You have just bought your first investment property and you are ready to dive in to being a landlord. The to-do list is surprisingly long: advertise rental property, create rental forms, figure out how to do credit checks, set up bank accounts for deposits, make repairs, and on and on. Make sure you add to the list gaining an understanding of the many federal, state, and local laws, governing your actions with your tenants.
At the federal level is the Federal Fair Housing Act, which makes it illegal for a landlord to discriminate because of a person’s race, sex, national origin, religion, and disability.
Most states have a Residential Landlord-Tenant Act. This is where to find the majority of the rules, often addressing security deposits, rental agreements, and evictions.
Local housing codes and ordinances provide another layer of controls, usually outlining minimum requirements for living conditions and further protecting tenants from discrimination and illegal evictions.
We’ll take a look at a few of the areas that could cause trouble if not done correctly, beginning with security deposits.
Make sure you know the answers to all the following questions.
How much of a deposit can you collect?
Do you have to pay the tenant interest income on the deposit?
Do the funds need to stay in a trust account?
When returning the deposit do you have to itemize the amounts you withheld?
Can funds be withheld from the deposit for normal wear and tear?
Can you charge for your own labor when withholding security deposit amounts?
How many days do you have to return the deposit?
What are the consequences if you do not comply with security deposit rules?
Laws governing security deposits and other landlord-tenancy issues are continually changing. As a landlord you should consider having a real estate attorney specializing in landlord-tenant laws, or you should have a property manager that performs this role for you. At a minimum, you should regularly check your states’ landlord-tenant regulations. There are many great websites out there for both property owners and tenants.
If you have not decided whether you are going to hire a property manager to manage your rental property here is something to consider. One bill from a real estate attorney because of an inappropriately handled security deposit could be as much as the fees you pay to your property manager for a year.
We will look at issues surrounding evictions in the next posting.