PROPERTY MANAGEMENT 101
In order to have a successful rental property, you need to know about all the different aspects of property management. This includes finding, keeping, and dealing with tenants, lots of legal information, and taking care of the property itself. The below information provides the FOUR Major Steps for a successful rental process.
WEED OUT “BAD APPLES”
Without a doubt, the most important step for an investor to take during the entire rental process is screening all potential candidates in order to weed out the “bad apples” and find a good-quality tenant. In most cases, good tenants lead to rental bliss. However, a bad tenant will almost always result in a bad tenancy experience, leading to an overall bad rental property experience.
There’s no way around it — you must screen every single tenant! You must ensure you’re comfortable renting to them before you have them move into your property. This protects yourself and your company, reduces your risks, and can help you avoid a potential disaster.
Set Up Minimum Qualification Standards
The first step in the screening process involves setting up minimum qualification standards to protect yourself. You might be wondering what these are. Basically, these are the very minimum standards that you decide each and every single prospect must meet in order to qualify as a potential tenant.
If an interested candidate doesn’t meet all your standards, then they aren’t able to rent your home. Plain and simple! This way, you can quickly move on to the next candidate. These standards also ensure you check through every item before approving a tenant so you don’t miss anything and accidentally let in a “bad apple.” Further, because you apply these minimum standards to all tenants, you can also avoid any accusations of discrimination, such as with the Provincial Fair Housing Act (FHA) or Canadian with Disabilities Act (CDA), or favoritism.
Minimum qualification standards also keep you on track so that problem tenants don’t slip through the cracks. Having standards in place and checking each and every item with each and every potential tenant will drastically reduce the odds that you’ll forget something important.
Think about how easy it is to forget something. It’s human nature! In most cases, people get lucky and nothing significant happens. However, you can’t rely on sheer luck when you’re renting out your property. If you don’t have a checklist, it’s easy to forget even just one small thing, but that “small thing” can lead to a host of problems that could have easily been avoided. A bad tenant could cost you hassles and headaches plus thousands of dollars in lost rent and damages, and even lawsuits.
Minimum qualification standards also help reduce the risk of an FHA complaint and will make things easier for you in defending yourself in case a complaint does arise. Let’s say someone does file a complaint against you, claiming that you discriminated against them by not renting your house to them because of reason X. With minimum qualification standards in place, you can confidently reply:
“Actually, I didn’t rent to you because you didn’t meet my minimum qualification standards. Your allegations of discrimination have nothing to do with reason X. I didn’t rent it to you because of reason Y, and you did not qualify to rent my house. My minimum qualification standards are legal and in compliance with all FHA and CDA laws.”
I recommend that you think about, determine, and put in place your exact minimum qualification standards before you ever place your property on the market.
Suggestions for Minimum Qualification Standards
Everyone will have their own basic and more specific ideas for their minimum qualification standards when they’re thinking about how they will screen tenant candidates, but here’s a list of some different standards to consider. Keep in mind that these are suggestions only. Please check with your attorney to ensure they are legal for your particular property and that you’re in compliance with any and all laws and regulations, which often vary by location or province.
- The minimum deposit you’ll require. Most people charge a security deposit equal to one month’s rent. Some add a non-refundable pet deposit, and some charge larger amounts in credit-related situations (for example, if the person has had credit issues or if their credit does not meet the minimum standards).
- The minimum credit rating you’ll require. What kind of credit rating are you going to require for a tenant? You can ask them to submit the most recent credit report or you may want to do the check yourself , but remember that you must have their permission to check their credit.
- Will you allow pets? If so, what type? What’s the maximum number? What’s the maximum size? If you choose to allow pets, make detailed rules, but consider increasing the security deposit or adding a non-refundable pet deposit, or even adding a monthly fee on top of the rent. Find out the standard — as well as what’s legal — in your area.
- Will you allow smokers? Smokers can cause of lot of issues for landlords and homeowners; as a result, most prefer non-smokers. This allows for fewer issues with the home (smell, stains, etc.) and higher chances for a continued influx of good tenants. Smokers are not a protected legal class under federal laws, so you are legally allowed to refuse tenancy to smokers federally, but you might want to check with your attorney to ensure smokers aren’t a protected legal class under the provice or local laws. If you do decide to open up your home to smokers, think about the specific requirements, such as smoking outdoors only or a certain distance from the home.
- What are the income requirements? Income is another major area to cover. After all, you need tenants who can pay their rent — in full and on time! In most cases, this means checking the tenant’s paystubs to make sure they earn a minimum of X.
Some jurisdictions require you to accept all sources of income, whether a paycheck or child or government support; your attorney can advise you on local requirements. You’ll also need to think about types of income, such as regular employment, self-employment, seasonal employment, unemployed or underemployed but receiving benefits, child support, Social Security, etc. What are your minimum standards in these situations, and what are you actually comfortable with?
Remember, you want to reduce risk and also keep your peace of mind every month, knowing that your rent money is coming!
Then you’ll need to go through steps for verification and proof, such as pay stubs, earnings statements, W-2 forms, tax forms, letters from employers, proof of other income, etc. At the same time, you must ensure you aren’t violating any laws about the types of income requirements you’re allowed to have for someone who wants to rent out your property.
- Will you rent your home to extra adults? A common example is college students or people in a roommate-type situation. You’ll need to consider your rules and requirements for these tenant candidates and determine if you’re in compliance with the law. Maybe you’d rather not rent out to college students for fear of frequent parties and ensuing property damage, but your preference needs to be within the law. Check with your attorney on any legal uncertainties.
- How many people will you allow to rent your house at once? For example, will you rent your two-bedroom house to a family of two adults and eight children? They might not seem like ideal tenants, but please be warned: You must make sure that whatever policies you put in place don’t violate any Fair Housing Act (FHA) laws. It’s a good idea to research FHA laws, rules, and other guidelines when considering renting to families with children.
- Will you rent your house to people who have filed for bankruptcy? If so, how recent a bankruptcy filing will you accept? In addition, what are the bankruptcy requirements? For example, will you have different requirements for somebody who filed a Chapter 7 bankruptcy vs. someone who filed a Chapter 13 bankruptcy?
- Will you rent your house to someone who has been through a foreclosure, short sale, or car repossession? If so, how recently? Many landlords don’t wish to attract these types of tenants, as they’re often viewed as “higher risk” and “lower quality.”
- Will you accept someone who shows up late to a showing? A late-showing tenant is a red flag. Let’s imagine that you’re someone who’s on time everywhere you go, and you think punctuality is an important indicator of whether someone is a responsible person. You agree to meet with a tenant at 2:00 p.m., but they show up at 2:15; will you rent your house to a tenant who was 15 minutes late? If you decide not to rent to the tenant because of that issue, make sure you are within the guidelines of the FHA.
- Will you accept someone who’s breaking a current lease or has been evicted? This is an area that some would-be landlords fail to consider in their minimum qualification standards. Consider whether a potential tenant is breaking a lease with their current landlord — what’s going to protect you if they decide to do the same thing to you at some point?
For most landlords, an eviction is a major red flag, and they’ll absolutely refuse to rent their house to somebody who’s had one because it’s an indicator of a much bigger problem, such as rent payment issues or property damage. However, other landlords are willing to overlook an eviction from farther back in the past. What will your rules be?
- Will you accept people with a criminal background? It’s perfectly acceptable and common for landlords to deny tenancy requests for individuals with criminal backgrounds. It’s a potentially messy situation they’d prefer to avoid. However, it’s still something you need to think about it. If you’re open to accepting those with a criminal record, whom would you accept, and whom would you deny? Will you rent your house to people who’ve had a misdemeanor? What about a felony? What about sex offenders or those who have been convicted of other violent crimes, such as domestic violence, assault, and murder? Where will you draw the line? You need to figure out what’s acceptable and comfortable to you.
- How will you handle references? It’s pretty standard for owners renting out their property to ask for and check on references for potential candidates. Still, it’s a decision you need to make, and there are still considerations.
Probably the best reference — and the most telling — will be the candidate’s former landlord(s). You should ask a former landlord the tenant’s reason(s) for leaving, whether they paid rent on time, and how they treated the property. Don’t forget to ask whether they gave the landlord proper notice before moving, whether the tenant received their entire deposit back, and whether this landlord would rent out to their former tenant again. Essentially, you want the former landlord to paint a solid picture of what kind of tenant that person was, because it’s indicative of how they will be for you.
- The tenant’s personal appearance. First impressions matter! What are your own standards and policies for a potential tenant’s outward appearance and hygiene?
- Will you require every person over 18 in the house to apply? I recommend you have every adult who will be living in your home apply. What if the main applicant is “clean” and meets all your requirements, but the others have low credit, no job, a criminal record, or poor tenancy history? Even if your potential tenants are two parents with young adult children, have these children apply, too. You need to know who will be living in your home! You don’t want to be held legally liable for adult children who engage in criminal behavior because you didn’t bother to have them apply.
You’ll want to avoid this situation, too: Many groups of people will try to rent a house together and have whoever looks “good on paper” fill out the rental application, while the others, who don’t look so “good,” move in later.
Do the same with any co-signer on the lease. Put some policies in place as part of your minimum qualification standards. For example, a co-signer should have good — if not great — credit.
Maybe you’re thinking this is overkill, that these questions are too in-depth, too “over the top,” too unnecessary, too nosy, too, well, stupid. But don’t forget: You’re letting other people — strangers — into your property to live there. While you might be tempted to give people the benefit of the doubt and skip out on the minimum qualification standards, this is very risky and potentially disastrous.
As I’ve said before, you have the right to know who is going to be living in your home, and you need to be comfortable with your decision. You’re essentially risking your property and your livelihood. Someone could stiff you out of rental payments or cause $20,000 in damages.
Set Up a Screening Process
Once you’ve determined your minimum qualification standards, you need to set up a screening process that checks all of these items for you. For example, if you want to avoid tenants with a criminal record, you can set up a process that looks into criminal backgrounds. There are many types of tenant-screening systems and software that will do most of the work for you.
However, while these systems and software will check most of the major issues for you, and help you weed out the “bad apples,” they won’t find everything. Pets are a good example; they don’t normally show up on screening systems. You’ll just have to ask the candidate, flat out, as well as fill out your rental application form. Your rental application form should be thorough and cover areas often missed by screening systems, and all potential applicants should fill out the form. Not sure what to ask? Using minimum qualification standards is a good starting place, but consider putting the following questions on your rental application form:
- Have you ever been convicted of a crime?
- Do you have any pets?
- Will any adults over the age of 18 be living with you?
- Have you ever been evicted before?
- Do any of the people that will be living in this house smoke?
- What is your monthly income?
- Have you ever filed for bankruptcy?
- Have you ever had a foreclosure or short sale?
- Have you ever had a vehicle repossessed?
- Why are you leaving your current residence?
As you can see, there’s plenty to consider when coming up with your comprehensive checklist of minimum qualification standards, and it can be a time-consuming process to put this all into place. However, it’s worth your while to do it, because, I’ll say it again, screening tenants is the most important component of renting out your property, and creating minimum qualification standards is necessary for the screening process!
GET IT IN WRITING
The lease is another highly important steps in ensuring the overall success of your rental property management business. It can also be the most time-consuming, but trust me when I say you’ll want to spend the time to make sure every possible area is addressed.
It’s not enough to have any old lease; you need a rock-solid, iron-clad lease that protects you and your property from any potential issues with tenants. Even if you’ve done your due diligence in every other matter, and even if you think you trust your tenant, a rock-solid lease is essential.
Location, Location, Location
You’ve likely heard this phrase in real estate before, but I mean it differently here. When drawing up a lease, you must consider your location — where you live. Every area, county, municipality, and province might have different rules and regulations regarding leases, so do your research.
Many newbies to the rental property business mistakenly assume they can just look up a lease template or a lease example online and use that as the basis for their own lease. Or worse, they’ll just plain-out copy it and use it as the lease! Big mistake.
First, the lease will either be too generic and not cover all the areas you need it to cover, or it will be too specific to a certain time and place that won’t necessarily apply to the year and where you live. Second, typing “free lease for rental property” or something similar on Google and then using it could get you into heaps of trouble legally because the result may not be tailored to your location. Third, if you copy a contract, it could open you up to copyright infringement charges. Fourth, there’s no guarantee it’s a good lease — whoever wrote it might’ve done a bad job to the point that it could even be thrown out if a court case occurred.
Your lease needs to be both location-specific and up-to-date because laws are always changing. You can’t do this alone, unless you’re an attorney yourself or have experience in drawing up leases.
My recommendation is work with an attorney in your area who can be part of your team — an attorney who’s intimately familiar with the area, an expert in rental property management, and has experience in tenant complaints and rental-related lawsuits. Consult with your attorney for clarification and confirmation on all location-specific laws about everything that you can and can’t (and should and shouldn’t) include in your lease. Your attorney should come highly recommended and have the experience, success stories, testimonials, and references to back them up.
Expect to spend at least $200 to upward of $1,000 for a good, rock-solid lease that protects you and your home from any potential problems. However, if there’s just no way to work that into your budget, there are other options, such as purchasing province-specific legal forms online, like singlekey.com and lawdepot.ca. Exercise caution in ensuring they are province-specific and up-to-date.
One last (and potentially most economical) option is if you use or have access to property management software. Some have lease agreements built into the software program. Again, ensure the lease is province-specific, up-to-date, and not a copycat.
25 ITEMS EVERY LEASE SHOULD HAVE
No matter where you get your lease, it’s absolutely imperative that it has the following items below. As always, be sure to talk with an attorney for guidance.
- Monthly Rent Due
The first detail to include in the lease is the monthly rent that’s due. You’ll need to take some time to figure out a fair amount for both yourself and for your tenants, using your mortgage payment plus a percentage on top as a baseline.
- Instructions for How the Tenant Should Pay
Next, have exact instructions on how the tenant should pay you their rent. If they’re going to be mailing you a check, give them the exact address. Don’t allow them to make up excuses for why the rent is late because they don’t have the right address (or claim that they don’t) to send the payment to you. You might also want to include online options to make it as easy as possible for tenants to pay you.
- Rent Due Date
Include a clause on the exact due date for the rent. The date should be the same date every month to avoid confusion — even if the date falls on the weekend some months.
- Late Fees and Penalties
If you don’t have any late fees or any penalties for unpaid rent or rent paid late, then it’s going to be hard to enforce payment on time. You need to ensure your late fees and penalties are clearly stated in the lease.
- Security Deposit
Explain the amount of security deposit required upfront — before the tenant moves in — and all the rules that go along with it. This includes your right to “go after” the security deposit if there are any issues with the tenant or your property, and especially if there’s damage to your property to the extent that repair is required on your end to fix damage done by the tenant.
- Non-Payment of Rent
Just as you need to detail late fees and penalties, you also need to spell out what happens if they don’t pay you the rent at all. Include your right to file for eviction within a certain timeframe, etc., but also include any grace periods, if applicable. Above all, you need to protect yourself. Your tenants must pay you in full, on time, every month, and if they don’t, there will be consequences, such as eviction.
Stipulate whether a tenant can make any type of alteration(s) to your home and property. For example, can they repaint a room? Replace the floor? Remodel a certain area? Think of every possible scenario; find out what is legal, find out your rights, and spell it out in the lease.
For example, you might allow certain types of minor remodeling but would still require your permission. Be sure your tenants know they must ask for your permission first. This should be outlined in the lease. Of course, most rental property owners don’t and wouldn’t allow most types of remodeling, but you’d be surprised at what happens behind closed doors in between inspections!
Don’t forget to stipulate which appliances are included in the property for use by your tenant. Note each model, make, colors, etc. Why get into specifics? Quite simply: It reduces disputes.
Let’s imagine that a tenant moves in and you supply a washer without a dryer, so the tenant brings in their own dryer. But when they move out, they took their dryer and your washer with them! Without this specific information included in your lease, you could go to court to dispute the matter, trying to get back your dryer or collecting on the security deposit — but it becomes a matter of your word against the tenant’s.
Avoid this situation (and other similar ones) by listing and detailing each appliance you own, and which ones your tenants are allowed to use. You might even want to take pictures to protect yourself.
A big issue between rental property owners and tenants is smoking. You need to get very specific about your rules about smoking, or your tenants could easily find loopholes and you could be left with smoking stains, lingering smoke scent, and other damage to deal with before your next tenant can move in. Be as clear as possible.
For example, consider:
- Will you allow smoking at all?
- Will you allow smoking outside, but not inside?
- Will you allow smoking in the backyard, the garage, the porch, etc.?
- How many feet away from your home will you allow smoking (if at all)?
Along with smoking, pets can be a major area of contention. This is another area where you need to be careful and specific about your rules. If you don’t allow any pets under any circumstances, then be sure that’s clearly spelled out in your lease. Some rental property owners find this is the way to go, just to simplify things.
However, there are plenty of pet owners looking for a place to rent, and some owners prefer to open up their “base” of tenant applicants by allowing certain types of pets under certain types of rules. If you do decide to allow pets, include a pet deposit, and determine how much this will be and whether it’s refundable. You’ll also need to include penalties in the lease penalties for either a) property damage done by a tenant’s pet(s); or b) tenants sneaking in pets if you have a strict no-pet policy.
Ask your attorney about your rights to seek reimbursement if a tenant’s pet causes damage to your property.
- Use of Premises
Carefully spell out the use of your premises. Some examples are outlined below.
- Is the property for residential purposes only? This might seem like a no-brainer, but times have changed, and more and more people are working from home, whether operating their own businesses, telecommuting, freelancing, etc. You will have to determine precisely what you will and won’t allow, such as running businesses, allowing customers/clients into your home, and guaranteeing quality of phone and Internet. For example, a tenant can’t file a formal complaint about poor Internet access for their business if you’ve stipulated in your lease that you will not guarantee it.
- Fixing cars in the driveway. Determine whether you will allow tenants to fix/work on vehicles (cars, trucks, RVs, etc.) on the driveway, in the garage, front yard, backyard, or not at all, whether they’re permitted to allow acquaintances to do the same, or if they can charge strangers a fee for parking. Yes, you need to be that specific. You’d be surprised at what some tenants try to do — and ultimately get away with, if it’s not properly outlined in the lease.
- Figure out whether you’ll allow subletting, such as Airbnb situations, on a short- and/or long-term basis. I don’t recommend allowing sublets, since you don’t know the new temporary “tenant,” and you could put yourself, your home, and your property in jeopardy. Further, Airbnb might not be legal in your area. Please do your due diligence to limit risk and avoid unnecessary trouble.
- Rules for the Property
You’ll need general and specific rules for your property. If you establish rules in writing upfront, and then explain them to the tenant verbally, they will have less of a leg to stand on if they break a rule or challenge you in court over a dispute.
Here are some issues to consider, but I urge you to brainstorm other possibilities as well:
- cleanliness/maintenance of the home
- number of vehicles and where they can be kept
- smoking marijuana (is it legal in your province? If so, is that something you want to deal with?)
- installing satellite dishes
- changing the locks
- taking down and installing window coverings
- loud late-night parties
- fireworks, firearms, and other hazardous materials
- Renter’s Insurance
I suggest the lease require the tenants to have renter’s insurance. That way, they can’t legally sue you if, say, the house burns down, along with all their contents, and they cry that you didn’t “protect their possessions.” Please consult your attorney to ensure you’re legally allowed to require that they have renter’s insurance.
Your lease needs to contain a clause about utilities; specifically, what utilities are required to be paid, by whom, and when? Spell out every single utility that the tenant is required to pay.
Why is this important? Here’s an all-too-common scenario that occurs when a tenant moves out (and a situation you want to avoid and protect yourself from): A tenant leaves without paying their last two utility bills, and then the utility company won’t turn on service for the next tenant until the unpaid amount has been collected. Your new tenant is left frustrated, without utility service, harming your reputation as a rental property owner, while you’re trying to collect payment from the previous tenant or footing the bill yourself.
- Above-Ground Pools and Trampolines
You might not have thought of this, but what are your rules for above-ground pools, trampolines, or other hazardous items that could be placed on your property? These are essential legal liabilities waiting to happen! What if someone injures themselves on a trampoline or drowns in the pool? You may be held responsible.!!!
- Parking and Vehicles
Parking and vehicles can create a whole host of issues, so you’ll need to spend some time with your attorney developing rules. Here are some potential issues to consider:
- Too many vehicles. If your tenant has too many vehicles (more than your parking space allows), this can cause tension, conflicts, and complaints with the neighbors. Your tenants could take up a lot of street parking or even park in your neighbors’ spots. Your neighbors could call you or file a complaint with your city’s code enforcement, which will cost you both time and money to resolve. However, if the rules are spelled out in your lease (and are legal), fixing these issues — or avoiding them altogether — will be much smoother.
- Non-working vehicles/vehicles on blocks. If your tenant has several non-working vehicles parked in front of the property, vehicles on blocks, or vehicles they’re working on/fixing up, this can also cause conflicts with the neighbors. Again, you can end up with a flood of phone calls, neighborhood complaints, and official complaints to the the city. You need to ensure you’re protected and that you have the right to either force the tenant to fix the situation or fix the situation yourself, so you’re not exposed to a big fine or an unhappy neighbor.
- Parking spaces. Your lease needs to include how many parking spaces your tenant will be allowed to use, and what you’ll do if they need additional parking.
In all these parking-/vehicle-related situations, you need to consider whether they’ll create issues with your neighborhood as well as what you’re comfortable with. You want to lessen any risks, reduce potential stressors, and ensure your protection.
- Other Adults Living on the Property
Some tenants will allow friends or family members to “crash” at their place (your place) for an undetermined amount of time. If you don’t want extra people — people you don’t know, haven’t met, and haven’t screened— then you need to protect yourself in your lease. You could put yourself and your property at risk if you don’t include a clause about other adults living on the property with your tenant.
For example, the lease could state that the tenant must request permission for any other adult to move in, and that that person must go through the screening process.
- Property Maintenance Standards
Determine your standards for property maintenance and have that clearly detailed in the lease. One obvious piece is that the tenant can’t cause actual damage to your property or else they’ll face penalties/consequences, which should be written out.
But what about general property maintenance and cleanliness? What about lawn-mowing and basic landscaping? If you allow pets, what about cleaning up after them? To what extent will you require these items, and what happens if the tenant doesn’t follow through?
If you don’t stipulate the specifics in your lease, your tenant can essentially get away with not doing what you want them to do. If it’s not spelled out in the lease, it’s open to interpretation by a judge.
Some specific areas of property maintenance (besides property damage, cleanliness, and landscaping) to stipulate in your lease include:
- Pools and sprinkler systems. If you have a pool on your property, think about who’s going to clean and maintain it and ensure its safety. You’ll need to protect yourself from the horrific possibility that a neighborhood kid could wander on to your property, go for a swim, and drown. You don’t want this to happen for several reasons, but one is your own liability. Suddenly you could have a huge lawsuit on your hands because you didn’t include this in your lease. Further, if you have a sprinkler system, you need to consider who will hold the responsibility for taking care of it, and then stipulate accordingly in your lease.
- Light bulbs. This might seem insignificant, but tenants should hold responsibility for maintaining and updating lightbulbs, as necessary. But it needs to be in the lease.
- Phone/Internet. Avoid potential disputes regarding phone and Internet expectations by clearly stating the terms in your lease. If you don’t have a landline hookup, then say so, and be sure the tenant agrees. If you won’t provide Internet access or guarantee high-speed Internet, then say so.
- Drain stoppage. If a tenant plugs up the toilet, are they responsible for addressing and fixing the issue, or are you responsible? Include this in the lease.
- AC filter. Who’s responsible for maintaining the air-conditioning filter and changing it regularly? Put it in the lease!
- Lock-out charge. If you don’t include this component in your lease, then you’ll be getting keys for tenants whenever they accidentally lock themselves out as well as allowing yourself to be disrupted at any hour to let the tenant back inside. Most landlords charge a lock-out fee of between $50 to $100.
- Condominum Corporations (CC)/ Homeowners’ Association (HOA) Complaints
You absolutely need to have clauses in place that protect you in the event of an CC or HOA complaint.
Imagine you don’t have in place a rock-solid lease that properly addresses this, and your tenant, whom you’ve vetted, isn’t who you thought and starts breaking rules, damaging your property, and disrupting your neighbors. The Corporation or Association comes down on you, demanding that you fix the issue because it’s your property, and nothing in your lease protects you against those complaints.
This means it’s your problem, not the tenant’s, even though the tenant is causing the problem. Legally, your hands are tied because you can’t force the tenant, and maybe you can’t even address or fix the issue yourself. You could be in over your head with thousands of dollars in fines, all because your lease didn’t protect you.
- Code Enforcement Complaints
Just as with CC or HOA complaints, the same applies to code enforcement complaints that come from the city.
- Pest Control
You’ll also need a clause for pest control. Why? If you don’t, you could end up in a situation in which the tenant can call you at any time and demand a pest control service. You might end up having the house sprayed with toxic chemicals over and over again while you have to foot the bill!
- Smoke Detectors
Next, you need to include a clause for smoke detectors. This can be a huge liability if you don’t discuss it. Ensure the tenant checks the smoke detectors and is satisfied before they move into your home. If there are any issues, you’ll have the opportunity to rectify it before it becomes a bigger problem.
For example, if the house burns down and the smoke detectors weren’t inspected by the tenant and working properly, you could be faced with a huge lawsuit for damage. The situation becomes worse if someone is hurt or even dies from a fire due to outdated or broken smoke detectors. Without this area included in your lease, you could be liable for thousands upon thousands in damages, legal fees, and lawsuit payouts.
- Right to Access Property
A landlord has the right to access their property on a reasonable basis for inspections and/or repairs, and your lease should reflect this. Include a clause that gives you regular access to your property, at least every six months or so, to check up on the property and your tenants. This way, you’ll be on top of any issues or damages and see how well your tenant is taking care of your home.
Don’t simply assume your rights here; you must include them in the lease. If you don’t, what happens if there’s a small plumbing leak that’s causing major damage to your house, but you don’t have the right to reasonable access to your property? The tenant might not let you in, and they would have the legal right to do so. As a result, your investment would be destroyed by water damage, and you wouldn’t be able to get in and fix the problem.
In addition to what you put in the lease, be sure to check local laws about landlord access. Some places require landlords to provide tenants with advance notice (such as 24 hours) before they access the property, although emergency situations like taking care of a leak might be considered an exception.
- Property Disclosures
Don’t forget to include clauses for property disclosures that protect you, particularly for lead-based paint (if your property was built before 1978), radon gas, mold/mildew, and any major property hazards, such as pools and high balconies.
- Your Rights in Case of Abandonment
Finally, your lease should include rules about your rights if the tenant suddenly breaks the lease without notice and abandons your property. If the tenant just disappears in the middle of the night, you have the right to go in, reclaim the property, and potentially put a claim on their security deposit. Then, you have the right to dispose of their belongings in accordance with the law and re-rent the property to someone else — all without losing thousands of dollars.
You will almost certainly need to include more than just these above-mentioned items in your lease, depending on your specific property, where it’s located, the local laws, and your specific preferences, but these “essential 25” are a starting point. Again, please consult your attorney for further guidance and for drafting the lease itself.
Remember: Your lease is your protection!
LAYING DOWN THE LAW – ENFORCING THE LEASE
“Laying Down the Law” might seem a bit extreme, but trust me when I say it is neither extreme nor sarcastic. This is serious business, and you have to take it seriously in order to protect yourself and your investment.
Laying down the law essentially means enforcing the lease. There’s a reason you spent all that time, energy, and effort in ensuring you had a rock-solid lease in place for potential tenants, and this is it!
Before we continue, keep in mind that if you’ve done your due diligence — a thorough screening process and minimum qualification standards — you’re much more likely to get good, responsible tenants and won’t have to worry about this too much.
You still need to enforce the terms and conditions of your lease, no matter who is renting out your home, but the “laying down the law” piece won’t be so necessary with good tenants.
But sometimes those “bad apples” sneak through, and that’s when you’re going to have to actively enforce the lease. Be sure to remain firm, authoritative, and calm whenever you deal with them.
Make Sure They Pay
The first and the most important part of enforcing the lease is ensuring your tenant is paying their rent. And not just paying, but paying the full amount, on time, every single month.
Some tenants do this automatically, but others, assuming they’re not red-flagged “bad apples,” need reminders. You also want to check up on things to make sure they’re doing what they’re supposed to be doing — paying you to live in your home!
Communication is key. You’ll need each other’s contact details, including phone numbers and email addresses. Let them know exactly when rent is due (the final date), and how early you will accept the payment ahead of time.
Pro Tip: Make it easy for tenants to pay you! If paying you is a hassle, then it will be a hassle for you, as well. Give them options for payment — let them pay you online, mail you a check, or use other mutually agreeable options with which you’re both comfortable. Some landlords prefer checks, some direct deposit, . Others online banking interac or even PayPal.
Don’t forget to remind your tenants what will happen if they don’t pay their monthly rent in full and on time according to the terms of your lease and your minimum qualification standards.
For example, do you allow a “grace period” for rent payments? I know many landlords who give their tenants three-, four-, or even five-day grace periods, but in return, the tenants will receive reminders and notices on their front doors, as well as late fees (for example, a $50 late fee). This is not unreasonable.
Just as you should make it easy for tenants to pay you on time, you should also make it difficult and challenging for tenants who pay late. Don’t “reward” them for not paying you on time. If you’re going to charge a late fee (which you should), don’t charge too much, but charge enough to the point where they feel it’s a pain. This should incentivize them to pay you on time next time, and then every time.
If they still haven’t paid beyond your grace period, let them know that the penalty will become steeper, including possible eviction. And let them know that if you file for eviction, it’s going to become much more challenging for them to do business with you. Remind them that eviction involves legal fees and more, for which they are going to be responsible, and that eviction goes on their record and will make future tenancy difficult for them.
Consider this possible (but unpleasant) situation: If someone doesn’t pay you for an entire month, and now they’re 30 days late, not only do they owe you rent for last month, but they also owe you rent for this month. If someone couldn’t pay you last month, how are they going to be able to come up with two months’ worth of rent? What if you start the eviction process? Then they’ll owe you for three months, plus late fees, plus attorney fees, plus all the other expenses you’re going to charge.
In the end, they’ll end up saying they can’t afford all that, break the lease, and move out, and you’re left with all those unpaid fees. Not exactly a situation you want to find yourself in.
It never pays for you to let them pay their rent late, so just don’t let it happen. The bottom line is that you are the owner, you are in charge, you make the rules, you are the authority. This is your business, and they need to respect you and your policies. You’re not here to give your tenants a “get-out-of-jail-free” card.
Make Sure They’re Taking Care of the Property
You also want to ensure your tenant is taking care of your house and property, as per your lease agreement. This is an essential component of enforcing the lease. So how do you make sure they’re following through on their end of the bargain? Again, communication is key with property issues, just as it is with payment issues.
Communicate with your tenant regularly. Ask for updates on any maintenance issues with your property and whether things are running smoothly and being taken care of properly.
If you live in the area or know someone who does, you’ll want to periodically drive by the property to check out things for yourself. This will give you a general overview of the situation.
Ideally, you should do a full-on walkthrough inspection of the entire home, including every room, about every six months. This will give you a clearer picture of the condition of your property as well as help you assess any issues or damage to your investment.
Deal with Issues Immediately
If you have any issues with your current tenant or rental situation, the key is to deal with it immediately. Whether it’s non-payment of rent, maintenance issues, or property damage, the sooner you deal with it, the better.
For example, if a tenant doesn’t pay rent or their utilities bills, call them right away and hash it out. Don’t wait, hoping that the issue will somehow resolve or “fix itself.”
You’ll have to be confrontational to deal with these types of problems quickly, but that’s okay. Dealing with issues now — and fast — is always better for everyone involved. As you become a more experienced landlord, you’ll see more and more why this is so important. Address the issue head on, and you’ll see that the more quickly and aggressively you deal with any potential issue, the more likely the situation is going to be resolved in your favor. This will help make renting out your property a more pleasant and beneficial experience for everyone.
The National Association of Independent Landlords tells the true story of a landlord leasing his apartment to a tenant who stopped paying rent soon after taking up residence. The landlord performed a check-up and inspection and suspected the non-paying tenant was also stealing appliances in addition to not paying rent. Of course, he called the police, but when they questioned the tenant, she accused the landlord of trespassing and even claimed she’d never seen him before. Unfortunately, the police sided with the tenant, and the landlord literally watched as the tenant left with his washing machine.
This story isn’t meant to make you averse to becoming a landlord, but rather to impress upon you the importance of laying down the law and enforcing your lease.
Unfortunately, despite your best efforts, you might have to end up evicting tenants. This is just one of the risks you take when you rent out property. It’s also one of the most difficult aspects of the job of a landlord, and the eviction process can escalate quickly to the point of non-compliance, with tenants trashing your place in anger and even outright refusing to move out.
Many property owners — especially newbies — have a difficult time with the idea of eviction, either because they don’t know how or because they just don’t want to (or both). Maybe you’re not naturally a confrontational or authoritative person. Maybe you like giving people second or third chances. The issue, though, is that “problem tenants” — tenants who don’t pay or who destroy your property — are not only costing you, but also stealing from you!
You have to think of it this way if you’re going to succeed in this business: They’re stealing money from your family, from your retirement fund, from your bank account. Wherever that money’s going to come from, they’re technically stealing money from you.
Still believe in second chances? Let’s say your monthly rent is $2,000 and your tenant isn’t paying you, whether on time, in full, or at all. Would you allow that tenant access to your bank account? To log in every single month, and just take $2,000? I’ll bet you the answer is a strong “No way!”
You need to think similarly if your tenant isn’t paying their rent. This could ultimately lead to eviction. It’s a difficult, challenging decision and task, but you need to face it head on.
Some of the most common reasons to evict a tenant:
- They don’t pay on time and ask for extensions beyond the grace period.
- They don’t pay in full and ask for an extension until they’ve “got the rest.”
- They don’t take care of your property and cause damage or outright trash the place.
- They cause issues, tension, and disruptions with your neighbors or the homeowners’ association.
- They don’t follow your rules and policies.
- They don’t uphold their end of the lease agreement. (This could be any)
Keep in mind that I’m referring to tenants who are multiple offenders. If someone pays their rent late once or makes a mistake or forgets to report a minor maintenance issue, that’s one thing. But if these issues are coming up repeatedly, then it’s time to seriously consider eviction. At a certain point (and you’ll need to determine what that point is), it’s just over.
While making the decision to evict and then following through may seem like the hardest part, keep in mind that the actual eviction process can be challenging, too. You might need to hire an attorney. You’ll need to file the eviction with the courts, and every single court system is different regarding evictions. Then you need to go through the process of actually evicting the tenant.
Sometimes, this means physically removing the tenant from the premises, as some tenants — even once they know they’re being evicted — will refuse to move out. Here is where things can get dicey, and you might need law enforcement on your side to help you through this process. Literally, you might need cops to come out and work with you to actually physically remove all of the tenant’s belongings from your house and put them out on the curb.
Evictions are no picnic, but if you’re going to be a landlord, evictions are something that you’re going to have to get used to dealing with.
In addition, you might need to deal with any potential legal issues. You need to ensure you protect yourself and your rights under the lease and document everything. Keep records. This way, if anything goes awry, the tenants can’t blame problems on you, and they can’t take you to court if something goes wrong during their lease.
Fair Housing Act
The Canadian Fair Housing Act (FHA) was put in place in order to protect citizens from housing discrimination, unfair renting practices, and poor housing conditions. People with low incomes, people of color, and immigrants were especially at risk of discrimination.
Fair Housing Act laws are still in effect to protect against housing-related discrimination based on race, color, ethnicity, religion, sex/gender, disability, and familial status. This act has helped millions of people find homes, and protects people against discrimination, but it can leave rental property owners vulnerable and liable and open to complaints, and even lawsuits.
Even if you’re not ultimately found at fault in an FHA complaint, you can still spend thousands and thousands of dollars protecting and defending yourself from the complaint in the first place. Even worse, an FHA complaint can put your reputation on the line and hurt your business, regardless of the outcome.
“Bad apple” and red-flagged tenants can use FHA complaints in order to get an unfair advantage over you. If you don’t know the ins and outs of the Fair Housing Act, you could leave yourself vulnerable and open to a potential liability you never saw coming. Don’t let yourself get exposed to that; protect yourself by understanding and following all FHA laws.
Consider talking to someone who knows all about Fair Housing practices and rules before you move forward with opening up your property to renters. Hire a property management lawyer to get all the facts and to understand both your renters’ rights as well as your own.
You’ll need to consider Federal, Provincial and local housing laws when renting out your home. Regularly check in with your attorney to ensure that a) you’re aware of all applicable Fair Housing laws to your area; and b) you’re in compliance.
You’ll also need to check that you’re following the requirements of the law for Section 8, Social Security payments, etc. For example, some cities and counties require that any landlord accept any and all Section 8 applicants.
In addition to all Fair Housing laws, you’ll need to familiarize yourself with the CDA, which protects people living with disabilities from discrimination in many different areas — housing included. There may be other laws particular to your area, so, again, do your research/homework and consult your attorney so you are covered!
Again, your minimum qualification standards can protect you when it comes to Fair Housing complaints, but only if you’ve consistently used these standards for everyone.
ONGOING PROPERTY MANAGEMENT
Once you’ve successfully landed your first tenant, it’s not over. In fact, it’s really just the beginning! Here are a few areas that you’ll need to cover:
Respond to tenant and neighbor complaints quickly.
If your tenant complains, address those complaints. If the complaints are legitimate, then deal with them and resolve them as quickly as possible. Maybe the tenant has a complaint about something on your property that needs to be fixed, maybe they can’t figure out how something works, or maybe they have a complaint with a neighbor. Whatever it is, hear them out and address them, as necessary.
If a neighbor complains to you about the property, you need to see if it’s a legitimate issue and try to resolve it with the neighbor, and quickly — before they contact the local enforcement authority.
If a neighbor does file a local enforcement complaint, you need to deal with this immediately. These associations can fine you thousands of dollars for a tenant who is causing issues and lead to neighborhood complaints. Maybe the complaint isn’t legit, or maybe it is, but according to the terms of your lease, your tenant is the one responsible. Regardless, get this taken care of as soon as possible. Contact your attorney and look into local bylaws to ensure compliance.
Keep up with maintenance, and handle all repairs right away.
Make sure the property is well-maintained and that any and all repairs are handled. The important thing to remember here is to address and fix property damage issues as quickly as possible as well as to keep the whole property in good, working order.
If you have any emergency issues, deal with and fix them as quickly as possible. If the tenant is responsible for causing the damage, collect the money from them to pay the cost to repair that damage.
Most landlords collect right away. If the tenant causes some damage to the property, and it costs $200 to fix, but they can’t pay it immediately, then add that $200 to their next month’s rent payment. If the tenant doesn’t pay the amount due, then enforce your fees and penalties and, if necessary, file for eviction in a worst-case scenario. (Keep in mind that involving lawyers might not be worth it for a $200 charge because of lawyers’ and court-related fees that will cost much more than this.)
Whenever you need to do repairs, shop around, if necessary. Get plenty of quotes from different contractors and companies to find a reasonable rate. You’ll also want to screen them to ensure their credibility, reputation, and skills. Make sure they’re certified and licensed, and ask for references.
Once you find contractors and tradespeople whom you know you can trust, and who are reliable and affordable, be sure to cultivate strong relationships with them. The goal is to create a list of local contractors, tradespeople, and businesses involved in all aspects of home maintenance, such as construction workers, electricians, plumbers, renovators and remodelers, painters, roofers, bricklayers, and other contractors and tradespeople.
Their expertise can be invaluable, and having them on speed dial will make dealing with issues much less stressful.
Conduct regular inspections.
Make sure the property is being well-maintained, check for any damage, and check up on your tenant.
If you discover your tenant has snuck in a pet (which happens more often than you might think), confront the tenant immediately and remind them of the policy and penalties. Depending on the situation and your specific agreement and policy, you can evict the tenant, get a pet deposit, or get the pet moved out of the property.