7 Secrets to Successful — and Legal — Landlording

April 1, 2008

Slower sales are compelling more home owners to rent their properties, at least for a while. If you’ve been asked to help, follow these tips from attorney Kenneth M. Roth.

1. Run renting like a business.

Even if your client is planning to lease only until the house sells, or the tenant is your second cousin, keep leasing on a professional basis. Establishing business rules and policies allows you to maintain objectivity if a tenant makes demands or is late with the rent.

2. Treat everyone equally.

Federal fair housing law, which prohibits discrimination on the basis of race, color, religion, sex, national origin, family status, or handicap, applies when real estate licensees advertise or lease any residential property. Although it’s completely legal to ask questions about a prospective tenant’s rental history, current employment, and financial history, it’s important to ask every applicant the same questions to avoid the appearance of discrimination. If your clients have a problem renting to anyone in a protected class, then encourage them not to rent the home, says Roth.

3. Use the right forms.

Although there are all-purpose leases available at office supply stores, it makes more sense to use a lease tailored to your specific property type and state laws, including landlord-tenant laws. Good sources are your local REALTOR® association or state bar association, says Roth.

4. Make your lease as specific as possible.

Spell out exactly what is expected of the tenant and the owner or manager. Who’s going to mow the lawn? How should emergency repairs be handled? Roth suggests making tenants responsible for repairs of less than $100 and letting the owner cover major repairs.

5. Write out a roadmap for defaults.

Your lease should spell out all the particulars and penalties of rent payment. It should state when the rent is due, where it must be paid, what late fees and interest you will charge, and at what point late payments will result in an eviction notice.

6. Don’t treat security deposits as a potential for profit.

Security deposits are intended to cover only repairs needed because of excessive damage to the property. They can’t be used to cover routine cleaning of a unit prior to releasing or to add upgrades. Also remember that in many states, security deposits must be kept in a separate account and you must pay interest to the tenant. Ask for the first and last month’s rent plus a security deposit, advises Roth.

7. Don’t be fooled by appearances.

A fancy car and lots of bling do not necessarily a good tenant make. Run a credit check on every prospective tenant. Tenants must sign an authorization to permit you to check their credit, and you can charge them for the cost. Also remember to keep credit information confidential. Don’t disclose what you know to others, says Roth.

Roth is an attorney in Florida, New York, and Washington, D.C., and author of The Successful Landlord (Amacom, 2004).