Today's post is about some of the legalities that landlords need to be aware of in order to not only be an effective landlord, but a good one! I know most people who read my posts are not landlords and do not ever plan on being landlords. However, this post will still be relevant to those of you who rent and will continue to rent for some time. My long-term strategy is to acquire as many rental properties as I can. That will essentially be my retirement. I am not good with letting funds sit in low-interest accounts. Because my job requires that I use money to make money, I am very fond of putting your money to good use and utilizing leverage in the right ways to make your money reward YOU. I don't think earned wages should be the reward. I think it should be the vessel to make you more money.
Being a landlord is kind of a weird prospect. A good landlord is willing to provide services and products to their tenants to make them happy, while also running their business efficiently and economically. That's a catch 22, for sure. Every time a landlord fixes a leaking sink or gets a new appliance, it eats into their bottom line. However, as a landlord, you have an ethical duty to make sure that your tenants are provided for. A lot of people don't understand that most landlords (good ones, at least) are not pocketing your entire rent check ever month. Landlords have capital expenditures that they have to pay with your rent money. They pocket the rest. Capital expenses include the mortgage payment (if they have one on that property), taxes, insurance, management fees (10% usually) and repair expenses. A lot of landlords are happy to get $200 per door. Sure, once the mortgage is paid the landlord increases their revenue, but that takes many years. On top of that, all GOOD landlords need to be very familiar with rules and regulations involving tenants/landlord rights, fair housing, credit checks, escrow accounts, etc. There is a lot involved. Here are 7 key laws that every landlord HAS to be familiar with. This post was inspired by a BiggerPockets article entitle, "The Top 7 Laws Ever Landlord Needs to Study," by Larry Alton.
- 1) State Regulations
Each and every state has their own laws about rental properties. South Carolina is usually pretty good about being fair and not always erring on one side or the other. However, it is imperative that you look these things up according to your state and honor your state's laws. You can find these state specific laws here.
- 2) Legally Binding Contracts
Most long-term landlords will be familiar with how these contracts work. However, a lot of default landlords are not very familiar with leases and other legally binding contracts. If you are not, you will absolutely need to study these to understand both parties' obligations. Each party agrees to do certain things at certain times and within certain capacities. If either party does not, then they are technically "not performing" and they can be held liable in a court of law to either perform on these duties or to incur damages for not doing so. Usually, going to court over these things is a massive waste of time and money, however, it happens ALL the time. The best thing to do is to understand these contracts, make sure that your duties are achievable and to perform the way you have agreed to. You will not have any problems if you do this. These contracts should be the mediator in almost all disagreements as long as you are holding up your end of the agreement. These contracts can always be terminated, but you have to do so according to the contract and the language present therein. Just read what you sign! And remember that almost everything is negotiable as long as it's written in the contract.
- 3) Tenant Privacy and Your Access Rights
Just because you own the property, you are not allowed to treat the property as if you're the occupant. Part of the lease is that the tenant has the right to peaceful enjoyment and privacy. When a tenant signs a lease, they have a certain amount of ownership interest. With that being said, the owner of the property must give the tenant sufficient notice in order to visit the property. You can not just show up whenever you want because you own the home. If you need to make repairs, show the property, etc., you need to give the tenant notice. Usually, notice required is at least 24 hours. It's also just nice of you to notify the tenant when you plan to be there. Put yourself in there shoes. Do you want people just barging into your house whenever they want?
- 4) Fair Housing Act (FHA)
Fair housing is a good thing! According to Federal Law, no housing provider is allowed to discriminate against a prospective tenant based on race, color, religion, national origin, sex, familial status or handicaps. Basically, you're not allowed to impose any personal declinations against any prospective tenants due to your own bias. This is not to say that you have to rent your property to anyone and everyone that applies. You can discriminate based upon things like pets and finances. A good landlord will run a background, credit and finance check to determine whether or not their prospective tenant will be a good one. If you find that this individual has been evicted or that they have been fraudulent about their finances, you can and should deny them. Sidenote: you shouldn't discriminate anyways. It's just mean. This is America and it's 2015.
- 5) Fair Credit Reporting Act (FCRA)
According to the FCRA, the landlord needs to be careful treating the tenants credit, identity and financial information responsibly. A landlord has the legal privilege or accessing the prospective tenants financial information (with their permission) and needs to treat that information sensitively. This means that you should't sell their personal identifies to anyone, don't excessively pull their credit reports because it negatively impacts credit and you shouldn't store their personal information improperly. Again, you wouldn't want someone doing those things to you, right?
- 6) Landlord Liabilities
This is pretty similar to both #1 and #2. Each state has requirements that mandate what makes a property safe/unsafe or livable/unlivable. As a landlord, you absolutely must make sure that the property meets or satisfies all state and federal regulations that determine whether or not a property is inhabitable. As a good landlord, you should far exceed these requirements. If you are found not to provide a safe and livable property, you will be fined excessively. Everyone has heard the term "slumlord." Don't be a slumlord. Not only is it gross and unkind, it is a very unsustainable business practice.
- Terminating Contracts and Evictions
This one is reminiscent of some of the things that I mentioned in item #2. Basically, if you need to terminate a contract or evict a tenant, there are procedures that you will need to follow in order to do that successfully. Terminating a contract is no nearly as litigious terminating a contract - especially if the termination is a mutual agreement. If you are the landlord and you desire to end an agreement without the tenant's cooperation and the tenant has begun non-performing, you can rely upon your lease agreement to get them to move along. However, if they refuse to vacate the property, you will have to follow your state's legal process to evict them. Evictions usually take longer than expected because all of the legal documents and motions associated with the eviction must move through your local legal system before the Sheriff or deputies are able to come and escort the tenants off of the property. Some municipalities are more familiar with this and perform more swiftly than others. You should familiarize yourself with your state/county/town's processes of eviction to make the process as efficient as possible.
That's all for today! Being a landlord requires more care, attention, skill and thought than you would think. That's why great landlords are sometimes hard to find. It's easier to just be lazy and careless. However, that mind-set is dangerous and unsustainable business. If you are interested in investment properties, feel free to reach out to me! I'm more than happy to help.
And if you or anyone you know is need of a Realtor to aide in buying or selling a home, look no further. Right now is a great to buy or sell!