What Landlords Should Know About Subleasing

It is your right and responsibility as the landlord to know about everything that happens to your rental property, especially when a new tenant moves into the building. Ideally, you get to decide who rents your property. However, your tenants can assume this authority through subleasing. This can be good or bad for you and your rental business, depending on how you handle it. 

How Subleasing Works 

Subleasing essentially transfers a lease from the original tenant to another tenant. Clients usually sublease when they have to leave temporarily and are looking to offset the rent until they come back. Many tenants also sublease when moving away permanently before their lease expires with the same goal of saving money. 

Assuming that you don’t have a say in the sublease, the tenant will handle everything with the subtenant and make arrangements for important things such as maintenance and paying rent. However, it is advisable to control the subleasing process and hold both parties responsible for fulfilling the contract’s terms and conditions. 

The Pros & Cons of Subleasing 

Subleasing has good and bad implications for all parties involved, especially you, considering your stake in the property. Here is an overview of the advantages and disadvantages to you. 

Pros 

Here is an overview of the pros of subleasing, assuming that you are in control of the process: 

  • Qualified Tenants 

The landlord’s biggest concern about subleasing is that the tenant will give the property to a problematic subtenant. However, you can ensure that the subtenant meets your standards by taking part in the vetting process. 

Ideally, the subtenant should undergo the same screening process as other tenants. It is also advisable to delegate the tenant screening process to a screening agency to ensure that you don’t miss any red flags about the subtenant. 

  • Steady Rental Income 

In most cases, the tenant would have to cancel the lease agreement if they had to move, and subleasing wasn’t an option. This would leave the unit empty, resulting in lost income until another tenant comes along. You would also incur expensive tenant turnover costs when looking for another tenant. 

However, agreeing to sublease will ensure continuity in the rental income from that unit. It will also save you hundreds or thousands of dollars in tenant turnover costs. 

  • Positive Long-Term Relationships 

Some tenants sublease with the intention of coming back. Good tenants are difficult to find, and subleasing to a qualified subtenant for several months would be a small price to pay (if it is a price at all) to retain a good tenant

Cons 

As explained earlier, every landlord’s biggest concern about subleasing is that the subtenant will be problematic. Unfortunately, the tenant handling the subleasing process may not know how to screen subtenants according to your standards. A problematic tenant poses other threats, including property damage and lease violations. This is why it is important to either restrict subleasing in totality or get involved in the process. 

What to Do about an Unauthorized Sublease 

It is always advisable to cover everything in the rental contract, including whether or not tenants can sublease their units. You also have the right to cancel a tenant’s lease if they sublease their unit without your authorization. Ultimately, it is advisable to consult your lawyer and act within the law when handling such a case to avoid violating the tenants’ rights. 

Conclusion 

You never have to worry about subleasing if the subtenant meets your standards and passes the tenant screening test. LandlordStation can help you conduct thorough checks on your tenants and subtenants. Get in touch today to learn more about our tenant screening solutions. 

The New Landlord Primer

You’re all smiles as you plan to dip your toes into the lucrative real estate industry. Or maybe you’ve already built a property ready to usher in your first tenants.

Either way, as a first-time landlord, the things to do can quickly overwhelm you.

Don’t worry- we are here to hold your hands as you take those baby steps. Here are some of the things to tick off your checklist:

1. Take Cover- Obtain a Landlord Insurance

Before opening your property’s doors to tenants, ensure you’ve purchased landlord insurance. You don’t want to suffer from common issues when renters occupy your property.

You can choose from three types of landlord insurance policies:

DP-1 policy

It’s the least expensive and covers only stated risks. These perils can include:

  • Riots
  • Fire and smoke
  • Windstorms, hail, and lightning
  • Vehicle-caused damages
  • Explosions

But you’re not guaranteed compensation for damages from any of those issues.

DP-2 policy

A DP-2 protects you from more types of risks. The policy explicitly names covered risks, just like DP-1 policies. 

Apart from covering what a typical DP-1 does, DP-2 policy may also include:

  • Frozen pipe and electrical damage
  • Falling objects
  • Damage resulting from ice and snow weight
  • Flooding 
  • Building collapse

DP-3 policy

This policy is an open peril cover that lists any specific risk not included in the above coverages.

2. Compile a Thorough Lease

The lease agreement is a binding contract that stipulates what you and the renters can and cannot do. The document also explains the steps to take if any party breaks the agreement.

Remember to cover all bases when writing a lease. Sure, a two-page document may cut it for some time. But what if something that wasn’t covered adequately in the document crops up? 

Ensure you’ve included and described these items to safeguard your interest while adhering to legal obligations:

  • Length of lease and provisions for automatic renewal
  • Name and status of every person that will be residing on your property
  • The period allowed for tenant’s “guests” to occupy the property 
  • Rent, when its due, and penalties for late payments
  • General deposits and security deposits plus circumstances that will cause you to hold the deposit
  • The party responsible for utility bills
  • Rules regarding pests
  • Property maintenance
  • Insurance

The exact clauses, terms, and language may vary with states, so do your homework perfectly.

3. Befriend the Laws

You want to remain on the safe side of the law. After all, who wants to contend with lawsuits that can tarnish their images and waste resources?

The trick is to know and adhere to all fair-housing acts. This law protects tenants against discriminatory practices in housing based on seven factors:

  • Sex
  • Color
  • Disability
  • National origin
  • Familial status
  • Race
  • Religion

The Department of Housing and Urban Development (HUD) is responsible for enforcing this act. 

Here’s a well-kept secret: A person from HUD can pose as a renter on your property to see if you follow their act. Don’t let them trap you.

Also, if a renter feels like you’ve discriminated against them, they can file a claim with HUD. The department will then conduct investigations to get to the bottom of the matter. 

To avoid such accusations and comply with the fair housing act, assume every potential tenant works for HUD or is attempting to accuse you of breaking the laws. 

  • Treat every tenant with dignity and respect
  • Screen tenants consistently and employ a uniform qualifying standard- request the same documents, fees, and details
  • Check your federal, state and local fair housing laws to ensure you aren’t missing any mark. Be sure to stay abreast with all laws by researching in the right places for updates

4. Screen Tenants and Their “Guests”

Although we mentioned this point above, it needs its own section. Yes, it’s that important. 

Your renter might be a nice person who lets family and friends couch-surf while they look for their places. Or, due to a whirlwind of romance, their significant other might overstay at your property. Whatever the situation, complications may arise in the long run.

On the surface, unscreened guests staying beyond the reasonable time frame might not be the biggest deal. But here are some of the dangers they pose:

  • Unknown Background: Screening helps uncover every occupant’s criminal and credit background. You want to ensure no one turns your property into a launch-pad of criminal activities. 
  • No security investment in the property: Unscreened guests don’t have a monetary investment that incentivizes them to maintain and clean the property. 
  • No consequence for disruptive activities: The unscreened occupants also aren’t the ones who stand to lose their space when they argue, play loud music, or ignore complaints from neighbors.

Let’s face it- it’s difficult to stop tenants from hosting unscreened occupants. Your best bet is to limit how long these guests can stay. Remember to include this policy in your lease to make enforcement a breeze. 

5. Property Management Vs. Self-Management

Choosing between hiring a property manager and self-managing isn’t as easy as it sounds. A novice in the industry may view their property as a simple equation of rental revenue – (costs + mortgages) = profit.

But that’s just a basic mantra. It’s also recommendable to account for landlord duties, time, and energy. The duties include:

  • Maintenance
  • Addressing vacancies
  • Dealing with tenant relations
  • Rent collections
  • Lease enforcement
  • Other duties – Think taxes, tenant turnover, evictions, insurance, rental law enforcement, inspections, and adjusting the rent. 

Managing all these duties can be a stressful 24/7 job. But with a platform like LandlordStation, your task becomes painless. Our one-stop solution will cover everything from tenant screening to document management and online rent payments to renters insurance.

Hiring property managers come with perks of benefits. These professionals make it their duty to understand the rental industry’s fair housing laws and best practices. 

Property managers also enjoy powerful links in the industry, thanks to professional groups and associations. So staying abreast with changes in rental laws is painless.

However, these professionals typically charge 7-10% of monthly rental income to handle all the above duties and issues. For instance, the monthly fee may be $100 for a property whose rental income is $10,000. Plus, getting a trustworthy manager can be challenging.

6. Require Renters Insurance

We see you asking, “But I have my property insurance.” That’s great. 

However, a smart landlord requires all tenants to have their own insurance policy. These policies protect you against extra liabilities.

While your homeowner insurance covers the actual structure and dwelling, the renters’ insurance protects the tenants and their property from losses.

For instance, your landlord insurance policy will cover building damages caused by a burst pipe, fire, or electrical issue. But what if the fire, water leak, or power surge destroy your tenant’s personal belongings? That’s where the renters’ insurance policy comes in.

Most renters’ insurance policies also include additional living costs incurred from insured misfortunes. Consider a situation where you need more time fixing that pipe, repairing drywall, and replacing the flooring. Such a situation can force the tenant to look for a temporal place, for example, in a hotel. Fortunately, their renters’ insurance policy may pay for extra expenses above their normal living costs.  

7. Get Loan To Purchase Your Property

Looking to finance your dream but don’t have ready cash? A loan may come through for you.

But while loans for rental property share some similarities with mortgages for residences, there exist significant differences. Be sure to do your homework and research the rental loan requirements, including:

  • Credit scores: Ensure your credit score is attractive. Sure, Fannie Mae can give up to 10 loans. But the more the loans, the more the potential risks, leading to increased credit score requirements.
  • Cash reserves: Lenders want to ensure they can get back their money and interest even if the first six or so months don’t see tenants on your property.
  • Higher down-payment and income: You may have to put down at least 20%. Also, most investment loans tend to have more stringent limits on loan to value (70-80% LTV). And your W-2s or tax returns must show stable income. 
  • Find the right lender: Be sure the lender has experience handling loans for investors and landlords. You don’t want unnecessary delays or loss of your desired property. 
  • Rent loss insurance: If an unfortunate event leads to damaged property and loss of rental income, this policy will protect you. It’s usually included in your property insurance coverage.

You’ll choose between two types of loans depending on the number of units in your property:

  1. Residential loan: It’s suitable for properties with four units or less. This loan is more or less like the traditional mortgages but comes with more stringent requirements. 
  2. Commercial loans: It’s designed for properties with five units or more. While the requirements are more stringent than residential mortgages, you can use them to finance any business (not just residential property). 

Wrap Up

Being a landlord can be a rewarding investment. And with the right strategies plus tools of work, your property management duties will be painless and you’ll be on your way!

Landlord’s Guide to Security Deposits: What You Need to Know

When you rent out your home to someone, they will often pay a security deposit. Security deposits are a necessary part of renting out property. They are meant to protect landlords from damages after the tenant moves out and, in some cases, may be used to cover unpaid rent. But what if the tenant damages the home or doesn’t pay their rent? Your landlord’s guide to security deposits will teach you what to do in these situations and more. Read on for everything you need to know about security deposits!

What is a Security Deposit?

A security deposit is a sum of money that tenants pay to the landlord upon moving in and that is refunded at the end of their tenancy. Security deposits can often be used as a way for landlords to protect themselves from damages, or in some states, unpaid rent. No matter how well you screen your tenants or how wonderful they may otherwise be, a single missed paycheck can result in unpaid rent or damage could also happen-and not being prepared for it can prove costly! It’s better to have something secured than nothing at all!

The Tenant’s Responsibilities

Tenants have responsibilities when it comes to renting property. They must pay rent on time and maintain the property. If they don’t take care of the property or pay their rent, the landlord can do certain things to make sure they get your money back. For example, if the tenant doesn’t take care of the property or pay the rent (in some states), you can:

  • Take legal action against the tenant
  • Put their name on a credit bureau list
  • Keep their security deposit

If your tenant breaks any agreement with you, you are allowed to do any or all of these things. 

What To Do If a Tenant Breaks Your Rules

We all know that when renting out a property, you need to prepare for the worst. If your tenant breaks your rules, there are a few steps you can take in order to protect yourself and your home.

If your tenant damages something like the dishwasher or bathroom, it’s important as a landlord to keep detailed records of what was damaged and how much it cost to replace. This will help you if it comes time to evict the tenant. This also helps with backing up your decision to withhold part or all of the security deposit as a result of the damage the tenant caused.

If a tenant becomes problematic enough to warrant eviction, you’ll want to consult with an attorney to find out what steps you need to take to evict them legally and as quickly as possible. If you skip any steps or don’t handle the eviction completely legally, you can give the tenant the ability to stay longer and cost you more money.

What To Do If the Tenant Damages Your Property

The tenant will often be liable for any damages to the property – unless they have renter’s insurance. This is why it is important to make sure your security deposit covers the cost of these damages. Of course, it’s not always easy to predict if damage will occur or how much it will cost to repair. That’s why you need to take these precautions before renting out your property:

  • Make an agreement with the tenant about cleaning up after themselves and the process for any repairs that are needed
  • Take photos of everything before they move in and agree on what needs to be fixed before they move in
  • Get a signed agreement/contract with the tenant that states exactly what furniture, appliances, and other items are included in the rental agreement and what condition they are in – this will eliminate confusion over wear and tear or damage caused by tenants later down the road

Once you do these things, you should be in a position to easily determine whether the tenant gets their security deposit back and if they cause damage, how much of the security deposit to withhold for repairs.

When the tenant leaves, you should also take these steps:

  • Do a walk-through with the tenant to assess the status of the rental property
  • Take photos of everything and document specific instances of damage
  • Provide tenant with a detailed list of the damage caused and what it will cost to repair

When you take these steps, you ensure that the tenant understands why you are withholding part or all of their security deposit, if necessary. You also provide them with documentation in the event that they try to sue you for the security deposit, setting yourself up for a stronger court case.

How To Calculate A Security Deposit

A security deposit is often a certain number of months’ rent – typically one or two months. But how much you can charge is based on where you live. You need to familiarize yourself with the laws in your area. You’ll also need to look at the market itself. If other landlords are charging just one months’ rent, it’s going to be difficult for you to charge two or three months’ and find tenants. 

Security deposits are a landlord’s best friend. A security deposit is a small amount of money that a tenant pays to the landlord, in addition to monthly rent, in order to use the property as their home. The deposit is used to cover any damages that the tenant may cause to the property, or if they stop paying rent, which means the landlord won’t have to go through any legal proceedings to get their money back. It’s important that you know your rights and responsibilities as a landlord so you can avoid any conflicts and go about your business as usual.

6 Tips on How to Handle Conflict Between Tenants

As a rental property owner, you will inevitably experience tenant conflict once in a while, no matter how carefully you screen new tenants. From parking issues to loud music and common area conflicts, tenants can get into a confrontation for many reasons. And needless to say, conflicts can have an adverse effect on your property and even cause other tenants to move out. 

Learning how to handle conflict on your property can go a long way in avoiding the negative fallout that comes with disagreements between tenants. Here are six ways to deal with conflict between tenants:       

Set rules that will prevent conflicts from arising

Handling conflict on your property should begin with establishing a residential lease agreement that outlines your expectations from tenants. Ideally, it should highlight rules on what constitutes undesirable behaviors and how to avoid them. This can include rules regarding how to use shared spaces, noise, pets, and controversial issues like smoking. 

When a new tenant moves into the property, give them a copy of the agreement and be sure to emphasize the rules. Also, inform them that all complaints should be solved through relevant authorities and not between tenants. 

Have a policy on how to handle every complaint

Establishing rules on how to handle specific cases can ensure consistency in your approach, therefore making sure you don’t approach similar cases differently. For instance, simple violations like noise can be dealt with less severely, while more severe violations can attract more severe punishment. 

Your policy should also include how tenants should file complaints. This could be through filling out forms online or physically. Your tenants should be aware of how to go about the process for smooth handling of a dispute. 

Keep a written record 

Keeping a written record of every conflict is important for solving any disputes that might develop in the future. In any case, if a tenant repeats the same mistake over and over again, you will have grounds to evict them without opposition or involving the courts. Your written document should have the following fields: 

•    Date of the complaint

•    Nature of the dispute

•    Tenant’s name and unit number

•    Date the complaint was resolved

•    Resolution

A written record essentially allows you to follow up on the agreement made and if there is a need to take further measures. 

Know your rights under the lease

Besides policies on how to handle tenant conflicts, the lease also includes your rights and responsibilities as a landlord, and being up to speed with them allows you to protect yourself in case of disputes. Specifically, these rights help you to correct tenant behavior in accordance with the property agreement and local and state laws. 

It is advisable to consult a legal professional knowledgeable in tenant issues. This helps to avoid legal complications that may arise. 

Update both complainee and complainant  

Be sure to let the complainee know that a case was lodged against him, but don’t disclose the tenant who raised the issue. This is to avoid tension and resentment that could further escalate the problem. Moreover, give a detailed account of the complaint as well as actions to be taken if the tenant is found guilty. 

Make sure you conduct your own research to get the facts together. Don’t forget to issue every party a written document about the case and how it will be resolved. 

Consider mediation 

Mediation is a viable way to solve tenant disputes to ensure the problem at hand does not ruin the relationship between them. In some cases, you can play the role of a mediator, while in others, you might want to involve a professional mediator, especially if the case is rather technical. A mediator will help to come up with an amicable solution for the benefit of the landlord as well as the tenants in question. 

Summary 

While disputes are sometimes inevitable, there are several ways you can prevent them to ensure all tenants are living in peace and harmony. Having rules and policies in place is a sure way to avoid conflicts among tenants to keep your property safe for all. 

What responsibilities do you have when it comes to snow and ice at your rental property?

Throughout the winter season, snow and ice are common problems across many states. Even if clearing the streets is generally the responsibility of the municipality, there are often local guidelines mandating swift removal of snow and salting icy areas on sidewalks and other pathways to reduce the risk of accidents.

Property considerations

If your rental property is an apartment or multi-housing unit, you are likely responsible for clearing snow and ice in common areas such as stairs and walkways.

When it comes to a single-family property, the guidelines are less clear and vary between states and even cities within the same state. In some cases, the city or neighborhood clears ice and snow from the sidewalks. In others, this is the responsibility of the property owner.

In all cases, it’s important to do so as quickly as possible as liability for falls and injuries is a real risk. 

Lease language

To ensure that both the tenant and the landlord are clear on who is responsible for what, there are some key clauses to include in the lease, including but not limited to:

  • Who is in charge of snow removal and ice mitigation
  • Where the snow should be removed from
  • Where the snow should be moved to
  • How quickly the snow should be removed; this will vary by city so be sure to check with your local city government.
  • If your tenant is tasked with the responsibility, if you choose to provide snow clearing equipment or if tenants should provide their own

It should also be noted that liability may fall on you regardless of what is stated in the lease. Always be sure to check both state and local laws to ensure that your lease aligns with legal guidelines.

Winter maintenance

Cold weather, regardless of snow, can cause damage if not handled properly.

Before temperatures really dip, it is a good idea to visit the property and check on key systems and equipment such as the heating, water pipes, smoke alarms, and carbon monoxide detectors. Ensuring that all equipment is in good working order before the season gets underway can reduce the risk of failures and early-morning emergencies.

You should also regularly check the seals on external doors and windows to ensure they are being maintained properly and are in good condition. Not only can old or broken seals damage the property if water and ice get in, but it can also impact the overall temperature of the property and put a strain on heating systems. 

In addition to your regular maintenance, you may wish to discuss ways in which your tenants can look after the property during the colder months such as best practices for using the heating system or how to avoid frozen pipes.

Remember, always check your local laws and ensure that you are following them. In addition to legal requirements, helping your tenants maintain the property throughout the winter months may reduce the risk of long-term damage.

Best ways to research new and updated local laws for the New Year

As a landlord, it’s important that you stay up to date on the laws that impact you, your property, and your tenants. However, unless you are also a legal expert, it can be challenging to keep track of every law and a consultation with a lawyer can get expensive.

Because each state and even each city has its own laws, you need to know where to look. While search engines are a useful tool, it’s important to understand which sources you can trust and where to find the most up to date information.

When researching local issues, keep in mind that while federal and state laws take precedence, local law adds an additional layer of regulation to further protect the municipality. Because of this, it’s usually best to start at the federal level and work your way to local. 

Federal Law

The U.S Department of Housing and Urban Development (HUD) is a primary resource for tenant-landlord law. You can use the search function on their home page or Google “your search term + HUD” to find information specific to your question.

Reviewing previous cases online can also be useful. The Legal Information Institute from Cornell University Law School interprets the law and specific cases by state or through various federal courts. The U.S. Code via Cornell University Law School provides helpful information on current statutes.

State Law

Once you have consulted federal law, it’s time to move to state law.  This will govern most of the issues you’ll encounter regarding landlord and tenant rights.

  • First, check with your state attorney’s general website, which often includes basic information relating to landlord and tenant laws.
  • You can also visit the HUD website; under the “State Info” tab, you can select your state. Under “Get Rental Help,” you’ll find information about tenants’ rights and laws. This section deals with laws specific to that state and provides a list of tenants’ rights and landlords’ responsibilities.
  • Visit USA.gov for information about complaints with housing. While this site primarily offers tenant resources, there are some useful to landlords as well. The Fair Housing Act details many regulations for rental properties, especially in the area of discrimination. However, many states further define discrimination beyond this act, which is why you will also want to refer to the state statutes.

Local Laws Regarding Landlords and Tenants

Cities and municipalities often provide their own regulations and the best source will be through the city’s website. You can also contact a city office or the local library for more information. The local level is where you’ll find ordinances about noise or trash, public nuisances, and other regulations.

If your rental property is in a suburb or neighborhood association, you’ll have to also check with them for further guidelines. Some associations have bylaws on issues such as landscaping, outdoor decorations, and parking. These associations have regular meetings and officers. Bylaws don’t supersede city or state laws, but they often deal with specific aspects of rental properties, including where rental properties are allowed.

Other useful sources of information

Additional resources we reference: 

Conclusion

Understanding local law governing landlords and tenants begins with federal law and continues through to the local level and even down to an association level in some cases.

Following these laws as you manage your properties and tenants is essential and, as such, being able to find up to date information is crucial. Remember, when a question or concern arises, even if you have dealt with it before, you should check for any recent legal changes.

The State of the Housing Market

In 2020, despite the global pandemic, the number of home sales increased significantly and the housing market continued to boom throughout 2021. The nationwide nominal house price index is now 40% above its 2012 low-point and 4% above the peak reached in 2006.

Let’s take a closer look at the current state of the housing market in key regions.

New York and New Jersey

If you’re considering purchasing a property in the tri-state area, you’d better be ready to deal with a very competitive market. With demand rising and available properties in short supply, New York’s thriving real estate market showed no signs of slowing in the third quarter of 2021. Despite 18 months of rising property prices in New York state, prices remain lower than they were before the pandemic hit. The average rental price in Manhattan increased 8.3% between September 2020 and September 2021; in Brooklyn it dropped 5.8% and in Northwest Queens, it increased 1.7%

Mid-Atlantic Region

Those of you considering a property investment on the East Coast may wish to look at the mid-Atlantic region, from New Jersey to Virginia. Building permits are on the rise across the region with permits for new, single-family homes increasing by 32-50% during the first half of 2021.If you’re looking to set up a rental property, it’s best to examine the area on a city-by-city basis to ensure you can tap into a market willing to pay a profitable rental rate. Philadelphia hit a record high for apartment occupancy, with August of 2021 seeing a two-decade peak of 97.6%. Virginia Beach has also seen a steady increase with August 2021 seeing occupancy rates of 98.1%.

Southwest

The housing market in the Southwest has seen property prices skyrocket with Utah and Idaho witnessing the highest price increases nationwide. Rental prices have increased significantly with high demand, yet low availability of vacant rental properties pushing rent prices up even further. More people working from home during the pandemic translated to more people looking for spacious properties in the suburbs, and 2021 saw buyers frantically purchasing property in Texas where housing prices are over 30% higher statewide than a year ago. But, according to a research economist for the Texas Real Estate Research Center at Texas A&M University, the buying frenzy is over. 

Pacific

The white-hot Seattle-area housing market has started to cool with fewer properties being listed and prices dipping, though the market is still very competitive. Affordability is a big issue and The California Association of Realtors expects home prices to rise by 5.2% next year and housing affordability to drop. While national rent growth is still going up from 11% to 13%, it’s lagging considerably in California.

Overall, 2021 closed with mortgage rates at a record low, a strengthening job market on the horizon, and rents surging.