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The best rental application will protect the landlord by helping them to figure out if a tenant is financially and socially stable.
The application will ask the prospective tenant for a lot of personal information, such as full name, address, social security number, and more. A credit check may also be included with the application to screen candidates.
Since the rental application is so important for both the landlord and the applying tenant, it is crucial that it has all the required information from the start. Look over the application carefully to ensure you ask all required questions so your application is valid.
There are a few basic elements to a successful rental application:
A rental application is, in short, your number one tool for weeding out unsavory tenants. By requiring potential tenants to fill out a rental application form, you are able to get a sense of who each person is, as well as perform a full background check on each of them. This enables you to avoid sheltering serial killers, sex offenders, and juvenile or financial delinquents.
The following guide is for current and prospective landlords. It outlines how to become and stay a successful landlord by establishing prudent and profitable rental application processes.
If you’ve listened to talk radio, you’ve heard someone praising the income they get from being involved in the real estate industry as a landlord. Real estate, including owning rental property, is something that many get involved in for the purpose both future investment income and as a supplement to their current income. This guide is designed to help you explore the essential topics related to becoming a landlord. If you’re a new landlord, this guide will help you find resources about legal dilemmas that you may face in your new venture. First, you’ll learn about the advantages and disadvantages of becoming a landlord. Then, you’ll learn the basics about the essential issues that you should know about including security deposits, late fees, and evictions.
It is important to note that this guide does not constitute legal advice. It is meant only as an educational reference. Laws that govern what landlords can and cannot do exist in every state. Make sure that you retain an attorney who is not only experienced in landlord-tenant law, but one that focuses on helping landlords. Only a licensed attorney in your state can give you legal advice. Although it may seem like an added expense, keep in mind that it is to protect you and your business. Simply looking up information on the Internet isn’t enough. The legal world changes much faster than one would think, so it is imperative that you consult with an attorney regarding your obligations as a landlord.
Advantages of becoming a landlord
So, why would anyone become a landlord? The basic answer is simple. Rental property produces income. This income may be supplemental to one's current monthly income, or it could help provide an investment income. Rental property may even serve as income for someone when they retire.
Think about the process of flipping houses. Of course, there are television shows that glorify the process and make it seem quick and easy. One buys a property, remodels it, and then sells it for a profit. Buying and then selling a property outright wouldn’t bring someone any long-term income. They would have to continue to buy, remodel, and sell the homes. When someone buys a rental property, they want to keep it for a long period of time. Over time, they must keep it in good repair. In addition to keeping it in good repair, the owner may add on to the property in some way. The entire area may go through a period of resurgence. Between adding new elements to the property and a new interest in the area, the property value may increase. This is known as appreciation. Sometimes, landlords will decide to sell a property and reinvest the money into a new property if they can make a big enough profit.
When a person is approved to buy a home, a traditional financier tells them how much they will approve a mortgage for. Many times, people have 10 – 25% of a purchase price to put down as a down payment. Some people don’t have to put any money down on a house although they are approved for a home loan. Even if the seller of the home agrees to finance the price of the home, it still acts as leverage. Regardless of the amount of money that is put down on a home, they get to take possession of the home while they are paying it off. Even if they only put 10% down on the purchase price, they get 100% possession of the home.
Those investors are the individuals who pay the initial costs of purchasing the home. The person with the investors will pay back the investors over time.
There are several tax write-offs that come from owning rental property. Of course, a landlord may not be able to take every deduction every year. If you purchase property to act as a rental, it is important that you consult with a CPA to determine which deductions you can take on your taxes. The most common deductions are:
Disadvantages of becoming a landlord
For you to make an educated decision about whether you should enter into the real estate industry as a landlord, you should be aware of some of the disadvantages involved. Like all businesses, being a landlord has risks. In this section, we’re going to talk about some of the most common risks you would face as a landlord.
Although you are renting the property to another person, you are the one who remains legally responsible for the upkeep of the major components. You must keep the property habitable and up to code. Habitability varies from state to state. It is important that you know what you are required to keep in working order. In many states, if repairs aren’t made by the landlord, the tenant has the legal right to either make the repair and deduct the expense from their rent or they may withhold the rent until the repairs have been made. Make sure that you understand the codes in your state and that your property meets those standards.
Even if the house you purchase passes inspection and you’re happy with it, bad things can happen. Are you prepared to replace the wiring or the plumbing? When the shower stops working or if there is a leak in the house, you are responsible for fixing those issues. You must also consider potential expenses that you’ll face to renew the property once the tenant leaves. Normal wear and tear can’t be deducted from the security deposit. Also, keep in mind the expenses that may be involved if the property has severe damage. You must be prepared to at least initially cover the repair of the damage even if you choose to pursue the tenant in court to recover that amount. That is another expense. You may have planned for the fact that you’ll have to make the occasional court appearance for an eviction. However, these legal expenses are often more expensive than what people realize. Although you may be able to represent yourself in housing court or small claims court, more complicated matters, including if a tenant chooses to sue you and you must develop a defense strategy, you may need a good attorney.
Even if you put in the best legal screening process possible to minimize the likelihood of renting to a bad tenant, it can still happen. Bad tenants can cause property damage. They can take advantage of housing law (and take advantage of you). They could simply not pay you. Then, you’d not have the income that you planned on, have court expenses for an eviction, and winning your eviction lawsuit is no guarantee of you receiving the money that is owed to you unless you spend more money to either send them to collections or attempt to garnish their wages (if they are working).
People become a landlord to bring in an income. When your property is vacant, that means no income. If you continue to hold the property out for rent, you may be able to deduct your ordinary and necessary expenses (including depreciation) on your taxes. These expenses are associated with managing, conserving, or maintaining the property. However, landlords cannot deduct the loss in rent as an expense.
Tips for Managing Your Risks as a Landlord
There are things that you can do to manage the risks you face as a landlord:
Tenant Search and Discrimination Laws
As you look for a tenant, it is important that you are aware of and abide by both federal and state anti-discrimination laws. In this section, you’re going to learn about advertising to the tenant, the importance of a screening process, how to screen and legally reject applicants, how to screen tenants based on criminal history, and how to execute the lease package and transfer possession of the property.
Advertising For a Tenant
Discrimination isn’t always as cut and dry as it seems, and discrimination laws are more complex than you’d think. For example, if you only advertise your rental property in your church newsletter, it could be argued that you are discriminating against others based on your religious preference. It doesn’t matter if you post your ad online or in an old-fashioned newspaper, you must remember that the Fair Housing Act still applies.
One of the main pieces of legislation that you need to know about is the Fair Housing Act. It states that it is illegal for a landlord to advertise a rental property that indicates a preference toward someone of a specific race, skin color, heritage, gender, disability, religion, or familial status.
Make sure that you describe the property and not who you believe would be the ideal tenant. Describing an ideal tenant doesn’t necessarily violate the Fair Housing Act, but it does create a slippery slope. It could be argued that you’re only showing the property to people that you prefer to rent the property. The Fair Housing Act also forbids discrimination on familial status. Stating that your property is perfect for a retired couple may be seen as discriminating against others because of their family status.
If you plan to post photos of your property, only use photos of the property.
Although the Fair Housing Act has some exemptions, it is important that you still work to follow the non-discriminatory provisions in your advertising. To learn more about the Fair Housing Act and its exemptions, speak with a licensed landlord-tenant attorney in your state.
How to Screen and Legally Reject Bad Applicants
If you do not screen and reject applicants in a way that is legal, applicants may decide to sue you for discrimination. One way that you can minimize the risk of being sued for discrimination is to have a phone conversation with them before you have them fill out the paper application. You can find out about their history over the phone. If you have to reject them before you meet them in person, it is much harder for a claim of discrimination to stand because you’ve only asked about certain historical occurrences.
When you are screening applicants, you need to know about:
If someone presents a risk, but you think that they may still be a good tenant, you may have the option to charge a higher security deposit and allow that tenant to rent your property. Just keep in mind that many states have caps on security deposits.
How to Screen Tenants Based on Criminal History
To a degree, landlords often have the right to deny a potential tenant based on their criminal history. HUD allows landlords to exclude someone based on criminal history if they have a clear, defensible, and evidence-based policy for why they do it.
When it comes to your screening policy and criminal history, your screening policy cannot:
Your screening policy should:
Whether you are currently landlord or planning to be one in the near term, we hope that this guide will serve as a beneficial resource. Additionally, if you ever have any questions about specific legal documents, feel free to check out our Free Legal Forms Library.
A rental application is a tool to identify an ideal tenant who best fits the criteria of a rental agreement and helps the landlord find a tenant they can have the best relationship with.Read More
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