Becoming a landlord
I have bought a two-family home and plan to rent out the two-bedroom ground floor apartment. Becoming a landlord is daunting, especially since I will be living above the tenants. I want to do right by my tenants and protect myself from any issues that might arise. For example, the house is set up so that I can decide whether to allow access to the basement and the garden. I assume that I will do both, because I need as much money as possible from the rental, but that will mean setting up rules for sharing (e.g., no smoking in the garden, no use of the owner’s deck, etc.). Because this is all new to me, I’m assuming that I should hire an attorney to draft a contract and a real estate broker to help find someone. For those of you who rent out an apartment in your home, what other advice do you have? Other resources I can use?
mkobsassistant
in Landlord 9 years and 11 months ago
18
Please log in, in order to post replies!
18 replies
tjbk | 9 years and 11 months ago
If you are going to list the unity yourself, I strongly suggest paying for a featured listing on Brownstoner or another high traffic site and use a vetting service such as Landlord Guard. If you are in a well established neighborhood then listing with an agent might be easier and best. If your neighborhood is going through a transition, you might be better served to list and rent it yourself as folks moving into a transitioning neighborhood might balk at paying a broker’s fee for an apartment they found online.
boredatwork | 9 years and 11 months ago
Re insurance, what most is being discussed is liability insurance for the renter which names you as additional insured. Regular renters insurance usually includes this. But what you really need as an owner is an insurance policy that is clear about the fact that your home is a two-family and covers that space appropriately. You may also want to look into an umbrella policy that typically includes higher limits for liability. If your tenant or a visitor is hurt on the property, they can sue everyone in sight, including the tenant and you. But you have the biggest asset to protect, your home. Good luck.
workisfun | 9 years and 11 months ago
sunbury – if there is any type of accident (fire, falling from balcony, renter’s guest slips in bathroom, etc.), renter’s insurance is a buffer between them and your homeowner’s insurance, which should be a last resort because of claims leading to increased rates. be sure that the renter lists you as an additional insured. we are not thrilled with our insurance broker, so can’t make a recommendation. but shop around. this is very important and there seems to be a consensus on this convo about that. in fact, we paid for it for this first lease as landlords because it was only around $300/yr and it seemed to be the best way to verify that all was in order. in the future, we will likely just ask for proof at maybe 6-month intervals. even though we may require it in the lease, which protects us, if they don’t have it when an incident occurs, it will still fall on our homeowner’s policy. having legal standing to spend more money to sue the tenant and evict them will be cold comfort after a policy rate increase.
sunbury | 9 years and 11 months ago
I have great tenants that I got through a broker. But they don’t have renters’ insurance. What does this cover and can anyone provide recommendation for a good company? Thanks,
workisfun | 9 years and 11 months ago
we have a 5 day grace period on rent. after that, $50 is applied. it is nominal, but it’s an incentive to pay on time. we have our mortgage to pay and don’t have much flexibility. all good comments above. i’ve been told that medical residents are great to rent to. they’re almost never home, don’t cook, etc. and after about 4 years, they move on. we have young students now – but they’re wonderful. we are first-time landlords, so used a broker this time. we would love to know how to do the credit, background checks, and other due diligence ourselves. advice on those specifics is much appreciated. thanks.
mkobsassistant | 9 years and 11 months ago
I am reading closely and I’m grateful for your advice. I’m interested in anything more you have to add, but I want to thank those who already wrote.
slopefarm | 9 years and 11 months ago
I agree with rh. We like to market and show the rental ourselves. You learn a lot from prospective tenants’ questions and the way they look around. It is nice to save tenants the fee. Also, broker tends to act as a funnel, sending you one at a time to approve or not. this way you get to see the market. One prospective tenant complained about the front gate, then told me her boyfriend was a housing court judge. She didn’t apply, but I was glad to have other applications in my pocket in case she did. I would not make outdoor space part of the lease, but make it available informally once you are comfortable with the tenant. Definitely renter’s insurance, first of the month, etc.
sqhaexgkh | 9 years and 11 months ago
you can use an agent and make meeting the prospective tenant a requirement. That is – if you’re not too weird. 🙂
shahnandersen
in Landlord 9 years and 11 months ago
Basically agree with cmu. These people are going to be sharing your house, you’re going to want to get along with them. Even if you use a broker, you should interview the people they send you. You must feel comfortable with having them in your house (and they to be in yours). If you’ve recently bought your house, I know that getting a good rent is important, but don’t sacrifice tenant quality. For example, you _probably_ would be better off renting to a couple than four roommates banding together to pay that higher rent. And while a one year lease might be preferable at first to assure that they are who they seemed, I would suggest offering two year renewals (we always offer one or two year renewals at the same rent level). You don’t want to go through this process again if you don’t have to. A two year lease is security for both you and your tenants.
NeoGrec | 9 years and 11 months ago
LOTS of good advice above! Renting the apt yourself or via a broker is a matter of personal preference. We’ve done both. We like to cut tenants a break on the broker’s fee but last time we were too busy to handle it ourselves and, frankly, Craig’s List is a mess and other methods involve a lot of work by the homeowner. A few details to add and/or re-iterate: 1\. Requiring payment on the 1st is a great idea. 2\. Renters insurance is a MUST. 3\. If you offer cellar storage space (we do) be very specific about how much space your tenants can use (mark it out with tape) and explain it’s entirely at their risk. 4\. Offering a washer/dryer is a huge enticement. 5\. Add to the rider that you must be told immediately about problems. This is for your protection. A stitch in time… 6\. Fix problems as quickly as possibly. Bad stuff happens in old buildings. But the good will created by a prompt response is incalculable. 7\. Establish a procedure for garbage and recycling collection. Also add to the rider. 8\. Don’t assume anything. Put it all in the rider so tenants can reference the details. Better to be firm but clear from the start. Once everyone is on the same page, with luck you can relax and enjoy your tenants.
Aces | 9 years and 11 months ago
Dear landlord Please heed these words that I speak I know you?ve suffered much But in this you are not so unique All of us, at times, we might work too hard To have it too fast and too much And anyone can fill his life up With things he can see but he just cannot touch
classon | 9 years and 11 months ago
I prefer finding my own tenants as well. The one time I use a major realtor (starts with “C”) they were a disaster. Agree about raising the rent annually. I made the same mistake as mag. The damage wasn’t that bad/irreparable but I set unreasonable expectations and that was my fault. If you allow pets (I allow cats) make sure they are spayed or neutered. Nothing like an intact cat who is home alone all day to ruin assorted things around the apartment, like the baseboards and window sills… Lastly, I require the rent to be paid on the 1st. There is no “grace period”. If it’s a day or two late it’s not a problem but it rarely is. If it has to be late for some reason then I ask the tenant to just check in about it. I like to pay my bills by a certain date and make it clear that I don’t want to have to ask about the rent or wonder if/when it’s coming. I have way too many other things to worry about and manage. This is discussed in a friendly manner when I show the unit and I have found that anyone who doesn’t like it or is reluctant or intimidated by the responsibility is weeded out at that stage. You’ll lose prospective renters but you wouldn’t want them anyway.
cmu | 9 years and 11 months ago
As a landlord of 30+ years, I say hold the paranoia to a lot of this. If you treat tenants well, you’ll do well. The pathological tenants are just that, rare and if you get one, it’s just bad luck (like the chances of being rear-ended, of course it could happen). I’ve never raised rent for 4-5 years at a time, and I always discuss the rent increase before sending a formal letter. Every tenant had had use of the garden and basement (they can’t use it for storage? seriously?), never a problem. I ask tenants to inform me if they’re having a get-together and beware the plants (never had large, noisy parties.) Never had an attorney, don’t get one unless you have money to burn. I cut-and-pasted a lease from web. One page. Don’t impose picayune rules (I include smoking in garden one of them). Build a friendly but businesslike relationship with your tenants (in my case, I’ve been quite friendly with mine, so we feed each other’s pets etc over the years.) Seriously, don’t sweat it. If, as I suspect, you’re at market-level rent, you’re going to get professionals who stand to lose more if they’re ornery then you.
rh | 9 years and 11 months ago
You don’t need an attorney. Personally, I prefer to find my own tenants rather than going with a broker (disclosure-I have a RE license) so I can do my own marketing and screening. The application, credit check and references are only half the process. I want to meet the people who will be living in my house, whether it’s with me or in an investment property. Being a control freak, I need to get a feel for who they are when showing the apartment. That means stalking them online too. 😉
mag | 9 years and 11 months ago
One other thing: You do not need an attorney to handle this. Why in the world would you want to do this yourself? Go to a solid real estate broker. Your tenant will be screened, vetted out, credit, salary, bank accounts, etc will be checked thoroughly. Tell the broker what you want added into the lease terms. You only want people who are able to pay the fee, which is usually 12% of the annual rent. You need to treat this as your business. Trust me, once you have a tenant who has signed a lease you are stuck. The lease is iron clad and will protect your tenant, not you.
mag | 9 years and 11 months ago
As someone who has been a landlord (and have had great tenants) for over 16 years, here is my two cents: Always have an annual lease, this protects you and your tenant (that is how I always explained it to my tenants). Make sure they have rental insurance, ask for proof upon signing of the lease, and add to the lease terms, upon renewal of the lease, proof of rental insurance is required. Always raise the rent upon the renewal of the lease, even by a token $25-50\. This is for a few reasons: your taxes, water, heat and maintenance on the building goes up every year. Also it keeps the rent within market range. A few years back, we did not raise the rent on our great tenant, then we realized we were terribly under market. We raised them $250 which still kept them under market, but it was a shock to everyone’s system. Luckily, they were gracious (stayed 8 years). After that, we increased the rent $50 each year. Think twice about offering your basement and garden. This is still your home, and you may regret this generosity. You do not know who your tenants will be, and allowing use of other areas of you home limits you, and blurs the lines. Boundaries are very important. Every tenant is great, until they are not. Also, if you allow the tenant to use the basement/store their things there if anything is damaged, it will be your responsibility. Memorize the NYC heat laws, you’ll need it. Good luck and congratulations on your new home. Mazel.
sqhaexgkh | 9 years and 11 months ago
Your broker will likely have a form contract for the lease; add a rider with your rules or referencing the rules. Then draft the rules yourself to save some money– if its just rules re smoking and loud music after 10pm (for example) that’s simple and not a legal issue. As for a Broker, we have used them for our rentals with good results. We have had no issues with our tenants, and no turnover to date which is nice (that broker’s fee deters people who are only looking for a 1 year lease). Just make sure you take a close look at the renters papers. We said no to some applications– just because a broker presents an app, doesn’t mean its a good fit.
jakester | 9 years and 11 months ago
Congrats on the new home! I’m in nearly the same boat as you, hoping to close on a 2-family in Brooklyn in the next couple weeks, and have been doing some research in preparation for our closing. There’s a great, free ebook on Amazon that really started building the groundwork for our gameplan http://www.amazon.com/BiggerPockets-Guide-Rent-Your-House-ebook/dp/B00AXNQC8S I’d be curious to hear how other people respond to the broker question. We’re actually currently planning to rent the place ourselves (though following the protocol that most brokers do with credit/background/employment verification etc.), going on the theory that we are more motivated than any broker would be to be sure that we find great tenants. In any case, I can highly recommend the e-book as a starting place.