Book: First-Time Landlord

“First-Time Landlord: Your Guide to Renting Out a Single-Family Home”
By Janet Portman, Ilona Bray, J.D. & Marcia Stewart
“The Responsible Hosting section of has a summary of the legal requirements of more than 50 cities, with links for details. If your city isn’t
listed on the Airbnb site, call your city’s zoning board or local housing authority for information, or do your own research on local law at or Another useful resource is the
Short Term Rental Advocacy Center (, created by Airbnb, HomeAway, and TripAdvisor.”
“Check with your insurance company before deciding your
pet policies. Your insurer may charge you a higher premium (or deny coverage altogether) if you allow dogs the insurer considers a higher risk (in terms of biting or injuring people). Doberman Pinschers, Siberian
Huskies, and Rottweilers are among the dozen or so dogs typically found on insurance companies’ “vicious/aggressive breed” list.”
“Your ads should contain a clear (and accurate) description of the property, including basic details, such as:
• rent
• size—particularly number of bedrooms and baths
• location—either the general neighborhood or street address,
including proximity to public transportation and shopping areas and the school district
• whether you’re offering a fixed-term lease or a month-to-month rental agreement
• the date the rental house is available
• special features—such as fenced-in yard, view, washer/dryer, fireplace, remodeled kitchen, furnishings, garage, parking, hardwood floors, wall-to-wall carpeting, or security system
• any important rules, such as no pets, and
• your phone number and/or email for more information, or the date and time of any open house.”
“During that first phone call, provide complete details on the property and your policies. Sure, some prospective tenants will say ‘No thanks’ on the spot, but that’s fine. You’ll avoid wasting your time showing your
rental to someone who wouldn’t have been interested in it anyway (or won’t meet your requirements).”
“To avoid being misled, ask each prospective tenant to fill out a rental application that includes:
• the applicant’s employment, income, credit, and rental housing history
• up-to-date references from landlords and employers
• identifying information, such as the applicant’s Social Security number (SSN), driver’s license number, passport, or Individual Taxpayer Identification Number (ITIN) which is issued by the IRS to persons who are required to file income taxes but who can’t obtain a Social Security number, and
• details on past bankruptcies, evictions, or criminal convictions (you’ll also get much of this information from a credit report, as discussed below).”
“If more than one person plans to live in your property, each one over the age of 18 needs to fill out his or her own, separate application. This is true whether
you’re renting to a married couple or unrelated roommates, complete strangers or the cousins of your current tenant.”
“Now I’m much more careful to get references, and ideally a family member’s address, which can work like a ‘permanent address.’”
“Best thing I ever did: Weed out tenants by charging first
and last months’ rent.”
Questions for previous landlords:
“• Did this person pay the rent on time (and, if not, what were the circumstances)?
• Did the person ask for repairs when appropriate (but not every time there was a minor problem)?
• How easy was it to communicate with this person?
• Was he or she considerate of neighbors (no loud parties)?
• Did the person take good care of the property?
• Would you rent to this person again?”
“Holding deposits should be accepted warily and handled with care. Some states impose disclosure requirements on landlords who collect them, by requiring you to explain the circumstances in which you’ll keep or return the deposits (or credit the deposit to the
first month’s rent). Beyond these technicalities, however, consider the added bookkeeping. Are you prepared to keep track of these deposits? It’s generally a bad idea to require holding deposits—many tenants who are otherwise perfectly good candidates will not have cash available to sideline into a holding deposit.”
“If the prospect has a dog, cat, or other pet, ask landlord references whether the pet caused any damage or
problems for other tenants or neighbors. It’s also good to meet the pet, so you can make sure that it’s well groomed and well behaved.”
“You must, however, accommodate an applicant with a legally recognized disability whose pet serves as a support animal—no matter what your pet policies
otherwise might be.”
“Call the prospective tenant’s employer to
verify income and length of employment. (The employer might require written authorization from the employee, which you’ll have on the rental application or on a separate, stand-alone consent form—fax or email
either one to the employer.) You may also ask the prospective tenant to document other sources of income, such as Social Security, disability payments, workers’ compensation, welfare, child support, or alimony. Ask
self-employed applicants to provide copies of recent tax returns.”
“Think twice before renting to tenants where the rent will take more than one-third of their income, especially
if they have a lot of debts or financial obligations, if their job is seasonal, or they have a history of bouncing from job to job.”
“A low number indicates a poor risk; most landlords will reject applicants with scores under 550 or 600.”
“Credit reports usually cover the past seven to ten years. To obtain one, you’ll need a prospective tenant’s name, address, and Social Security number or ITIN (Individual Taxpayer Identification Number).”
“Every state has its own version of Megan’s Law, requiring
certain convicted sexual offenders to register with local law enforcement officials, who keep a database on their whereabouts. For information on accessing this database, and restrictions on your use of information derived from it, contact your local law enforcement agency or check”
“A transcript can reveal a lot. If it shows no ‘incompletes,’ a full load, and good grades, you’re probably looking at a person who can follow
through with a commitment. Even so, you may want to consider requiring a cosigner (as discussed in Chapter 5) if the student depends on parents for substantial support.”
“The federal antidiscrimination laws mentioned above don’t apply to owner-occupied rental housing of four units or less, but they do apply to single-family home rentals, unless you go without advertising or the services of a real estate broker.”
“To minimize the chances that you’ll need to answer to a fair housing charge, treat all applicants more or less equally. For example, don’t set tougher standards (such as a higher income level or a credit score) for
renting to a member of an ethnic minority or a single parent.”
“If, however, you use information found online to reject someone who is in a legally protected class and is otherwise a qualified tenant, you may face a discrimination lawsuit.”
“On the other hand, if you learn that your applicant lied on the rental application (for example, by answering “No” to a question about previous evictions, but posting a request for apartment leads because
her former landlord evicted her), you can factor that information into your decision. The reason is that material misrepresentations on an application are sound business reasons to reject an applicant.”
“Any tenant you accept should meet all or most of these criteria:
■ ability to meet your basic rental terms, such as number of people living in your space or length of the rental term
■ sufficient income to pay the rent (the industry standard is a monthly gross income that’s triple the monthly rent)
■ satisfactory credit report (debt level and bill-paying history)
■ solid to high credit score
■ positive references from other landlords
■ positive references from current employer
■ no recent terminations or evictions
■ clean criminal record, and
■ complete and accurate rental application.”
“If you’re renting to someone with bad credit, be
extra sure that their references check out. And consider charging a good-sized deposit—as much as you can collect under state law and the market will bear.”
“You’re legally free to reject people for the following reasons (called your ‘legitimate business interests’):
• poor credit history
• income that you reasonably regard as insufficient to pay the rent
• negative references from previous landlords indicating
problems—such as property damage or consistently late rent
payments—that make someone a bad risk
• convictions for criminal offenses of any kind (however, you cannot reject someone with a conviction for drug use; you can, however, reject a person who was convicted of manufacturing or selling drugs, or who currently uses illegal drugs)
• inability to meet the legal terms of a lease or rental agreement, such as someone who can’t come up with the security deposit or who wants to keep a pet and your policy is no pets, or
• more people than you want to live in the unit—assuming that your limit on the number of tenants is clearly tied to health and safety or legitimate business needs.”
“If your reasons for refusing to rent to someone are, in fact, based on information in a credit report or tenant-screening report, you can’t just
say ‘Sorry, I found a more qualified tenant.’ In that case, you must give the applicant the name and address of the agency that reported the negative information or furnished the report. You must tell the applicant that he or she has a right to a copy of the file from the agency,
by requesting it within the next 60 days, or by asking within one year of having asked for their last free report.”
“Watch out for mass-produced, preprinted leases and
rental documents. Many ignore state-by-state differences, use illegal or unenforceable clauses, or are poorly written and full of hard-to-understand legal language.”
“The primary difference between them is the length of the
tenancy—leases typically last for a year, while rental agreements normally go month to month.”
“If you’re balancing landlording with a full-time job, you’re probably best off looking for high-quality, long-term renters who will sign a lease for a year or more.”
“If your area has a high vacancy rate or local landlords have trouble finding tenants for during certain seasons of the year, a lease can be especially good protection.”
“Other landlords prefer month-to-month rental agreements, precisely because they offer flexibility, allowing the landlord to increase the rent or end the tenancy on relatively short notice and without giving a specific
“A lease guarantees less income security than you’d think.”
“Federal law requires landlords to allow two persons per bedroom unless you can point to legitimate business reasons justifying a lower number. (Some states are more generous: California, for example,
allows two per bedroom plus one more. New York City has a unique ‘roommate law’ that allows current tenants to add roommates.)”
“Several states and cities (particularly those with rent control) require you to put deposits in a separate account and pay the tenant any interest on them. Some states require you to put deposits in a separate
‘trust’ account, rather than mix the funds with your personal or business accounts.”
“As a term of the lease, in most states you
can require the tenant to buy renters’ insurance to cover certain damage by the tenant or guests, as well as injury to other people (this typically includes injuries such as dog bites caused by a
tenant’s pet).”
“For more information, search
the SPCA website at for ‘Tenants & Landlords’
under the Resources section. For additional information, see the national Humane Society’s website at and
search ‘renting with pets.'”
“Most leases and rental agreements prohibit ‘assignments,’ which happen when your tenant moves out permanently and brings in a replacement tenant for the remainder of the lease. Your rule on prohibiting assignments should state that you won’t unreasonably refuse to rent to a proposed newcomer. (That simply reflects your obligation,
in most states, to use reasonable efforts to find a replacement once the original tenant leaves.)”
“Your agreement should also prohibit tenants from temporarily renting their (and your) space to someone else (called a sublet), without your written consent. If you want to prohibit a tenant from letting someone
stay in the rental while the tenant is on vacation or renting out a room on Airbnb, be sure your agreement explicitly says so. And even if you
allow a tenant to rent out space on Airbnb or a similar service, local laws may restrict these kinds of short-term rentals.”
“It’s common for leases to limit overnight guests. For example, you might allow a guest for no more than ten days in any six-month period, with written approval required for longer stays.”
“Be clear about your rules on smoking, parking, and pets. Also give details on what’s considered excessive noise.”
“To make sure you have some clout, include a clause in the
lease or rental agreement giving you the right to terminate the rental arrangement if the tenant repeatedly and seriously violates house rules.”
“Before you even think about signing the lease, start with this very important step: Ask for the money, and to be extra careful, don’t accept a personal check. Until you have the tenant’s cash, certified check, or
money order for the first month’s rent and security deposit in hand, signing a rental commitment is a recipe for trouble.”
“If you decide to accept a cosigner, you may want to have that person fill out a separate rental application and agree to a credit check—after all, a cosigner who has no resources or connection to the tenant will
be completely useless.”
“Be sure all adults (18 years of age and older) who will live in the rental unit, including both members of a couple, sign the lease or rental agreement. Doing this makes everyone who signs responsible for all
terms, including the full amount of the rent.”
“Bring a welcome gift, such as a bottle of wine or a gift certificate for a local bakery. Be cordial and allow enough time to answer all the tenant’s questions.”
“A good move-in letter will provide all kinds of valuable information for the new tenants, such as:
• your phone numbers (during the day and after hours), email, and emergency contacts
• how and where to report maintenance and repair problems
• location of garbage cans, trash pickup days, and available recycling programs
• maintenance dos and don’ts, such as how to avoid overloading circuits and use the garbage disposal properly
• where to find appliance manuals, water shut-off valves, smoke detectors, and other important information
• homeowners’ association rules (if any), and
• any other useful information about the property and neighborhood.”
“Remember to give the tenant a copy of the
community association rules (often called CC&Rs), and emphasize that failing to comply with them may give you no choice but to evict.”
“One of your first steps in becoming a landlord should be to choose your favorite local or online bank and open a separate checking account. If you incorporate your business activities or form an LLC (as discussed
below), open the account in the name of that business. If not, just use your own name.”
“Because you’ll probably have to spend money on your property before it earns a dime, it’s good to seed your checking account with
some start-up cash (“capital contributions”) from your personal account. Once you start earning rental income, deposit it into your business account and pay all expenses out of that account (after charging expenses to your business credit card, if you have one). Repay
yourself for those capital contributions by writing a check to your personal account. When writing checks, always use the memo line to write what the money is being spent on.”
“Landlords in certain states must put tenants’ security deposits into a separate bank account.”
“What if you buy something for mixed use? For example,
suppose you pick up a tray of ground cover that you’ll use partly for business and partly for your home. One option is to ask the cashier to divide the bill between two credit cards. Another is to pull out both
your business and personal checkbooks and use separate checks to pay. If you must use only one credit card, go with your personal one, then make a note for your files and repay the proportional share from the
business checking account. (After-the-fact conversions of property from personal to business raises eyebrows at the IRS.)”
“To form an LLC, you need to file articles of organization with your state, pay filing and other fees, and draft an internal operating agreement. Although you’ll have to pay annual fees, you won’t have to
deal with many of the other ongoing requirements that corporations face, such as holding regular board meetings and keeping minutes. And your taxes will be much simpler, because you can choose to simply pay them through your individual tax return. Again, however, you may
want to look for simpler alternatives.”
“The basic formula works like this:
• Add up your gross income (mostly rent received over the year).
• Deduct your start-up expenses.
• Deduct your operating expenses (mortgage interest and property
tax included).
• Deduct your depreciation and amortization expenses.
• Deduct any Section 179 expenses. (This deduction is much more limited for landlords than other business owners.)
• The result is your taxable income, or the amount the IRS will ask for a bite of (after you report your profits and losses on Schedule E).”
“You can deduct up to $5,000 of your start-up expenses the first year you’re in business. Start-up expenses are any expenses you incur before offering your property for rent, so long as they’re related to getting your
business up and running.”
“You may need a business license. Some cities or localities require that all landlords—or at least those whose properties have more than a minimum number of units—pay an annual license fee and possibly undergo a property inspection.”
“Here are examples of expenses the IRS recognizes as ordinary and necessary to a rental business:
• Interest payments on mortgage loans, other loans, and credit cards.
(Discussed below.)
• Property and other taxes. (Discussed below.)
• Professional fees. For example, included are attorney, accounting, property management, and rental broker fees.
• License renewals. If you must register your rental with a local government, these fees are deductible.
• Ongoing insurance premiums. This includes not only homeowners’ insurance, but a portion of your car insurance if you regularly use the car for your landlord business.
• Homeowners’ association dues. If your property is a condo,
townhouse, or in a community development, you’ll be paying
association dues, which cover repairs and maintenance.
• Local transportation expenses. For example, you might travel from your home office or other office to make regular property visits, shop for supplies, or transfer garbage to the dump. You can deduct either an IRS amount based on mileage, or actual costs of owning and operating your car. Note that if you don’t work from home, trips from your home to your landlord-business office or
place of business are considered nondeductible commutes.”
“Keeping up the property. Upkeep costs include property repairs, maintenance, cleaning, environmental remediation of problems that arose after you bought the property and in the ordinary course of business operations, and gardening.”
“Office supplies. You can deduct the cost of supplies you use in your office, including software, paper, postage, and notebooks (but you can’t deduct equipment and other long-term assets).”
“Education and information. Books, magazine or newsletter
subscriptions, classes, or seminars are deductible.”
“Advertising and tenant screening. Unless you rent via word-of-mouth and skip any screening of potential tenants (a risky step), you’ll need at least a ‘For Rent’ sign, and will probably pay for classified ads and prospective-tenant credit checks. (Of course, if you charge the tenant for the cost of pulling a report, you cannot
also deduct this expenditure.)”
“Utilities. If you (not your tenant) pay the gas, water, garbage, electric, or other utility bills, you can deduct them.”
“Business gifts. These are limited to $25 per gift recipient per year (however, if you give a gift to all the employees of a business, such as a holiday fruit basket delivered to your gardening service, you may deduct the entire cost, as long as it’s reasonable).”
“Renting a unit that’s attached to your home? If, for example, you live in half of a duplex, or have a cottage on your property, you’ll need to figure out what portion of the property expenses are personal,
and what portion can be called rental operating costs. The easiest way to do this is to calculate the percentage of square footage occupied by the rental unit, then apply that percentage against your overall costs
for household operating expenses like insurance, utilities, mortgage interest, landscaping, and repairs and maintenance.”
“Although the United States has no federal property tax, your state, local, and municipal governments may all be poised to extract property taxes from you. Fortunately, you can deduct these as an operating expense.”
“However, the IRS says that you may currently deduct any item you purchase for your rental activity that costs $200 or less, even if is a long-term asset. For example, you could currently deduct a $50 lamp you buy for your rental activity, even though it is a long-term asset that will
last longer than one year. But you can deduct even more—property that costs up to $2,500—using the “de minimis safe harbor” discussed below”
“Receipts aren’t always enough. For certain types of depreciable property, called “listed” property, the IRS will want to see documentation showing that you actually used it for your business, not for your personal
life. Listed property includes cars and other vehicles, motorcycles, boats, airplanes, computers, and property used for entertainment, recreation, or amusement, such as cameras and stereos. You’ll need to keep a log
book showing when and how the property is used. (One exception to the record-keeping requirement is for computers used 100% for business—you don’t need to keep records.)”
“In the case of residential real estate and structural components, the deduction is spread over 27.5 years—by which time the buildings are assumed to have ‘worn out.’ Of course, the land itself won’t wear out, which is why land can’t be depreciated—you have to subtract its value
from your purchase price before taking the depreciation deduction.”
“The small taxpayer safe harbor allows landlords who own rental buildings that cost less than $1 million (not counting the cost of the land) to currently deduct the total amount spent each year for
repairs, maintenance, improvements, and similar expenses, provided that this amount doesn’t exceed the lesser of $10,000 or 2% of the unadjusted basis of the building (usually, its cost).”
“The de minimis safe harbor enables a landlord to currently deduct any item purchased for the business if it cost $2,500 or less. To qualify for this safe harbor, a landlord must establish an accounting procedure to treat such expenses as currently deductible and actually treat these amounts as such on its books and records.”
“How long should you keep financial records? The IRS expects you to keep any receipts and other records concerning a property’s purchase and capital improvements for as long as you own the property. (And because repairs and improvements can be hard to distinguish, it’s worth keeping repair records around, too.) The rest should be kept for three to five years, depending on local law. But,
in case a child is ever injured on your property, keep those records permanently, because the claim could arise years later.”
“Buy a receipt book. Some states require you to give tenants a receipt, but it’s a good practice in any case, especially if they sometimes pay with cash. The receipts should list the tenant’s name, amount paid, date paid, and mode of payment (including check number).
“Create files for expense receipts. Each file should be labeled with one expense category, for example ‘Start-Up Expenses,’ ‘Operating Expenses,’ and ‘Depreciable Property Expenses.’ Also keep separate files for your bank and credit card statements, filed in chronological order.”
“Ask servicepeople for detailed and, in some cases, split-up invoices. An invoice that states what was done, and preferably describes it in terms of “repairing, patching, replacing,” and so forth, will help show whether the expense was for a repair or an improvement. Or if an electrician both repairs the wiring in your rental property and adds new wiring to a new porch on
that property (an improvement), asking for separate invoices will allow you to deduct for the repair this year while depreciating the improvement cost.”
“Keep a log showing use of listed property. As mentioned earlier, cars and other modes of transport, and various entertainment devices can be claimed as tax deductions only if you can show you used them for your business, not personal use. Whether you create a computer document or make notes in a folder, keep track of the dates and uses of these items.”
“Keep business property separate or identifiable after you’ve bought it. Whenever you buy things with your business account—perhaps new paint, a screwdriver, or office supplies, like postage stamps and a printer and paper—keep them in a separate
place, label them as business property, or do whatever else will remind you not to convert them to personal use.”
“Keep notes on tenant complaints. If a tenant raises an issue that leads to a repair, having a record will help establish that the work was indeed a regular operating expense, not part of a larger improvement.”
“Make calendar notations about your business activities. Both when you’re at home and if and when traveling for rental reasons, having notes in your calendar regarding what you did and who you met with will help support your expense deduction claims.”
“How much should you keep in your reserve fund? As with your main property, it’s best to set aside enough to pay for unexpected events like the roof ’s starting to leak or a flood in the basement. Experts recommend saving the equivalent of 5% of a home’s purchase price (or
current value) each year to cover maintenance and repairs. Also keep enough to pay the mortgage and other monthly costs if the tenant unexpectedly moves out. This should cover as many months as are appropriate given the local average vacancy rate.”
“Here are some tips for choosing a qualified professional:
• Get recommendations. Ask friends, business associates, or your local landlord association.
• Look for experience in assisting landlords. You’re dealing with sometimes unique issues and tax considerations, so it helps to
have an accountant or tax pro who’s familiar with them.
• Interview two or three prospects. Choose the one who is not only reasonably priced, but seems knowledgeable and easy to communicate with.”
“Landlords in many states must give notice of entry when making repairs or doing inspections. You’ll need to research and comply with your state’s rules.”
“To find a direct link to your state’s statutes, visit and select State Law Resources.”
“A tenant is responsible for a broken window only
if the tenant or a guest intentionally or carelessly broke it. If a burglar, vandal, or neighborhood child broke a window, however, you’re responsible for fixing it.”
“You may need to change the locks and rekey the property
for each new tenant. Even if it’s not legally required, it’s a good idea.”
“You can also draw the line at fixing up ordinary wear and tear. It’s not your job to keep the rental premises looking just like new, just to stop deterioration. Nevertheless, if a tenant that you’re happy with asks for
a basic spruce up—replacing some shabby-looking but still functional blinds, for example—it may be worth doing. You’ll probably have to make the changes if the tenant moves out, anyway.”
“But if you’re doing cosmetic upgrades at the tenant’s request, or the work
is needed as a result of the tenant’s negligence, the tenant can fairly be expected to cover the expense of temporarily moving out.”
Tenant’s responsibilities:

  • “Keeping the rental unit in a reasonably clean and safe condition.”
  • “Disposing of waste cleanly and safely.”
  • “Keeping plumbing fixtures clean. For example, bathtub caulking that has sprouted mold and mildew will render the tub unusable (or at least disgusting). Because it could have been prevented by proper cleaning, the tenant is responsible.”
  • “Using electrical, plumbing, sanitary, heating, ventilating, air-conditioning, and other facilities and systems properly. Examples
    of abuse by tenants include overloading electrical outlets and flushing large objects down the toilet.”
  • “Fixing things the tenant breaks or damages.”
  • “Reporting problems in the rental.”

“In some states, if you don’t keep the property livable, your tenant may be able to stop paying rent until necessary repairs are made.”
“In states that allow this, a tenant can
simply repair the problem and subtract the cost from the next month’s rent. In most states there’s a maximum dollar limit or a specific percentage of the month’s rent the tenant can spend—for example, $300 or less than one half the monthly rent, whichever is greater.”
“Don’t drive tenants to repair and deduct. Though it will mean the repair gets done with little effort on your part, a repair that isn’t done well could cost you in the long run. Moreover, when tenants use
repair and deduct, you have no receipt (with your name on it) to prove the expense for tax purposes.”
“The tenant may sue and ask the court to order a
rent refund for the period that housing conditions were substandard; payment of repair costs of property lost or damaged as a result of the problem (for example, furniture ruined by water leaking through the roof ); compensation for personal injuries caused by the problem; and attorney’s fees.”
“If you fail to make the rental property habitable, the
tenant ultimately has the right to move out—either temporarily or permanently.”
Conditions for withholding rent or deducting rent:

“The problem is serious, not just annoying, and imperils the tenant’s health or safety.”

“The tenant told you about and gave you a reasonable opportunity to fix the problem”

“The tenant (or a guest) didn’t cause the problem.”
“Show new tenants how to handle routine maintenance. Explain the basics, such as how to avoid overloading circuits, properly use the garbage disposal, and locate and use the fire extinguisher.”
“Keep a written log of all complaints (including those made orally).”
“Twice a year, give your tenants a checklist on which to report any potential safety hazards or maintenance problems, such as an entryway rug showing signs of
fraying (replace it now, before it gets worse and someone trips). You might also want to create a form for this purpose, and give it to the tenant to fill out and return within a specified time period, such as a couple weeks.”
“In many states, you have the right to enter a tenant’s home to conduct a safety inspection, but you usually need to notify the tenant first. Some states specify 24 hours’ notice, others simply state that it must be ‘reasonable notice.’ To be on the safe side, check your
state’s statutes and, if all that is required is ‘reasonable notice,’ allow 24 hours at least.”
“Remind your tenant of your policies and procedures to keep the property in good repair in every written
communication, by printing it at the bottom of all routine
notices, rent increases, and other communications.”
“Once a year, make time for a ‘safety and maintenance inspection,’ where you check that items such as smoke detectors, heating and plumbing systems, and major appliances are safe and in working order.”
“For example, in some cases, the law might protect a tenant’s rights to install a satellite dish, and you’ll need to comply with such laws.”
“Anything your tenant attaches to a building, fence, deck, or the ground itself (called ‘fixtures’) belongs to you, unless you agree that it’s the tenant’s. Either way, it’s wise to spell out in your lease
or rental agreement who will own the improvement. And make it clear that if the tenant later fails to properly restore the premises, or removes an alteration that was meant to be permanent, you’ll deduct the resulting costs from the security deposit or take further legal action if necessary.”
“Make sure the property manager will respond immediately. Ask for a commitment to a specific turnaround time.”
“Confirm that the property manager is available 24 hours a day, 365 days a year.”
“Find out whether you’ll be charged extra for maintenance calls.”
“Know whether the property manager is authorized to conduct repairs without your prior approval. Your contract should specify what level of repairs may be done without getting an okay from you first.”
“Also, keep in mind that the property manager will probably not conduct annual inspections or periodically ask the tenant whether any repairs are needed. This is something you’ll either have to do yourself,
negotiate with the property management firm to include in your agreement, or pay extra for.”
“A good handyperson will have an extensive background in home repair. Many are even trained and licensed contractors. You’ll want someone who is available 24 hours, in case of emergencies. Choose
someone who’s been in business for awhile, and thus will be likely to stick around and become familiar with your property.”
“It’s best to find one who carries primary health insurance and liability insurance, which will protect you if the handyperson is injured
on the job, causes any property damage, or injures others.”
“Also, for the sake of both your project and your financial risk, make sure the person you hire has complied with any state rules and licensing requirements.”
“Dog bites make up more than one-third of all homeowners’ insurance liability claim dollars paid in 2016, according to the Insurance Information Institute; these claims cost insurance companies more than $600 million, with the average cost paid out for a dog bite claim close
to $35,000.(Search ‘dog bite liability’ at for details.)”
“If a tenant knows of a danger and takes a chance anyway, thus causing or worsening the injury, the law will say that the tenant has “assumed the risk” of injury. In some states, such a tenant may not be entitled to
recover anything, regardless of any negligence by the landlord. In other states, a tenant’s recovery will be lowered based on how much the tenant appreciated (but ignored) the danger involved.”
“Homes built before the mid-1970s often contain asbestos insulation around heating systems, in ceilings, and in other areas. Until 1981, asbestos was also widely used in many other building materials, such as vinyl flooring
and tiles.”
“Unless the asbestos material has begun to break down and enter the air, it’s usually best to leave it alone and monitor it. You can do this as part of your regular safety inspection, discussed in Chapter 7, and you can also require your tenant to report any deterioration to you.”
“For more on asbestos rules, inspections, and control, see OSHA’s website at or call 800-321-OSHA.
Also check into OSHA’s interactive computer software, called ‘Asbestos Advisor’ (available free at, which will help identify
asbestos on your property and suggest the most sensible solution.”
“Buildings constructed pre-1978 are likely to contain some lead, whether it’s in the paint, pipes, or solder used on copper pipes.”
“You can use the one developed by the EPA, ‘Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards,’ available at The form has a place for tenants to initial, indicating that they’ve
received it. Note the date they received it, and if you and the tenant are also signing the lease or rental agreement on the same day, enter the
time you signed it, too. If you’re ever challenged, or investigated by a government agency, you’ll be able to prove that the tenant received the disclosure form before signing the rental documents.”
“When you renovate a building constructed before 1978, EPA regulations require that current tenants receive lead hazard information before any renovation work begins.”
“Information on the evaluation and control of lead-based paint and other hazards, disclosure forms, copies
of the Protect Your Family From Lead in Your Home and Renovate Right pamphlets, lists of EPA-certified lead paint professionals, and more may be obtained from the National Lead Information Center at 800-424-LEAD or The EPA website ( also includes a map with links to state and local websites, where you can find information on related lead hazard laws.”
“Lead is relatively easy to detect—you can buy home-use kits that contain a simple swab, which turns color when drawn over a lead-based surface. Knowing how much lead is present, and how to best clean it
up, however, are subjects for a certified lead abatement specialist.”
“Do-it-yourself radon testing kits are also available; make sure the kit says ‘Meets EPA Requirements.'”
“Start by giving them the EPA booklet A
Radon Guide for Tenants (see ‘Radon resources,’ below). Ventilation measures will effectively disperse the gas in most situations. These measures range from the obvious (open the windows and provide
cross-ventilation) to the somewhat complex (sealing cracks in the foundation or sucking radon out of the soil before it enters the foundation). According to the EPA, a typical household radon problem can be solved for $500 to $2,500.”
“Contact the EPA Radon Hotline at 800-767-7236,
or visit the EPA website ( The site has links to state agencies that regulate radon, gives information on finding a qualified radon
reduction provider, and includes a map of radon zones by state. You can also download a copy of A Radon Guide for Tenants and other publications.”
“Prohibit tenants from using indoor, portable gas or charcoal grills.”
“Prohibit nonelectric space heaters, or specify that they must be inspected annually. Tenants can get recommendations from fuel suppliers.”
“Check for and fix moisture or mold problems before new tenants move in.”
“Make sure every tenant understands how to help prevent mold growth. Use your lease or house rules to educate tenants about sensible housekeeping practices and how to fix problems should they arise. Give tenants specific advice, such as how to ventilate the rental unit, avoid creating areas of standing water, and clean vulnerable areas, such as bathrooms, with cleaning solutions that
will discourage mold growth.”
“Encourage tenants to immediately report signs of mold. This includes reporting conditions that may lead to mold, such as plumbing leaks and weatherproofing problems.”
“Do all necessary repairs and maintenance to clean up or reduce mold.”
“A weak bleach solution (one cup of bleach per gallon of water) will remove mold from nonporous materials. Use gloves and avoid exposing eyes and lungs to
airborne mold dust (use a mask). Allow for frequent work breaks with plenty of fresh air.”
“You’ll learn that bedbugs have infested your property when the tenant complains of widespread, annoying bites that appear during the night (fortunately, bedbugs don’t carry disease-causing germs).”
“Make sure you’re not dealing with some
other pest, such as fleas. Because several kinds of insects resemble bedbugs, you’ll need to capture a critter or two and study them. Go online for pictures, and compare your samples. If it looks like a bedbug, call an experienced pest control operator, pronto.”
“Depending on the size of the
rental, expect to pay from $100–$750 for the initial service, and $75–$300 for follow-up treatments. If you find a company that offers to control bedbugs for a lowball amount like $50 per unit, get another bid. For more information, see”
“Bedbugs thrive in clutter, so tenants must remove all items from closets, shelves, and drawers and wash all bedding and clothing in hot water. Put washed items in sealed plastic bags, then move the tenant out during treatment. Most of the time, tenants
can return the same day. Upon return, the tenant—or you—must thoroughly vacuum. Exterminators may recommend a second and even a third treatment, with exhaustive cleaning and clutter removing in between.”
“However, insurance may cover you for the tenant’s claims for lost or damaged belongings, medical expenses, and related moving and living expenses, as well as your loss of rent. If your tenant has renters’
insurance, suggest referring the matter to the insurance company.”
“Useful information on identifying and
eradicating bedbugs is available on the EPA website at and on (maintained by a pest management consulting firm).”
“Until 1981, asbestos was also widely used in many other building materials, such as vinyl flooring and tiles.”
“When choosing liability coverage, consider buying a policy that provides protection for not only physical injury claims, but also claims of libel, slander, discrimination, unlawful and retaliatory eviction, and invasion of privacy suffered by tenants and guests.”
“You can also suggest, and in most states you can require, that your
tenant buy liability insurance as part of a renters’ policy. Having a renters’ policy in place will protect your own insurance. Here’s how it works: Suppose the tenant starts a fire on the stove and burns the kitchen. Your own property insurance would cover the damage—but so would the tenants’ insurance. If you require that the tenant’s policy be ‘primary,’ (that is, applied first to any claim), you can insist that the tenant’s carrier, not yours, cover the damage. You’re always better off when you don’t have to go to your carrier with a claim.”
“Make sure your tenants know that your insurance doesn’t
cover loss or damage to their personal property.”
“Look for insurance that covers “full replacement value” of your property, including legally required upgrades (requirements adopted since your house was constructed). Stay away from policies with “actual cash value coverage” (these only pay for the costs of replacing your house, minus any depreciation or wear and tear since the house was built).”
“The first time your tenant is late, simply call and make sure the payment didn’t get lost, forgotten, or misplaced. If the tenant apologizes profusely and pays you immediately—especially a tenant with a history
of on-time payments—you may have nothing more to worry about. The next time it happens, however, you should probably invoke the late-fee clause in your lease or rental agreement.”
“Instead, if your lease or rental agreement says that the fee is considered ‘additional rent,’ you’ll be able to use a “Pay or Quit” notice to demand the late fee, and you can begin eviction proceedings if the tenant doesn’t pay the fee (or move). If your rental document doesn’t describe the fee as additional rent, you’ll have to sue in small claims court to get it—hardly worthwhile for such a small amount.”
“If you don’t want to accept the newcomer, or your screening turns up red flags, you can demand that the person leave. Depending on the state, you may need to give your original tenant a ‘Cure or Quit’ termination notice, which offers two choices: Either get rid of the unauthorized occupant or move out.”
“For more information on state and local noise laws, visit the Noise Pollution Clearinghouse’s website, at”
“In some states, if the tenant has violated the
same lease clause two or more times within a certain period of time, the tenant may lose the right to a second chance.”
“But there’s an exception if the conviction was for drug use, and the tenant is currently not using illegal drugs. Such a tenant is protected from termination under federal fair housing laws.”
“When talking to a prior landlord, I learned that this
guy had been convicted of a drug sale, though he didn’t end up serving time. That’s probably why the report didn’t include the conviction. But with that information, I denied the application.”
“If a tenant or guest substantially damages the premises, you’ll be within your rights to use an Unconditional Quit notice. The law does not require you to give tenants accused of serious misbehavior a second chance. Tenants who have earned this type of termination notice generally get only five to ten days (it varies by state) to move out.”
“Here are some negotiating pointers:
• Ask to hear the tenant’s point of view. Once the tenant starts talking, listen closely and don’t interrupt.
• Acknowledge hearing key points, even if you disagree with them. Sometimes it’s even a good idea to repeat the tenant’s concerns, to demonstrate that you know what they are.
• Avoid personal attacks. This only raises the level of hostility and makes settlement more difficult.
• Be courteous, but not weak. Let the tenant know you have the resources and evidence to fight and win if you can’t reach a settlement.
• If possible, try to structure the negotiation as a mutual attempt to solve a problem. For example, if a tenant’s guests have been disturbing the neighbors, seek solutions that recognize the interests of both parties.
• Put yourself in the tenant’s shoes. What would you want to get out of the settlement? Let the tenant have at least a partial sense of victory.
• When you propose settlement terms, make it clear that you’re compromising. Offers of settlement (clearly labeled as such) can’t be introduced against you if you ever end up in court.
• For a powerful incentive, try money. To avoid later costs, be willing to pay—perhaps by reducing rent for a short period, lowering the amount owed for damages to the premises, or offering an outright cash settlement for the tenant to leave (with payment made only when the tenant hands you the keys). Many tenants may settle at a surprisingly low figure if they can walk away from the bargaining table a little richer.
• If you reach an understanding, promptly write it down and have all parties sign it. You or your lawyer should volunteer to prepare the first draft. If you’re paying the tenant some money as part of your agreement, make sure the tenant acknowledges in writing that your payment fully satisfies the claim.”
“Even if your oral warning or attempts to negotiate have been unsuccessful, people tend to take written notices a bit more seriously. Your letter should include:
• details of the problem behavior, including dates and times of the occurrence
• what exactly you want the tenant to do (such as stop having noisy parties, pay for damage to the rental unit, or get rid of a long-term guest)
• the specific lease or rental agreement provision that prohibits this behavior, such as a clause requiring tenants to repair damaged property, or a lease restriction on guests, and
• the consequences for the tenant’s failure to comply (such as termination or eviction proceedings).”
“Call your mayor’s or city manager’s office, and ask for the staff member who handles ‘landlord-tenant mediation matters’ or ‘housing disputes.’ That person should refer you to the public office or business or community group that attempts to resolve these disputes informally, and at little or no cost. Most local courts also provide referrals to community mediation services. For lists of professional mediators and extensive information on mediation, see”
“If you suspect you won’t be able to collect the money owed—from your tenant’s paycheck, bank account, or other financial resource—small claims court will be a waste of time. A judgment you can’t collect is worthless.”
“Eviction itself—that is, physically removing the tenant and possessions from your property—can’t be done until you’ve gone to court and proven that the tenant did something wrong that justifies ending the tenancy. And even then, you can’t just move the tenant’s stuff out onto the sidewalk and say goodbye. In most states, you must hire the sheriff or marshal to perform that task.”
“For a month-to-month tenancy, termination is theoretically easy:
Simply give the proper amount of notice (30 days in most states). You don’t usually need to give a reason (unless your property is covered by rent control).”
“Most states set standards for the content and look of a termination notice, requiring certain language and specifying the size and appearance of type:
• Pay Rent or Quit notices are typically used when the tenant hasn’t paid the rent. They give the tenant a few days to pay or move out (“quit”).
• Cure or Quit notices are typically given after a violation of a term or condition of the lease or rental agreement, such as a no-pets clause or the promise to refrain from making excessive noise. Typically, the tenant has a set amount of time in which to correct, or ‘cure,’ the violation; a tenant who fails to do so must move or face an eviction lawsuit.
• Unconditional Quit notices are the harshest of all. They order the tenant to vacate the premises with no chance to pay the rent or correct the lease or rental agreement violation. In most states, Unconditional Quit notices are allowed only when the tenant has repeatedly violated a lease or rental agreement clause, has been chronically late with the rent, has seriously damaged the premises, or has engaged in illegal activity.”
“Some states won’t let you send a termination notice (either a Pay Rent or Quit notice or an Unconditional Quit notice) until the rent is a certain number of days late. Instead, tenants enjoy a statutory ‘grace period,’ plus the time specified in the Pay Rent or Quit notice, in which to come up with the rent. (In other states, you may provide for a grace period in your lease.)”
“Federal law (the War and National Defense Servicemembers Civil Relief Act) requires a court to stay (postpone) an eviction for up to three months unless the judge decides that military service does not materially affect the tenant’s ability to pay the rent. The law applies only to evictions for nonpayment of rent, not for other reasons, such as keeping pets in violation of the lease. Nor does it apply if you’ve terminated a rental agreement with a 30-day notice.”
“Unless the tenant voluntarily pays up, you will have to collect the debt—for example, by using the tenant’s security deposit or hiring a collection agency.”
“Property managers normally charge about 10% of your
monthly rental income for their services. And that doesn’t count any additional tasks, such as handling terminations or evictions, for which you’ll pay extra.”
“Some property managers charge an extra fee to advertise, screen, and move a new tenant in, such as one half the first month’s rent.”
“You’ll need the
property manager to hire outsiders—plumbers, electricians, and other repair people. What you don’t need or want is for your manager to tack on a fee for doing this, so negotiate that ahead of time. Find out also whether you’ll have to pay any extra fees if the company buys supplies on your behalf, like paint or carpeting.”
“Some property managers set a baseline monthly fee that they’ll get paid even if the property isn’t occupied—or if it’s occupied by a deadbeat tenant who doesn’t pay the rent. This decreases the manager’s impetus to find you a tenant, not to mention to choose a good, reliable one who’ll pay on time.”
“Some property managers
specify that they get to keep any late fees. Again, this isn’t ideal, because it reduces their motivation to make sure the rent is collected on time. You’ll also want to be certain late fees don’t exceed legal maximums—if they do, look for another property manager.”
“You may find a property manager who will provide limited services for a lower fee—for example, agree that you’ll find your own tenants, but the manager will collect the rent and coordinate repairs. The expense may be worth it if it frees you of whichever parts of your responsibilities are hardest to juggle or handle at a distance.”
“Be prepared to ask some targeted questions, such as:
• Do you hold any licenses? Find out whether the agent is a licensed real estate agent (required in some states), and whether he or she has earned any special certifications, like the Certified Property
Manager designation through IREM.
• How long have you been in the property management business?
You’re looking for someone with at least several years’ experience.
• Who will handle my property? Make sure you meet with the
person who will actually be responsible for managing your
property (if it’s one person). Then find out that particular person’s experience level, and make sure you get along—remember, you could be working together quite a bit. Finally, make sure you know who’s going to help you out if that person isn’t available.
• How many (and what types of) properties do you manage? You’re looking for someone who’s not too busy to comfortably deal with you. If you’re working with an individual manager, find out not only how many clients the company has, but how many properties that individual is responsible for. Someone in charge of several multifamily complexes will have little time or incentive to spend on your lowly single-family home (larger contracts are more lucrative). Also find out what type of properties the company deals with—be sure they have experience with properties similar to yours.
• What are the fees? You want to know all fees—your monthly fees and any add-ons, for things like finding a new tenant, cleaning a property after a tenant moves out, or delivering a termination notice. Also ask whether you’ll be charged, and how much, if the place is vacant.
• How will you advertise the property? You want to know that your property manager is using effective advertising methods, especially ones you might not have access to (anyone can put a posting on Craigslist).
• How do you screen tenants? Take a look at the written application form (and ensure it doesn’t violate any laws on its face, such as those prohibiting discrimination) and find out what background checks the company will conduct and how. Make sure the company is as focused on finding a reliable tenant as you are despite the fact that the company might be all too happy to receive extra payments for late fees or tenant turnover.
• How do you handle repairs and maintenance? Make sure someone will be available to handle any problems, 24 hours a day, seven days a week. Refer to Chapter 8 for a full list of repair and maintenance issues to discuss with your property manager.
• Do you have a standard property management agreement? Most management companies do, and as we’ll explain below, they’re written to benefit the company, not you. Make sure the standard agreement can be altered if necessary. Most companies will resist this, but it’s not impossible to find one that will make reasonable adjustments.
• Do you have a standard lease? Most property management
companies do, and you want to take a look before signing on. As with a property management agreement, a lease agreement will be written to benefit the company first, not you or the tenant. Make sure the lease is fair and legal. In particular, check that the late fees don’t exceed the maximum allowed in your state.
• How will you send financial information? Your property manager should provide you a regular report that details income and expenses. You’ll want to know how often you can expect to receive the report and what format it will be in. Ask for a sample.
• What kind of insurance do you carry? It’s important that the company carry comprehensive general liability insurance, workers’ compensation insurance (to pay for any injuries sustained by employees), automobile insurance, and errors and omissions
insurance (in less legal terms, malpractice insurance). Ask to see proof (a ‘certificate of insurance,’ on an “ACORD” standard form).
• Do you have a fidelity bond? Property managers handle a lot of money—and it isn’t unheard of for a less-than-honest employee to skim some off the top. A fidelity bond (in the $1,000,000 range) will protect you if someone makes off with some of your rent money.
• Do you have references? Get names and call two or three, and make sure they own properties similar to yours. Find out whether they’re satisfied with the service they’ve received, how long they’ve been working together, and specifics like how long it takes the property manager to respond to inquires, requests, or complaints—both the owner’s and the tenant’s.”
“Once you’ve made your decision,
get ready for the next step: signing a property management agreement.”
“Make sure the agreement:
• Identifies the parties. …
• Specifies the property. …
• Details the fees you’ll pay. …
• Explains the manager’s responsibilities. …
• Explains your responsibilities. …
• Includes the contract’s duration. …
• Addresses how much the manager can spend without your authorization. …
• Doesn’t disclaim responsibility. In many contracts, you’ll find a provision in which the property management company attempts to hold itself harmless if its own errors and those of its employees cause you harm or injury. You may also see a related clause, called an indemnity clause, in which you promise to reimburse the company for any losses it suffers as a result of its negligence. Obviously, these are onerous clauses and you should get rid of them if you can. If you can’t, you can take some solace if both you and the company have adequate insurance—with insurance properly in place, these clauses will seldom come into play.”
“Your agreement should specify whether you must
resolve any legal disputes through specific avenues, like mediation or arbitration.”
“If you convert a property you have owned for at least two years to your main home and live there for two out of the five years before its sale, you don’t have to pay tax on the portion of your gain that’s attributable to your personal use. The maximum exclusion under this provision is $250,000, or $500,000 if you’re married and filing jointly. If you own and live in a multiunit property, you can use the exclusion on a fractional basis, excluding gain on the portion of the property that was your principal residence.”
“For example, if you buy a house and rent it out for four years, then live in it for an additional six years, you can exclude 60% of your gain, and will have to pay taxes on only 40%. But this won’t help you avoid taxes on your recaptured depreciation deductions.”
“For more information, see IRS Publication 523, Selling Your Home, available at”
“Real Estate Agent Interview Questions
■ Do you work full-time as a real estate agent? (Best answer: Yes.)
■ How long have you been in the real estate business? (The longer the better, but at least three years.)
■ Do you have additional certifications beyond your general real estate license? If so, what are they? (More certifications show a commitment by the agent to professional development.)
■ How many residential investment real estate transactions have you been a part of in the past year? (Should be a minimum of ten.)
■ In how many of those did you represent the seller? (Should be at least half.)
■ What was the price range of homes you sold in the last year? What was the average price? (Should be about your price range.)
■ Do you specialize in certain types of property? (Should be the type of property you’re selling, like a single-family house or condo.)
■ Do you specialize in a certain geographic area? (Should be the geographic area where you’re looking to sell.)
■ Do you partner with other agents or use assistants? (If so, find out whom you’ll be working with, what their real estate experience is, and what they’ll be doing.)
■ How will I reach you? Are there days or times you’re unavailable, or do you have vacations planned? (Make sure you can reach the agent when you need to. If you plan to sell soon, make sure the agent will be readily available.)
■ Can you provide at least three names of landlords who are recent clients and sold their investment properties with you, who will serve as references? (Only acceptable answer is ‘Yes.’)”
“Other expenses may include the cost of online listing services, like or, which help increase exposure and traffic to the property.”
“In a contract that’s ideally separate from
the lease but dependent on the tenant’s faithful adherence to the lease terms, the landlord gives the tenant the option to buy the property within a specified period or at a specified date, for a certain price (or manner of arriving at a price; more on that below).”
“Before the option is exercised, you cannot sell to another person or entity (unless that buyer knowingly agrees to buy a property that can be bought out from under him or her by the tenant in the near future, an unlikely prospect). Nor can you readily use the property as collateral for a loan.”
“A savvy tenant will require you to hold any amounts meant to go toward the down payment in an escrow account, to be released when the sale occurs. Your tenant may also negotiate a term in your option agreement stating that regular rent payments will go straight toward your home mortgage, real estate taxes, and homeowners’ insurance, to avoid the possibility that you’ll go into foreclosure on the home while the tenant is working toward exercising the option.”
“For example, your contract might say, ‘Market
value as determined by licensed brokers, one each chosen by landlord and tenant; and if the brokers cannot agree, the price to be determined by a third who will be chosen by the two brokers.'”
“Although providing a clear method for arriving at the fair market value removes the possibility that the deal will fall apart over price disagreements, it has a significant downside: The tenant will have to exercise the option before knowing the price he or she will be expected to pay.”
“Your option contract should be very clear that the option will terminate automatically upon termination of the underlying lease. If you need to terminate the lease (if the tenant fails to pay the rent, causes damage, or otherwise gives you solid legal grounds for ending the tenancy), this will extinguish the option. Similarly, a tenant who breaks the lease, even with justification, will lose the option to buy.”
“A lodger is someone who has a bedroom (and perhaps a bathroom, too) in somebody’s home, and enjoys the use of common areas such as the kitchen and living room. Legally, the lodger has “non-exclusive use” of these shared facilities.
Tenants, on the other hand, rent space that is theirs exclusively. The landlord can’t offer the space to anyone else, and even the landlord has restricted access to the premises (most states specify the permissible reasons for landlords to enter tenants’ rented homes). The legal difference between lodgers and tenants becomes important in at least two ways. As explained below, homeowners who rent to no more than one lodger may avoid some dictates of the federal antidiscrimination laws. And if you need to evict a lodger, the rules are a bit different, too (see below).”
“Zoning may be an issue: If your neighborhood is zoned
for single-family residences only, operating a ‘rooming house,’ even if you have only one roomer, may violate that law. Or, if you own a condo or townhouse in a planned unit development, the homeowners’ association rules (CC&Rs) may restrict you from bringing in a lodger.”
“The federal laws that prohibit housing discrimination (discussed in Chapter 4) do not apply to owner-occupied properties of four units or less. Nor do they apply to homeowners who rent out a room in their own home—with one important exception. While you may make decisions that would otherwise expose you to a charge of discrimination, you may not advertise or make statements in a way that indicates a preference (or avoidance) based on a protected group.”


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