What to Know About Being a Landlord

Investing in Real Estate Series — Week 3

Have you ever thought about owning an investment property? Then this series is for you!  I’m covering everything to know when it comes to investing in real estate, including the different options out there and how to make it happen.

You’ll also get a complete rundown on why investing in a rental property can boost your finances, the tax benefits, plus what you need to know about being a landlord, how you can best flip the right property for a profit, an investment strategy for move-up homeowners, and how you can save money when it comes time to sell an investment property.

Last week this series covered how to buy a rental property — Buying a Rental Property 101 — and now we’ll focus on the steps you’ll need to take once you’re a landlord. And don’t miss the bonus guide on specific laws and regulations for landlords in the Seattle.

You’ve purchased a rental property and are now ready to move forward with being a landlord.

Becoming a landlord requires various responsibilities from start to finish. You want to make sure your investment property is profitable so finding and keeping tenants should be a priority. 

You also want to make sure that your property is well maintained to preserve its value and also avoid costly repairs that are caused by lack of timely maintenance.  

And someone’s got to manage this investment—you or a property manager/company.  

Property Management Company – Yes or No?

What’s the best choice for you — should you hire a company or not, or just use some of their services? 

You could have the management company handle everything, including finding tenants, collecting rent, maintenance, and dealing with day-to-day issues or emergencies when they arise. 

Or, you can find a suitable tenant yourself and then work with the company to write the lease and handle the property management from that point on.

To help make your decision, consider your particular situation and key factors: 

• Don’t live near your rental property or you travel frequently. You want to keep a close eye on your property and be available for any last-minute emergencies. A property management company would alleviate all of these responsibilities. 
• Don’t want to deal with tenants or the stress of being a landlord. If your tolerance is low, a company can handle a wide range of situations – late payments, emergency phone calls, enforcement of lease requirements (such as no pets or smoking), inspection of property and dealing with any damage, etc. They’ll bring a level of professionalism that tenants may better respond to and you don’t have to be the bad guy.
• Don’t have the time or the proper skills to screen potential tenants. It’s time consuming to field calls from interested tenants, conduct screen checks, show your property, etc. Plus, management companies have more experience pinpointing any “warning signs” of bad tenants or preventing any possible discrimination lawsuits. 
• Can afford the cost of a property management company. Expect to pay a fee between 10-12% of the monthly rent, and most likely a leasing fee of one month’s rent for finding and screening tenants. Determine if the cost is worth it and you’re still happy with the profit from your property. 
• Don’t want to handle maintenance and repairs. Things will break unexpectedly and most tenants will cause some wear and tear. A company can have its own staff or use reliable services from their local contacts to work on your home. 
• Can’t keep up with tenant laws. It’s important to protect yourself from lawsuits or any liability as a landlord. A company can ensure that your rental is up to code in terms of safety and health, and it can keep up-to-date on discrimination laws and other state, federal or local legislation. They also can draw up a proper lease. 
• Not comfortable confronting tenants with eviction or other legal issues. A company will know the proper way to deal with tenants when filing for an eviction or handling any litigation. 
• Don’t mind relinquishing some control.  You’re fine with being more hands-off with this investment property. Just make sure you hire a reputable company that you can trust. 

If you are going the property management route, reach out to me.  I don’t personally manage rental properties, but I have some great suggestions to offer. 

Being a Hands-on Landlord

If you decide that a property management company is not the way you want to go, then you’ll need to prepare yourself as a landlord.  

Now you’ll be responsible for a wide range of duties, from rent collection to being on call 24/7 for emergencies. You most likely may need to outsource some services, such as having a reputable contractor for maintenance and repairs or a real estate lawyer for legal advice. 

• Decide what to charge for monthly rent.  To get an idea of what similar homes are renting for in your neighborhood, reach out to me and I can let you know what to expect.  
• Set up bank accounts specifically for this property.  Put 25% of every rent check in a separate savings account to save for future repairs and maintenance expenses.  And set up a checking account to keep track of income and expenses separately from your personal checking account. 
• Come up with a set of tenant rules and policies. Have a written policy of rules — how rental checks should be paid and when, how many people can live there, late fees on missed payments, if pets are allowed or not, who to call if something breaks, etc. 
• Create a rental application. You can find a template of one online. Include authorization to have criminal and credit screenings.
• Get your rental in order. You want to attract stable tenants so your home should reflect what’s being offered in your neighborhood in terms of features and amenities. Don’t go overboard with expensive upgrades!
• Ensure a safe environment. Install smoke detectors, a carbon dioxide detector, and provide a fire extinguisher. You want to make sure your home is up to code if it needs to be inspected before you rent it out.
• Familiarize yourself with local tenant laws and landlord requirements. Contact a real estate attorney to clarify the laws, many of which favor tenants. You also may need their help with an eviction down the road. Even when searching for tenants keep in mind equal housing opportunity laws.
• Determine if your condo association has rental restrictions. You should know this before you buy, but some associations restrict the number of rentals to ensure the value of the building. You might be put on a wait list.
• Get proper insurance. You’ll need “dwelling” insurance that will cover any property damage, and also a policy for liability if someone gets injured on your property. Also consider a home warranty plan. 

If you are planning on managing the property yourself, reach out to me.  I can give some guidance on some of these steps, or at least provide you with resources and suggestions.  

Dealing with Potential Tenants

Consider these steps below so that you can ensure a professional and positive landlord-tenant relationship. Remember, how you act and appear as a landlord will reflect on how a potential tenant will view you and your property.

• Find tenants through reputable online sites, posting on social media or neighborhood listservs, or even through friends or colleagues. You’ll need to take some good photos of your home and have your rental application and policy ready to hand out. 
• Decide whether you will rent to family or friends. You don’t want to jeopardize any relationships so that’s why a written policy and professionalism are essential.
• Run a credit and criminal background screening.  Have them sign an authorization for these screenings. Ask for references from previous landlords, past pay stub,and see if they have employment stability. 
• Determine if they have ever been evicted. This could be repeat behavior. Eviction records are public and can be found in court records. Credit reports also will indicate in the public records section if they have been sued for past rent. 
• Make sure you have security deposit and first month’s rent BEFORE they move in. Once a tenant has moved into your home, it is harder to evict them because of tenant rights. 
• Sign the lease.  There are typical leases online for the state or city that you live in, so start there for an easy template.  I can also provide the official lease that real estate agents use. You want to be sure to consider and include clauses that are important to you. For example, if you want your tenant to have the property professionally cleaned and/or carpets cleaned upon their move out. 
• Tenant Walk-through.  Upon your tenant’s move in, walk through the property together, noting in writing and/or with photos what marks, scratches, damage they are assuming.  This way, you can be clear about the condition when it comes time to give back their security deposit. 

BONUS GUIDE: Understanding Seattle Tenant Laws and Regulations

Each municipality has certain laws and regulations that property owners must abide by and below is a good rundown for landlords in our local area.  

Remember to consult with an attorney or a reputable property management company for details on current housing regulations and procedures, but below is a bonus guide to get you started on what needs to happen if you plan to rent out your Seattle home.

Seattle has its own set laws and regulations for becoming a landlord that other jurisdictions don’t. In fact, it’s more stringent than most other localities in the metro region.

As a Seattle landlord, you’ll have additional legal requirements and paperwork that need to be completed before you can even rent out your home – whether it’s a house, townhome, condo unit, basement apartment or even a single room.

Seattle is one of the most tenant-friendly jurisdictions in the country, so there are a lot of hoops landlords have to jump through to make sure the laws and rights of the tenants are being followed. 

These laws are there to protect tenants from unsafe housing and unscrupulous landlords (not you!). But you need to protect yourself so you don’t break the law or face any penalties.

Get Started with License & Registrations

The first steps involve lots of paperwork and several small fees to the Seattle government.  If you’re either going it alone or plan to work with a property management company, you still need to understand these steps before you can rent out your home. 

Register Your Rental Property. You’ll need to register your property under the Rental Registration and Inspection Ordinance (RRIO) through the Seattle Department of Construction and Inspections. You need to register as soon as you find a tenant, and renew your registration every two years. 

Non-residents need to appoint a Resident Agent or an Attorney-in-Fact and fill out the appropriate form. This person will be the official recipient of any financial or legal notices from the District.

Get your home ready for inspection. Under the RRIO, your home will be inspected at least once every 5-10 years, and you must hire and pay for a qualified rental housing inspector or City inspector. Use this checklist to prepare.

Avoid unintentional discrimination when selecting a tenant.  Get acquainted with Seattle’s Human Rights Law, which includes housing discrimination statutes. These laws can be difficult to navigate as a landlord no matter how well-intentioned and, therefore, make sure you know them or hire someone who does. Here are a couple of examples:

• It’s illegal to discriminate against families with children, so you can’t put your own cap on the number of occupants. The legal number allowed is two occupants per bedroom plus one more. 
• A landlord can’t discriminate against someone who does not have a source of income to pay the rent as long as someone else can cover the monthly payments (meant to protect those in Section 8 housing). If a renter’s parent or family member will co-sign the lease, you can’t turn them away even though they don’t have a job.

What Tenants Expect from You

You need to follow several guidelines when dealing with prospective renters and renters to adhere to the law. Remember you can contact the Housing Service Center at the Department of Construction and Inspections for more complete information.

Rental Regulations. Give the tenant a copy of the Renters Handbook, the summary must be attached to all written rental agreements and must be given to tenants who are offered a verbal rental agreement. 

Security Deposit. Charge only one month’s rent for a security deposit and hold these funds in an interest bearing account in a Seattle financial institution. Once a lease has ended, you have 45 days to either return the deposit or notify the tenant in writing that you’re withholding it to pay for damage or money owed.

Fire Safety. Provide a written notice or checklist disclosing fire safety and protection information, such as smoke detector, sprinkler system, fire alarm, smoking policy, emergency evacuation routes.

Indoor Mold. Provide information on the health hazards associated with the exposure of indoor mold. Get this information from the Department of Health’s website.

Housing Code Violations. Continue to maintain housing code requirements. Tenants can file for violations, such as no heat in winter or faulty plumbing. 

Raising Rent. Give at least 180 days written notice if you will be raising the rent. 

Lease Renewal. A lease automatically goes month-to-month once the initial lease period ends even if you don’t agree to renew the lease. You need a legal reason – nonpayment of rent — to evict a tenant when the lease ends. 

Disclosures.  You are required to give your tenant 24 hours notice before entering the property. 

Know Seattle Eviction Procedures

Understand the steps you need to take to legally evict a tenant. It’s important to have legal help from an attorney when you reach this point.

• Prove to the Court at least one legal reason — nonpayment of rent; violation of lease agreement (pets aren’t allowed); damage to property, or you want to demolish the property or renovate, or want to use the home for immediate personal use. You can’t evict if you just don’t like them!

•Use the Landlord Tenant Resource Center at the Department of Housing and Building Maintenance for more information.

•It’s illegal to remove any of the tenant’s belongings, to change the locks, turn off heat or water or force a tenant out on your own.

•Send legal notice to the tenant to vacate the property, which is sometimes called “Notice to Quit.” You usually need to give them a 30-day notice, unless they are using your property as a drug haven or haven’t paid rent. Check the language in your lease to see if the tenant has given up this right to receive notice for nonpayment.

• File a lawsuit against your tenant to receive a “judgment for possession” to evict them. You can’t force a tenant out and must file a lawsuit.

Selling Your Seattle Rental Property

Before you can sell your Seattle rental property, you must first provide the city with intention to sell if you are renting more than one unit.

The current written lease with your tenant must be upheld, even if you sell and a new owner takes over. For example, if you put your home on the market in June, but your tenants lease didn’t end until September, the new owner would have to allow your tenant to live there until their lease ended regardless of the closing date.