web sites to find great renters. To entice prospective tenants, pay a professional to take brilliant photos and create a virtual tour. This will save you tons of time by not showing your property to people who aren’t that interested or can’t afford it.

First impressions matter, don’t underestimate curb appeal. Always keep your property looking good — inside and out. Prospective tenants will never get to see how beautiful the new kitchens and bathrooms are if they pass on your property because it looks dingy from the outside. 

BONUS: Stay Organized

You may be surprised how much work is involved with your rental property business. The mountain of paperwork alone can be daunting if you’re not prepared. Paying attention to details and staying organized will help you to stay focused and promote success.

Just because you’re starting a “side business” to produce a passive stream doesn’t mean it’s going to be easy —  this is not a hobby. There is a learning curve to honing the skills needed to run your rental property, but things get easier to manage with every new tenant and each additional property.

You will face challenges, you need to treat your new venture as a “normal” business. Plan on making mistakes when you’re starting out, but expect those growing pains to wane as you acquire experience and grow. Stay positive and focus on your goals. 

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DIY

And You Thought Being a Landlord Would Be Fun and Easy

That dream of living off “passive” income, however, takes a lot more work than you think.

Can landlords be available 24/7?

You’re tired of your 9 to 5 grind and figure buying real estate and renting it out will be a low-stress way of making a living, so you can eventually quit your day job. Rest assured, there’s more to that story. Yes, real estate can indeed be very lucrative — the world’s supply is limited, after all.

Rent Collection

Monthly rent checks are probably one reason you decided to get into the rental business. Collecting the rent is not as easy as walking to your mailbox on the first of the month. Though most renters are good at paying on time, it’s the inconsistent tenants that will cause you to gray prematurely. When the time comes, be ready to change your hat from the nice welcoming landlord to the merciless rent police. If you stay in business long enough, you’ll hear enough creative excuses to write a book.

How Hard Could It Be?

Any job is easy and enjoyable when things are running smoothly. But when the A/C goes out in August, a pipe burst in January or a tenant trashed the place before moving out, that’s when you will find out if you truly love your new job. All these things, and much more, will eventually happen. You need to be mentally and financially prepared to deal with them. 

For example, replacing the section of a frozen pipe is no big deal and relatively inexpensive, any plumber can do that. With the service call, drive time, and the hourly rate, you should be able to get it for around $250. Remember though, a frozen pipe doesn’t leak. What if it thaws at noon when the tenant is at work? They come home to water spraying out from under the sink or in the basement laundry area.

The area is flooded, the carpeting is soaked, and it’s Friday evening. Now you’ve got a mess, water damage, you may have to replace the carpeting, or least hire a professional cleaner. Wait, there’s more. The plumber is charging double or triple time because it’s after hours and a weekend. Don’t be surprised if you’re flirting with $1500 when all is said and done.

Managing Problem Tenants

No matter how vigilant you are with tenant screening, sooner or later, someone will sneak through that can summon your Satan. You may have heard all the horror stories, but you say to yourself, “I wouldn’t let that happen to me.” Oh, don’t worry, it will.

It’s Time For You To Go!

Evictions get ugly, are time-consuming, and the bills add up quickly. First, you’re not collecting current rent due. Then there are court filing and attorney fees. Chances are the property is going to be a mess or worse yet, damaged. If the tenant left a bunch of stuff behind, you may have to pay to store it. Then, of course, you’re not able to rent to other tenants until you bring it up to standards. And finally, you have to find a new tenant. If you’re lucky, you’ll only lose two or three months’ rent. Including court costs, your final bill could easily hit $4000 to $6000.

What’s A Balance Sheet?

If you’re the kind of DIYer that doesn’t mind getting their hands dirty but hates numbers, sorry but you’re going to have to learn. Oh sure, you can “just pay someone else to do it,” but an accountant or CPA doesn’t come cheap. Even if you can afford to hire it out, you should at least become familiar with bookkeeping and the finances of your new venture. You expect complications with your tenants, you don’t want to get ripped off by some bookkeeper.

You Need To Be A Good Banker

Hopefully, your properties are fully occupied, and you’ve got plenty of cash flow to meet expenses, and you’re stashing some away. For most landlords, the reality isn’t so dreamy. That’s why you need to stay on top of finances and bank some cash. 

Tenants come and go, but your fixed costs don’t go with them. You’ll have times when money is rolling in, and then you’ll face spurts of vacancy. It’s vital to put some money aside to keep as a reserve to get you through the dry times.

Property rentals can be very profitable, but as with any business, it’s not all peaches-n-cream. Real estate is not for everyone. There will times when you’re ready to sell the farm, followed by times that make your investment and hard work all worth it.