Rental properties are an antidote to home refinancing. The United States has witnessed the perils of home refinancing and leveraged assets ballooning.
Owners who have refinanced their homes in the past and currently struggling with debt, can rent their properties. Even owners who never refinanced can do so. It’d be a source of additional income.
Renting a property is easier said than done. It appears simple. One ad on craigslist, followed by floods of phone calls and finally getting a tenant who pays rent every month. However, it’s not as simple as it sounds.
Here are the problems homeowners might face:
1. Find an Agreeable Tenant
While it’s easy to find a tenant, it’s difficult to find a suitable tenant. In this context, suitable means agreeable. The tenant must not delay paying the rent. He must pay the full rent at once and not in installments.
Over the time, a bond develops between the homeowner and the tenant. It’s natural when both are living in the same house for years after years. Tenants often take advantage of this bond and pay half or quarter rent with the promise that they’d pay the rest when their finances improve.
The problem is if the owner ever takes the tenant to court, this will go against him as it’s a legal requirement for him to collect the full rent every month. Hence, if the tenant is not able to pay the full rent for some month, he should formally request the owner to accept half-rent for that particular month and owner must give a formal reply.
2. Play by the Legal Rules
Play safe and play by the rules. Don’t do anything that the law doesn’t approve. Finding a tenant is undoubtedly a great hassle, but fulfilling all the legal requirements is an even bigger hassle.
What can you do to abide by the law? You can hire a lawyer and ask him about all the legal ramifications of renting a home. Second, you can join a landlord association. They’d give you free legal advice and might even help with legal documents.
Also, make sure you and the tenant both sign the right tenancy agreement. It’s a legal requirement that the agreement must be valid as per the law of when it’s being signed. A number of owners don’t sign valid agreement. They realize their mistake when the tenancy dispute goes to the court.
Another mistake many of them make is they don’t keep the rental deposit in government approved tenancy. Please keep in mind that it’s a legal requirement. Even better if you could arrange a tenancy deposit scheme.
3. Increase the Rent
Renting a property requires some strategic steps. You can ask for a high rent. But then it’d be difficult to find a buyer. If you charge a low rent, you’d find a buyer. However, you won’t be able to make too much money every month.
So, take a balanced and strategic approach. Charge a rent that’s a bit lower than the standard rate. This will help you find a tenant quickly and your tenant won’t be someone who’s going to be broke in next couple months. In short, it will do the screening for you.
Next, increase the rent after every year. The rate of increase shouldn’t be arbitrary. It should be according to market standard. If you are not sure how much you are allowed to increase, consult a lawyer. Do mention this in the agreement with the tenant. Don’t mention the percentage of increase there. Just mention rent is subject to increase.
4. Don’t Violate Civil Rights
When you are refusing to rent your property to a certain person, make sure you are refusing on valid grounds and not on any flimsy ground. More importantly, you are not refusing them on the basis of race, nationality, gender, disability condition or religion.
The Federal law protects tenants from discrimination on the basis of religion, gender, color, etc. Hence, be extra careful declining the tenancy request of a person who is not white, not from the religion that the majority in the country follows, not a member of the sex that is allegedly privileged and disable.
Does that mean you are forced to accept such people as your tenant? No. That only means you have to clearly explain to them the reason why you are declining their request.
5. Be Careful With Section 8 Tenants
What is Section 8 program? And who are Section 8 tenants?
Section 8 programs is a win-win option for both landlords and tenants. It allows landlords to rent their properties – at a fair market price – to those who are not able to afford them. Section 8 is basically a subsidized program under which down-and-out tenants can apply for rent. The subsidy is given by the Department of Housing and Urban Development.
The problems with Section 8 tenants include unexpected inspection on property, lack of coverage options, tenants unwilling to leave the property despite being warned of legal actions, cap on maximum amount and so on. Most homeowners don’t prefer Section 8 tenants. If you get a request for rent from one, talk to your lawyer regarding how you could decline the request without breaking any law.
Renting property is a passive way of earning money. However, not following the proper tips when renting your property could land you in trouble. So, follow the tip shared here in this article and enjoy your extra moolah.
About the Author:
Avery Richardson is a finance blogger and writes about personal finance, frugal living, money management, and innovative money making ideas. When she is not writing you can find here experimenting with cooking.