Becoming a landlord for the first time is exciting, but it can be overwhelming and nerve-racking if you don't know where to start. Useful tips for first-time landlords include topics that range from leases and building code compliance, to evictions, so there's more to know than just collecting rent.
To make it easy for new landlords, the following tips can help you get organized. While there are many "to-do" items for landlords, there are certain things every landlord needs to know. This first-time landlord checklist goes a long way in helping you get your new business venture started.
Before Renting to Tenants
Before you can find the right tenant, you'll want to make sure everything is in order with your property. Considering these issues now can save trouble later.
- Find the right banker. If you'll need extra cash for financing your rental property or for the ongoing maintenance that will be required, use a reputable lender who issues loans on terms that are favorable to you.
- Know your local laws. Check local ordinances, including zoning laws and building codes, and make sure your building complies with all of them. Don't cut corners on what you need to do to comply with the codes and laws, as that could entail fines and penalties.
- Make sure your building is habitable. Landlords have the duty of providing a rental with the "warranty of habitability," which means that everything must be safe, in good working order, and that conditions such as mold, rot, insects, rodents, or similar issues do not come with the apartment or home.
- Know your maintenance needs. Ensure that public area steps and banisters—both inside and outside—are sturdy, with plenty of lighting so that potential lawsuits are virtually eliminated. Keep a good handyman, landscaper, and snow removal company on your payroll so that all outside areas, including driveways and parking spaces, are kept safe and well-maintained. Repair anything that needs it, but don't cut corners. Repairs need to be done properly or you risk violating the warranty of habitability.
- Get the right insurance coverage. Purchase insurance for the building, including liability insurance. Work with a reputable insurance company to get a good policy.
- Learn about the needs of disabled tenants. Become familiar with the Americans with Disabilities Act so you'll know if you have to provide accommodations to some of your tenants.
- Determine the right price for your rental. Decide how much you'll be charging in rent and what your rental will include, if anything, such as utilities, window treatments, pets, smoking, or parking spaces. Hire a good accountant to help you decide how much rent you should charge so that you're not losing money. Also check nearby rentals to see how much they charge. You don't want to overprice or under-price your rental.
- Hire a good landlord-tenant attorney. The attorney can prepare a residential lease for you based on the terms you want, or they can review a lease that an online service provider has prepared for you. You'll occasionally need a landlord-tenant attorney to evict a tenant for nonpayment of rent or for disturbing the peace, so having a landlord-tenant attorney on board at the outset is a smart way to start.
- Assign management responsibilities. Decide whether you're going to use a management company or if you will be handling rent collection, repair requests, and bookkeeping yourself.
Opening Your Business
Now that your property's ready, know what rules you need to follow to secure a tenant—from advertising the rental to completing credit checks.
- Decide how you'll advertise your rental. Give yourself several options, including online listings, local advertising, bulletin board postings in stores, college campuses, and community centers, or use a rental agency. Do what works best for you. Take photos of the outside and inside of the apartment or house, including each room. Make sure the photos are clear and have good lighting.
- Get your paperwork in order. Prepare your residential rental application. Make sure you know what questions you can ask and what you can't ask, so check with your attorney.
- Learn not to discriminate. Become familiar with the federal Fair Housing Act so that you never discriminate against tenants based on:
- National origin or ethnicity
- Family status
- Mental or physical disability
- Note that people with criminal backgrounds or bad credit are not protected classes of people, but be careful before rejecting someone with a criminal background, as it cannot be used to discriminate based on another protected class of people. Check with your attorney if you have a prospective tenant with a criminal record.
- Check references and do credit checks. Make sure each prospective tenant over the age of 18 signs a form giving permission for you to do a credit check. You also can have the tenant pay for the credit check. Look for negative issues on credit reports that are red flags for prospective tenants, such as late payments, poor credit scores, and bankruptcies. See if these late payment and bankruptcy issues have been resolved and if the prospective tenant has turned things around.
Accepting the Tenant
Now that you've located and vetted your new tenant, be sure to familiarize them with the property and with their obligations to you as the landlord.
- Do an initial walk-through with your tenant. Check appliances and conditions with the tenant so you know that everything is in good working order. Take as many photos as possible while the tenant is there to document the condition of the premises during the initial walk-through.
- Inform your tenant of their responsibilities. Send a welcome letter to the tenant that includes rules and regulations of the premises that you want to impose, and information about how the tenant can get in touch with you or your managing agent. Describe how your tenant will pay the rent. Consider having tenants use online payments instead of checks. Let the tenant know when you will need access to the apartment and how many days' notice you must give.
- Establish the security deposit. Make sure to collect a security deposit and rent before the tenant moves in. Check with your attorney to see whether you can charge one or two months' rent as a security deposit.
- Have a process for receiving rent. Make sure to collect rent and keep track of it. Issue rent receipts for the tenants. Some states require rent receipts, so check your state and local laws. Have a bookkeeper or your managing agent organize the rent collection. If the lease permits it, charge a reasonable fee for late rent payment.
Notices and Termination
While both you and your tenant seek an ongoing relationship, there are circumstances under which you may need to ask a tenant to leave.
- Know what notice is required for eviction for late payment. If a tenant is habitually late with payment, you'll need to decide if you want to keep the tenant or if you want to evict them. Check with your attorney to see what kind of notice has to be issued. The type of notice depends on state law.
- Know other notices relating to eviction of a tenant. Some notices permit tenants to cure the defect, such as paying past-due rent. Other tenants who are damaging the property or creating a noise problem or nuisance should be evicted or you'll likely have lawsuits (or, at a minimum, complaints) from other tenants for breach of "quiet enjoyment" of the property. Each tenant is entitled to peace and quiet in their use of the property, so if another tenant is violating that, you'll need to evict the offender.
- Serve the appropriate notice. Serve the tenant with the proper notice or have your attorney do it for you. If the tenant refuses to leave after notice to terminate, you'll have to go to your local housing court to start an eviction or unlawful detainer proceeding. If you win the lawsuit, make sure you obey all local laws and do not turn off services such as water, heat, gas, electricity, and do not lock the tenant out. These are all illegal evictions, so, even if you won in court, the tenant must be evicted properly.
- Inspect the rental property before the tenant leaves. Do a walk-through with the tenant so you know if you'll be deducting anything from the security deposit. Take photos of damaged areas.
- Do not retaliate or resort to self-help eviction. If a tenant has complained about the need for building repairs to local authorities, do not retaliate against them. In most states, retaliation by evicting a complaining tenant is illegal. You also should never resort to self-help evictions, such as locking out a tenant, or turning off water, electricity, gas, heat, or other utilities, as those are all illegal as well and could result in substantial fines.
Congratulations on your new role as a landlord. By following these tips, you'll be well on your way to being—and being seen as—a responsible landlord.