Top 10 Legal Tips for New Landlords
Are you on the verge of becoming a new landlord? Renting out a property to earn a source of income is a very exciting prospect. If done right, a landlord can ensure having an excellent way to earn money in a predominantly passive manner. The flip side however is that even simple legal mistakes can make being a landlord a rather harrowing and stressful endeavor, even possibly one that will make you lose money, rather than earn it.
Read up on these top 10 tips for new landlords and give yourself the best chance to be a fair, just and successful landlord!
Top 10 Pieces of Legal Advice for New Landlords
- Always Collect Rent on Time
Simple as this advice sounds, you will be amazed at how many landlords, especially the new or inexperienced ones simply fail to collect rent! A landlord is not someone who can afford to be kind-hearted or compassionate. Even if you are the type of person who will give the shirt off your back to help someone, rent and late fees is something that you just have to collect. While you might be financially OK to let one or two rent payments go delayed, please understand that the implications of not collecting rent are more than just financial.
The bigger problem is that renter’s rights are very strong in most states. If a renter fails to pay rent for many months, biding time from you, and then decides to vacate or even squat for that matter, there is a heavy burden on you to even evict him or her, leave alone collect your past dues. Eviction and collections involve attorney fees, collaboration with law enforcement and also what would most probably be very unpleasant exchanges with the tenant, when your patience eventually runs out.
So, before anything else, you must and MUST always collect rent and do it on time. Giving the tenant a few days grace period is OK once in a while. But anything beyond that and you must take a tough stance.
- Screen, Screen and Screen again!
Do you remember how you were scrutinized by a financial institution when you might have approached them for a loan? Provide your credit score. Provide personal references. Provide your tax returns. Provide your employment details! This is unfortunately the way you have to treat potential tenants as well. Assume the worst and insist on as much detail as it will take to convince you that your tenants will pay rent and pay on time and will also be able to pay for however long they decide to stay in your property.
You have the right to and must screen all or most of the factors listed below
- Employment details – Duration at current job/Employment switch history in recent years
- Income level – Ask for paycheck stubs to determine if your tenant can comfortably afford rent
- Credit score – You must run a credit check yourself, after seeking ID from potential tenant
- 760+ is excellent credit. 700 to 749 is good credit. 650 to 699 is OK credit.
- 600 to 649 is thin ice and anything less than 600 is definitely not worth it
- Details about number of people and pets planning to live on the property
- Personal references
Thoroughly verify above information when provided and take a call on a prospective client. If any of screened information is shaky, suspicious or simply false, simply cross out the tenant to minimize your risk.
- Know your lease
The lease you will use to get your tenant to sign on the dotted line is the only document that will govern your tenant-landlord relationship. The lease will list the rights and obligations of the tenant as well as for you, the landlord. It is imperative that you are aware of the duties, roles and responsibilities that are expected of you just as importantly as you must know your tenant’s obligations and rights needs to be, all of which are listed on the lease.
Too many new landlords adopt generic leases they find on the Internet to only later find out that they have dug a legal-hole for themselves. Talk to other landlords and prepare and issue a lease that will be fair and legally compliant to both you as well as the tenant.
- Respect Tenant Rights at all Times
Violation of tenant rights can mean legal, financial and even possibly criminal ramifications. Familiarize yourself with tenant rights that pertain to your state. Tenant rights vary in detail from state to state, even if they are all fundamentally the same. To read up on tenant rights that very specifically govern real estate law in your State of residence, please go to this HUD.gov resource page here.
- Run a personal background check
Financial and employment screening would have allowed you to get a handle on the prospective tenant’s financial standing. If he or she makes the cut, you must also compulsorily run a personal background check. Issues like criminal history, bankruptcies, pending litigation cases and past evictions are all public records which can be investigated through a background check. Many online service providers give you the facility to avail a personal background check for a small fee.
If you find negative attributes after this check, you must at least be wary of the potential tenant and tread with caution, if not reject him or her outright.
- Read up on your state’s property rental law!
It is imperative that you are fully familiar with your state’s property rental law. As a landlord, you are expected to abide by several rules put forth on landlords. From how you must collect rent and late payments to how you must attend to repairs to stay in compliance as a landlord and even to know how much you must legally charge as security deposit, familiarity with the law is a must. Ignoring state rental laws or “assuming” what the law might say about how you carry out your duties as a landlord is often a recipe for disaster.
Remember that landlord-tenant laws are often tipped in the favor of the tenant and you must stay in compliance to be a financially successful landlord. Search for and retrieve the tenancy law that is officially maintained by your state of residence and stay in compliance with it, at all times!
- Stay fair
There are very strict laws against housing discrimination of any kind. When we say discrimination, it is not just again race, color, religion or the usual attributes discriminated upon but also about things like rules against kids playing on the sidewalk, asking your potential tenant if she is pregnant other such issues that you might think are seemingly harmless. Also, you can’t be subjective with your rules. For example, if you deny a potential renter tenancy because they smoke, you must deny all other prospective tenants who smoke as well. The National Fair Housing Alliance is an excellent resource that will always keep you up to speed on how to be a fair landlord.
- Know your landlord tax
Rental income is taxable income. It is common knowledge. But, like with all things that pertain to the IRS, you probably don’t know everything you need to know about landlord tax. For example, did you know that keeping security deposit and accepting it as the last month’s rent of a rental contract is considered as advance rent according to the IRS?
Also, it is not just always about knowing what tax you have to pay as a landlord. It is about equipping yourself with knowledge about deductions as well. For example, property tax, depreciation, repairs, insurance, utilities, maintenance and even advertising are all deductions, whereas cost of property improvements are not a tax deductible expense.
Read through this IRS resource page that offers tips on real estate income and deductions, and their corresponding tax implications.
- Inspect your property, but stay legal!
First of all, please know that you just can’t demand to inspect your property when you wish. Tenants have what is called the “Right to Quiet Enjoyment” and can report you for illegal inspections. Depending on what state you reside in, you may be able to inspect your rental property once a year, twice a year or even once every quarter. Even when you are allowed to do so, you must always only do so after giving proper notice to the tenant.
It is also very important that you do a move-in inspection and also a move-out inspection, with your tenant by your side. That way, both you and the tenant can be on the same page when it comes to the condition of your property.
- Document everything and maintain impeccable records
When things get ugly and legal battles ensue, records are going to be your first friend. Implement a record keeping system where everything related to your property and your tenants are recorded as a note or bookkeeping entry. Rent collection date. Late payment collection date. The date you issued notice to your tenant about late payment. The date your tenant complained about repairs. Everything is to be recorded with a pen and paper or electronically.
Such records will not only let you stay compliant as a landlord, but help you better function as a landlord, thereby leading to a mutually benefitting long term landlord-tenant relationship.