There are several situations in which these accidental landlords might come about. Most commonly, these folks need to move for one reason or another, but they may end up in a short sale situation, or needing to bring money to the table to cover the difference. Also, folks who aren't as financially strapped are now seeing opportunities in the thriving rental market and are willing to rent out their home for the monthly cash flow while waiting for the market to appreciate.
Whatever the reason, there are more and more accidental landlords every day throughout the country. With that, comes a whole new set of responsibilities, headaches and challenges, but it is very rewarding if done right. Follow these guidelines to set yourself up for success.
Treat Your Rental Like a Business and Investment
As with any investment or business, you're likely to have an advisor or two to help you navigate the complexities of any situation. Owning a rental property is no different. Once transitioned into a rental, you're likely to face several issues you never thought you'd face as an owner occupant. I recommend enlisting the services of a competent and experienced real estate or business attorney and a personal accountant. These advisers will help you organize your new business, provide consultation on both legal and tax matters to help you maximize your knowledge and your return on investment.
Know Your Insurance
Your homeowners insurance policy might not cover the types of incidents that arise while land-lording. When tenants occupy your home, there is a whole new array of damages, financial loss and accidents that can occur. Talk to your homeowners insurance company and discuss additional coverages to protect you.
Create a Strong and Specific Written Lease
It's the litigious world we live in. People like to sue and lawyers like people who like to sue. A specific, written lease creates a legal advantage for you when problems arise. It will also help the tenant know what is expected of them, spelling out all the terms and conditions. Make sure to include language on payment (and late fees) and what type of maintenance is required for both parties. Clearly state a beginning and end to the lease agreement. There are several templates for leases that can be found online, however, I urge you to create specific clauses, statements or conditions that describe your individual property. Your lawyer could also help you in this case.
Know the Fair Housing Laws
All states have laws prohibiting certain types of discrimination when it comes to renting or purchasing property. As a rule of thumb, DO NOT discriminate for any reason. Even asking a prospective tenant about marital status, religious views, familial status, ethnicity, or sexual orientation can land you in hot water. Screen your tenants carefully with credit checks or background checks but never reject a potential tenants application without a valid reason.
You may be an accidental landlord, but intentionally following these guidelines will put you in an excellent position moving forward. Best of luck!
Jared Reimer is a real estate broker with Prudential Rocky Mountain Realtors in Northern Colorado. Real estate is his passion and he always wants to connect with like-minded and savvy real estate fans. For more information or to get in touch with Jared, please visit his website at www.ReimerRE.com or email him at JaredReimer@ReimerRE.com