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Many investors seek to grow their portfolios by expanding into real estate and leasing out residential properties. Becoming a landlord can certainly pave the way to financial independence as it creates a passive income stream that rewards property owners month after month, even after they retire from the labor market.
However, becoming a landlord requires hard work and due diligence. Prospective landlords must understand the legal ramifications of leasing property for profit. Failure to comply with the law can lead to costly legal actions and in rare cases even criminal charges, so all those considering entering the residential rental business should refresh their knowledge of landlord-tenant law prior to listing their first property for rent.
Zoning Requirements
Before even selecting a suitable investment property, prospective landlords must acquaint themselves with local zoning ordinances and homeowners association (HOA) rules. Some HOAs ban rental properties in their developments entirely, while others approve only a certain percentage of rental homes per owner-occupied residence.
Additionally, would-be landlords need to follow all local zoning ordinances. Some municipalities require rental properties to undergo regular safety inspections, while others assess special taxes or fees from rental property owners. Failure to comply with these rules can cost property owners hefty fines.
Restrictions on Deposits
The majority of municipalities specify a maximum amount landlords may charge tenants in terms of security deposits, pet deposits, and other move-in fees. Charging deposits greater than those the law permits may lead to legal action by prospective tenants.
In addition, all locations specify rules for how landlords must handle security deposits. In general, landlords must return refundable security deposits in full when tenants vacate the premises. In order to hold all or a portion of a tenant security deposit for use on repairs, landlords must provide an itemized list of all things needing repair and may not hold tenants liable for damages resulting from normal wear and tear.
Equal Housing Requirements
Landlords may not discriminate against individuals on the basis of race, gender, national origin, religious preferences or disability. Nor can they discriminate against families with children. In some jurisdictions, state or local law may prohibit discrimination on the basis of sexual or gender identity, but even in locales lacking such protections, landlords should nevertheless avoid practices that imply discrimination if they hope to avoid potential lawsuits down the road.
Landlords may prohibit certain activities on their properties and should spell out any restrictions against owning pets or smoking in the residence clearly in the lease. As part of protecting individuals with disabilities, landlords must allow tenants with service or emotional support animals and may not charge a pet deposit. Landlords may refuse service animals who threaten other tenants or who interfere with the other tenants’ right to quiet enjoyment of their rental.
Insurance and Warranties
Prospective landlords should always carry sufficient insurance to replace the full value of their rental property in the event of a catastrophe such as a fire. Furthermore, landlords should carry a home warranty that covers most of the cost of repair for major appliances like refrigerators and air conditioning units. Carrying an adequate insurance policy as well as a home warranty prevents landlords from finding themselves suddenly responsible for necessary repairs they can not afford.
Safety and Habitability Requirements
Landlords have an affirmative responsibility to remove or repair known hazards prior to listing their property to rent. Failure to provide a safe, habitable residence can quickly lead to expensive legal action. In addition to being held civilly liable, landlords may even face criminal penalties should they fail to repair an aged deck or balcony that later collapses and causes injury.
Ensuring the habitability of a property may include removing health hazards like extreme insect infestation or black mold from plumbing leaks. Even landlords with responsible tenants nevertheless should inspect the property regularly to identify and repair problems before they spiral out of control.
Eviction Procedures
While no landlord relishes evicting a tenant, all landlords should know the legal steps they must take to do so if a tenant refuses to pay rent or causes intentional property damage. Some jurisdictions allow landlords to remove tenants in only a few days while others require property owners to go through lengthier eviction processes which include preparing an eviction notice and sending it ahead of time. While most landlords hope never to need the knowledge of evicting tenants in their jurisdiction, they nevertheless should gain a solid understanding of the process.
Renting residential properties provides a passive income stream that may supplement or even replace a landlord’s income from labor. However, landlords who fail to obey the letter of the law may find themselves embroiled in costly lawsuits quickly. By educating themselves about landlord-tenant law, property owners can profit from an additional income stream without ending up in court.