Article provided by BiggerPockets
A federal jury has decided that several brokerage firms colluded with the National Association of Realtors (NAR) to enforce inflated commission rates. According to the plaintiffs, the conspiracy was evident through a written rule that requires sellers’ agents to offer a set rate of compensation to the buyer’s agent when listing a property on an MLS.
The ruling came last Tuesday after just a few hours of deliberation. Sellers of hundreds of thousands of homes in Kansas, Illinois, and Missouri, the plaintiffs in the Sitzer/Burnett lawsuit, were awarded $1.785 billion in damages. That amount may be trebled to greater than $5 billion. And the copycat lawsuits have already begun.
The verdict alone could have a ripple effect on the real estate industry. It could lead to lower commissions through negotiations between sellers and agents or even leave buyers to foot the bill for their own agents.
Brokerages are likely to prioritize pro-competitive policies to avoid future litigation, and that could mean clear opportunities for discussions about commission rates. According to the NAR, commissions are always negotiable under its rules—but in practice, most real estate agents won’t budge on their rates, according to a report from the Consumer Federation of America.
What the Defendants Have to Say
In a written update on its website, the NAR indicated plans to appeal the verdict. Keller Williams and HomeServices of America are also reportedly considering appeals. RE/MAX and Anywhere (the parent company of Sotheby’s, Coldwell Banker, and Century 21) previously agreed to settlements in the Sitzer/Burnett case and similar Moehrl lawsuit.
Regardless of the outcome of those appeals, it will take time for a judge to issue an order. That injunction could also include a requirement to change NAR rules or brokerage practices.
“We disagree with the verdict but respect the jurors who decided the case based on the issues in front of them,” said Darryl Frost, spokesperson for Keller Williams, in a statement provided to BiggerPockets. “We are disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that cooperative compensation is permitted under Missouri law.”
For example, Missouri law states that a seller may authorize a broker to share the seller’s compensation with another broker.
“This is not the end,” continued Frost. “Keller Williams followed the law regarding cooperative compensation and stands by the evidence presented on the 100-year-old practice of sellers’ agents offering commissions to other agents who help market and sell homes. Looking forward, we will consider all options as we assess the verdict and trial record, including avenues of appeal.”
That 100-year-old practice was commonplace before the NAR mandate was made, in large part because cooperative compensation may be the best tool sellers’ agents have to attract buyers. It’s practical for sellers’ agents to offer compensation to buyers’ agents in exchange for their marketing efforts, which brings more offers to the listing. That could be why the practice still continues in areas where cooperative compensation isn’t required. For example, Northwest MLS eliminated the requirement while also allowing brokers to publicly list compensation offers, with no noticeable market changes.
BiggerPockets also contacted the NAR and HomeServices of America for comment, but as of this publication, they have not responded.
The Journey to a Ruling
After deliberation, the jury answered yes to four questions. They agreed that there was a conspiracy between the brokerages and the NAR, that the conspiracy increased or stabilized commission rates, that the defendants willingly joined the conspiracy with knowledge of its goals, and that the plaintiffs overpaid for real estate services as a result of the conspiracy.
At issue in the case was NAR’s cooperative compensation rule, which requires sellers’ agents to offer compensation to buyers’ agents when listing a home on a local MLS. The blanket offer is made without knowledge of the time or effort the buyer’s agent will bring to the deal.
The plaintiffs argue that homebuyers aren’t privy to the offer of compensation, so buyers’ agents can steer homebuyers toward the homes with the highest payout. To ensure that buyers’ agents show the home to their clients, sellers’ agents are therefore incentivized to offer a competitive rate. That keeps commission rates artificially high.
One witness for the plaintiffs compared the current commission system in the U.S. to other countries, where commission rates are significantly lower, arguing that the NAR and the brokerages were responsible for keeping U.S. rates elevated. Commission rates remain stuck, even as internet resources have shifted much of the work of finding a home to the homebuyer, and home prices have skyrocketed. However, that same witness denied evidence of a conspiracy.
But Michael Ketchmark, the plaintiffs’ lead attorney, argued the written rule itself constituted a conspiracy. The defendant brokerage firms required their agents to join the NAR and follow their rules. They were, therefore, colluding with the NAR to enforce high commission rates, a form of price fixing, the plaintiffs argued.
In his closing remarks, Ketchmark positioned the case as a fight between consumers and corporations, saying: “Our system doesn’t have to forget people. You can hold corporations accountable.”
A World Without Cooperative Compensation
Economist Lawrence Wu testified that homebuyers in Australia typically don’t rely on buyers’ agents—their services are instead handled by lawyers and CPAs. That might be preferable, given the surfeit of inexperienced agents in the U.S., but someone must pay for those services. In the absence of cooperative compensation, whether a buyer pays for legal services or real estate services, their upfront costs may be greater.
It’s also possible that the sellers’ agent would still charge 6% for doing the buyer’s agent’s share of the work. So was the testimony of Jen Davis, vice president of MAPS Coaching at Keller Williams. That outcome could mean real estate transactions get more expensive for everyone involved.
That scenario would be particularly tough on real estate investors, who often rely on the guidance of qualified agents to navigate markets they may be unfamiliar with.
On the other hand, it’s also possible that changes to the industry could lead to more negotiation between consumers and real estate agents in general.
Sellers might ask for reduced rates in exchange for reduced marketing efforts in a hot market. Buyers might pay a flat fee for limited real estate services, and the mortgage industry might evolve to allow those services to be financed. The reduced commission burden on the seller may be reflected in lower home prices. If all of those outcomes came to pass, everyone would win.
The NAR has been central to real estate transactions for so long that it’s difficult to guess what the industry would look like without the association’s influence, and other countries don’t necessarily provide an apples-to-apples comparison.
The NAR’s Reputation
Whether or not you believe a conspiracy was taking place between the NAR and the named brokerage firms, the NAR faces several reputational threats that may be a catalyst for change within the trade association and the industry. Between the antitrust lawsuits, Redfin’s breakup with the NAR, the accusations of sexual harassment, and the subsequent resignation of president Kenny Parcell and another high-profile resignation of its CEO, Bob Goldberg, just this week, the NAR has good reason to update its policies.
To gain the trust of its members and consumers’ respect for the Realtor membership mark, the NAR will need to reinvent itself as a pro-consumer organization and take clear action to prevent intimidation and harassment of its employees. Those policy changes could impact the way homes are bought and sold. Likewise, if the NAR fails to maintain its powerful influence, that could open the door for swift changes to the industry.
The NAR has always maintained that its policies are consumer-friendly. “NAR doesn’t tell people what to charge or to receive a commission,” the association wrote in an update on the trial. “NAR rules are very intentionally pro-consumer and pro-business competitive, and buyer brokers exist because consumer protection agencies thought they were important.”
Still, the trade organization has fallen short of requiring local MLSs to publish commission rates publicly or mandating the removal of cooperative compensation requirements. That could change. And the climate of real estate transactions could shift due to the Sitzer/Burnett jury verdict—where home sellers were once afraid to discuss commission rates with their agents, they may more courageously negotiate pricing in the future.
The Bottom Line
Whether the outcome of the lawsuit leads to lower average sell-side agent commissions remains to be seen. How it will affect buyers and buyer agents is also up in the air. And whether the effect of shaking up the industry will have a net positive or negative effect on consumers depends on who you ask.
Still, the case is far from over, with appeals expected and the details of the judge’s order uncertain. We’ll provide updates as the situation unfolds.
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Thank you to Spark Rental for writing this informative article
If you’re new to real estate investing—and especially as you grow your portfolio of rental properties—sooner or later you’ll be faced with a choice about how to structure your business. As an individual you can own a rental property and operate the real estate business out of your personal checking account, but that gets messy in a hurry.
Many experienced real estate investors in the United States use a limited liability company (LLC) to hold their properties and operate their businesses. Holding your real estate assets this way helps protect you from potential lawsuits from tenants and offers favorable tax treatment on your rental income.
Forming an LLC is deceptively simple, and transferring property into one takes only a few steps. But they must be done correctly and in full view of your mortgage lender, insurance provider, and of course the tax man.
Let’s review the benefits, tax implications, and pros and cons of transferring rental property to an LLC. Then, we’ll run through the step-by-step process.
- Why Real Estate Investors Love LLCs
- Tax Implications
- Federal Income Taxes
- State Business Taxes
- Transfer Taxes & Transaction Fees
- Potential Cost Triggers
- Deducting Business Expenses
- Pros and Cons of Holding Property in an LLC
- Pros of Transferring Rental Property to an LLC
- Cons of Transferring Rental Property to an LLC
- How Many Rental Properties Should I Put in 1 LLC?
- Steps to Transfer Rental Property to an LLC
- Step 1: Do Your Homework
- Step 2: Contact Your Mortgage Lender
- Step 3: Form the LLC
- Step 4: Transfer Ownership
- Step 5: Update Insurance Policies and Lease Agreements
- Final Thoughts
Why Real Estate Investors Love LLCs
A limited liability company (LLC) is a business structure that effectively creates a private business entity. This structure protects the business’ owners from personal responsibility for its debts and other liabilities.
Many small business owners and freelancers choose to form LLCs through which to conduct their business’ operations and finances. That way, if the business falls into debt or faces a legal settlement, creditors can’t come after your personal assets such as your home, car, and financial accounts. Hence the “limited liability” in limited liability company.
For real estate investors, transferring rental property to an LLC bestows some notable advantages.
To begin with, holding your rental property within an LLC shields your other personal assets from potential lawsuits or legal claims arising from your property. A litigious tenant who decides to sue the property owner will end up coming after the LLC’s assets, but your personal assets remain completely separate if you’ve set things up correctly. Yes, your LLC owns the property—maybe several properties—that could be targeted by a lawsuit seeking damages, but it won’t include your family’s home, your car, or your retirement account.
Holding rental property in an LLC also gives you tax flexibility and pass-through taxation—one of the primary benefits of an LLC over other business structures. The IRS does not recognize LLCs as separate tax entities, so income and losses pass through to your personal income tax returns. This allows real estate investors to avoid double taxation (once on the business’ income and then again on the personal income the business pays out to you). You can also write off many ordinary business expenses as deductions, while still taking the standard deduction on your personal income tax return.
Operating rental properties through an LLC ensures a clear distinction between your personal finances and the property’s financial dealings, enhancing transparency and reducing potential confusion during tax season. If you work with partners or co-owners, an LLC can formally define your property’s ownership structure and streamline ownership transitions as well.
Tax Implications
Before you jump headfirst into transferring your rental property to an LLC, you must understand the significant tax implications of the move—some good, others not so much.
Federal Income Taxes
Good news! The IRS treats LLCs as pass-through entities, meaning the income and losses from LLCs pass through to the members’ personal tax returns. Unlike with a corporation, with an LLC you don’t pay a separate federal corporate tax rate on your business profits and then get taxed again on any income you draw from the business. In other words, you pay federal income taxes on your profits as though it was direct personal income. Clean. Simple.
State Business Taxes
At the state level, the tax picture gets muddier. Like, “consult an attorney or accountant” muddier. You’ll hear this mantra a lot in the paragraphs ahead.
For starters, every state taxes businesses at a different tax rate. Because your LLC is a business, in most states you’ll pay the state’s business tax rate on your profits. It’s still generally the same or better than the personal income tax rate you’d pay to the state, but some states are much friendlier to small businesses than others. Find your state’s current marginal corporate tax rates to see what you’ll be expected to pay.
Transfer Taxes & Transaction Fees
Because LLCs are formed at the state level, each state carries its own rules and regulations for transferring property into these business structures. Many states find ways to charge upfront or ongoing fees or levy special taxes on real estate investors trying to take advantage of the benefits LLCs offer.
For example, New York imposes a real estate transfer tax of 0.4% for properties valued up to $3 million and 0.65% for properties above $3 million. Florida imposes a documentary stamp tax of $0.70 per $100 in property value when you file certain documents during this process.
Oof. When you’re talking about a piece of rental property, these small percentages can add up to a sizable expense. Make sure you know what to expect in your state.
Once again, consult an attorney or tax professional familiar with real estate regulations in your state to get a full sense of the taxes, fees, and other charges that might affect you when you transfer your property to an LLC.
Potential Cost Triggers
Transferring real estate to an LLC may trigger potential costs associated with the property technically changing hands from you (the individual) to you (the LLC member).
Transferring property to an LLC may trigger capital gains tax if the property’s value has appreciated since acquisition. And if you have claimed depreciation deductions on the property, transferring it to an LLC may result in recapturing some of those deductions.
If you plan to do a 1031 exchange in the future, transferring the property to an LLC may impact your eligibility for this strategy. Put simply, the law excludes LLC ownership interests from eligibility for 1031 exchanges.
If you’ve used other tax-saving strategies with the property in the past or you think you might want to in the future—you guessed it—consult a real estate attorney or tax professional in your state to help you fully understand the implications of moving the property into an LLC.
Deducting Business Expenses
The news isn’t all bad, though. Owning your rental property and conducting your business through an LLC allows you to deduct property expenses and ordinary business expenses from your taxable income.
It’s hard to overstate the power of being able to write off business expenses as tax deductions, especially when your business periodically involves five-figure repairs to your property. These deductions can make a huge impact on the amount of taxable income you report, and thus the taxes you owe.
For example, if you earn $50,000 of income from your rental property but have to pay $20,000 to replace a roof, your taxable income from the business for the year becomes $30,000—and your tax bill drops by thousands of dollars.
Pros and Cons of Holding Property in an LLC
Transferring rental property to an LLC has its pluses and minuses. Many real estate investors find that the benefits outweigh the headaches for them, but your mileage may vary, especially depending on your state’s tax laws.
Pros of Transferring Rental Property to an LLC
1. Personal Liability Protection: Transferring rental property to an LLC can safeguard your personal assets from potential lawsuits and claims related to the property. You never know what can happen, so holding your rental property in an LLC limits the amount of damage a potential lawsuit could do to you and the assets you’ve worked your whole life to accrue.
2. Tax Flexibility and Pass-through Taxation: LLCs offer pass-through taxation, allowing you to avoid double taxation and report rental income and expenses directly on your personal tax return. You’ll typically enjoy a more favorable tax rate on business income and have the option to deduct many everyday business expenses, lowering your overall tax burden.
3. Simplified Ownership Structure: LLCs allow for multiple owners and facilitates transfers of ownership interests if you work with co-owners or wish to sell shares of your rental business. It’s also helpful if you decide to bring on employees, such as a property manager, because the LLC can pay them rather than you paying them personally.
Cons of Transferring Rental Property to an LLC
Despite these advantages, transferring property to an LLC carries a few trade-offs and considerations worth noting before you pull the trigger.
1. Initial Costs and Taxes: Setting up an LLC involves formation costs, including state filing fees and legal expenses. The cost to file an LLC with the state is often negligible, but plan to also engage the services of a real estate attorney or accountant to help you execute a property transfer correctly. Additionally, many states charge taxes in one form or another whenever you transfer property.
2. May Invalidate Your Current Loan and Insurance Policies: Transferring your property to an LLC can invalidate the mortgage loan and owner’s title insurance policy you signed in your name. Many mortgages include a “due on sale” clause that can force you to pay the full mortgage amount immediately if you transfer the property incorrectly, so make sure you involve your lender in the process before you initiate the transfer. You’ll also need a new insurance policy in the LLC’s name. And because your brand new LLC doesn’t have the credit history you do, you may not be offered the same rates on new loans or insurance.
3. Difficulty Refinancing: Fannie Mae and Freddie Mac, the federally backed mortgage institutions, only guarantee loans issued to individuals, not to business entities. That discourages most residential mortgage lenders from working with you. You have options for financing LLC-owned rental properties, including refinancing with a commercial or portfolio lender, but these providers tend to offer less favorable rates and shorter terms lengths compared to residential mortgage lenders. Additionally, lenders may require a personal guarantee, which puts you personally on the hook to repay the loan in case of a default.
How Many Rental Properties Should I Put in 1 LLC?
There’s no one right answer to that question. You have to find a balance between liability protection versus cost and inconvenience.
You could create a new LLC for every single rental property. But those costs add up quickly, and you have to open separate bank accounts for each LLC, complete tax returns for each LLC, and so forth.
On the opposite extreme, you could create just one LLC to hold a dozen or more properties.
To strike a balance, I’ve known some real estate investors to put two to four properties in each LLC. That segments the risk to small portfolios — if you get hit with a nasty lawsuit, theoretically you contain the risk to just that small portfolio of properties.
How many properties you put into a single LLC also depends on the size of the property. If you buy inexpensive single-family rental properties, you might put a handful into a single LLC. If you buy a 20-unit apartment building, you probably want a separate LLC for it.
Find your own balance between protection, hassle, and cost.
Steps to Transfer Rental Property to an LLC
If you’ve decided this approach is right for you, great! Next we’ll walk you through how to move your investment properties into an LLC. Transferring a rental property to an LLC must be executed correctly to avoid any costly surprises. Follow these steps to make sure you don’t miss anything.
Step 1: Do Your Homework
At the risk of sounding like a broken record, before you make any decisions about how and where to establish your LLC, you should consult with a local real estate attorney and/or tax professional to understand the tax implications and for legal advice specific to your situation.
Seek professional advice to review your existing mortgages, loans, and contracts to decide whether moving your property to an LLC is the best approach for your situation and, if so, to ensure a smooth transfer to the LLC.
When choosing a state in which to form your LLC, consider factors like corporate tax rates, filing fees, and ongoing compliance requirements.
Step 2: Contact Your Mortgage Lender
Avoid the risk of tripping a due on sale clause by contacting your mortgage lender and discussing your intention to transfer the property to an LLC. They’ll let you know whether you can transfer the property title under your existing mortgage and what fees or interest rate adjustments, if any, you’ll incur.
While I’m not saying it’s a good idea, I’ve known real estate investors to create an LLC named after themselves, such as “Jim Cirigliano LLC,” in hopes that the mortgage lender simply won’t notice the subtle change in ownership. While I’ve seen it work, there’s no guarantee, and you risk the mortgage company calling the loan.
Step 3: Form the LLC
Register your LLC with the state government, usually with the Secretary of State’s office. During this process you’ll choose a unique name for your LLC and register it with the state by filling out some forms and paying a registration fee, often around $100.
Upon completion, your new LLC will receive an employee identification number (EIN), a unique ID akin to a Social Security number you’ll use to file your LLC’s taxes and open a bank account.
Remember, once you create this new business entity, you have to keep your LLC compliant by maintaining separate bank accounts from your personal finances and keeping detailed records of your business income and expenses to protect your limited liability status.
Step 4: Transfer Ownership
To move your property into your shiny new LLC, you need to obtain a deed form, which you can find online.
In most cases, if you’re transferring property you already own to an LLC you also own, you can get by with a quitclaim deed, which simply transfers ownership without making any guarantee that the title is free and clear and that you rightly own the property. If you’re working alongside partners or co-owners who might need to verify this information, you can use a warranty deed instead.
Complete these forms using your legal name and your LLC’s information exactly as registered with the state. If you have questions, a local title company can help you through any of the specifics that apply to you in your state. In some cases you might need to have a third party, such as a registered agent, sign on behalf of the LLC, and you may need to sign the paperwork in the presence of a notary.
File the paperwork with the county clerk or county recorder’s office to transfer the title and record the new deed. Congratulations, it’s official!
Step 5: Update Insurance Policies and Lease Agreements
Once the property belongs to the LLC, you need to update several stakeholders to whom this change matters.
For example, you’ll have to notify your insurance company about the transfer to the LLC and ensure that the property is adequately insured under the new legal entity. You should also update any contracts or utility accounts you have in your name to that of the LLC.
Finally, make sure to notify your tenants about the ownership change and have them sign updated lease agreements under the LLC’s name.
Final Thoughts
Transferring rental property to an LLC offers real estate investors protection for their personal property, tax flexibility, and organizational clarity. The drawbacks include potential costs and less flexibility when it comes to financing and selling the property. Unfortunately the rules vary so much from state to state that it’s impossible to cover them all here to provide a one-size-fits-all recommendation, other than to consult with a real estate attorney or accounting professional in your state who understands the tax laws that apply to you.
That said, as long as you play by the right rules, investors who successfully transition their real estate assets to an LLC enjoy many benefits that will serve you well in the long run.
We published a podcast ALL about how to determine if holding your rental property in an LLC is right for you.
Check out episode 16 to listen!
We appreciate this article written by AAOA.
It seems like there are stories published every day about how expensive multifamily insurance premiums are getting. With such large increases, it might be tempting to put off updating your existing policies or even cancelling them.
But the question remains, do you want to risk not having enough coverage should there be a devastating natural disaster or massive damage to your property? Do you not want to recover losses due to theft and injury? What if an employee sues you for wrongful termination or sexual harassment?
Although it is not required by law, insurance is your protection from such catastrophes. Nothing beats excellent coverage by a reputable company when you need it the most.
But it’s getting so expensive!
One of the primary threats to multifamily investment returns is rising insurance costs. Insurance premiums for this industry have significantly increased over the last two years, dating back to early 2021 and intensifying in 2022. And the trend will continue into 2024.
Multifamily investors have reported 40-50% increases in premiums and in certain cases, insurance premiums have doubled. In addition, apartment owners are also faced with increased deductibles and self-insurance limits.
Not only are apartment owners realizing a lower net operating income, but they may also face the inability to secure financing for new investments. Higher deductibles will require larger capital reserves, forcing some property owners to sell.
What is Multifamily Insurance and why is it so important?
When buying insurance, any residence larger than a single-family home and which can accommodate more than one family is considered multifamily. Multifamily rentals often have individualized standards for risk and coverage, which can be covered with multifamily property insurance.
Multifamily insurance, sometimes known as apartment insurance, should protect you from potential liability claims, such as lawsuits, and cover you for lost rent income that you may experience after a loss covered by your insurance.
Such losses may include:
- Vandalism
- Theft
- Natural disasters, such as fires and storms
- Loss of income from rentals
- Advertising liability claims
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There are several different types of multifamily insurance:
Property Insurance
Property insurance protects against damage to the physical structure of the property.
Coverage can be obtained per building if there are multiple structures on the property where each building has its own separate coverages and deductible(s). This can be helpful for big-ticket items like mold.
Or, coverage can be obtained under a whole property policy that covers everything, regardless of the number of buildings. In either case, the actual face value of the policy will depend on the size and value of the property.
General Liability Insurance
General Liability insurance protects against claims for bodily injury and third-party property damage. For example, if a tenant is injured due to your negligence, you will be covered for damages, including medical expenses, lawyer’s fees and lost wages.
Umbrella Liability Policy
An Umbrella Liability policy is one that provides additional coverage over the stated business owner limits in order to ensure that there are no gaps in the General Liability coverage. For instance, this policy will provide coverage for acts of terrorism that may not be covered in a General Liability policy.
Business Income Coverage
When a property suffers damage that causes an interruption in the flow of normal business income, this coverage can provide protection. It can help you recover lost revenue and pay your expenses during the time it takes to repair your property and prepare it for the return of your tenants.
Based on various considerations, such as business income, sustained loss, waiting period and payroll limit, the amount of the policy may vary significantly from one property to another.
Employment Practices Liability Insurance (EPLI)
EPLI provides coverage to employers against claims made by employees alleging discrimination based on sex, race, age or disability as well as wrongful termination.
Flood Insurance
Depending on your property’s location, flood insurance may be a necessary type of coverage to consider. Standard property insurance policies typically do not cover damage caused by flooding, which can be a significant risk for multifamily properties located in flood-prone areas.
Workers’ Compensation Insurance
If you have employees working on your multifamily property, workers’ compensation insurance may be required by law in your state. This type of coverage can provide compensation for medical bills and lost wages if an employee is injured or becomes ill while on the job.
What is a small multifamily investor to do?
The small investor needs to have multifamily insurance almost more than the larger property owners who may have greater access to funds should a disaster occur. “Mom and Pop” landlords should work with their accountants to find the means to cover the needed insurance premiums.
There are economies you can take to lower your operating costs that will not affect your bottom line, such as carefully screening your potential tenants with an AAOA tenant credit check. Bad tenants will cost you in the long run with rental property damage, late rent payment, evictions, and vacancies.
The value of excellent insurance cannot be over-emphasized. This is one area where you should not shop by price. You want to choose a company that will respond quickly and work with you to get your building back to operating condition as quickly as possible.
As emphasized in Forbes, “Insurance is a must for commercial multifamily properties. The amounts and types needed are unique to the property and the market in which it is located…You should work closely with an experienced agent to determine coverages and deductibles.”
To learn more about rental property insurance for all residential types, check out our podcast, The Nuts and Bolts of Residential Rental Property Insurance.
The importance of house rules for renters cannot be overstated. These rules play a vital role in ensuring a peaceful living environment and establishing clear expectations between the landlord and tenants. They provide guidelines for behavior and help maintain a harmonious relationship throughout the rental period.
1. Ensuring a Peaceful Living Environment:
Implementing house rules helps create a peaceful and respectful atmosphere for all tenants. It sets the foundation for a harmonious coexistence and fosters a sense of community within the rental property.
2. Establishing Clear Expectations:
House rules outline what is expected from the tenants regarding behavior, responsibilities, and obligations. They establish boundaries, preventing any misunderstandings or disputes between the landlord and tenants.
The Top 10 Essential House Rules for Renters:
1. No Smoking Inside the House:
Smoking indoors can lead to health hazards and property damage. Prohibiting smoking indoors ensures a healthy environment for all tenants and protects the property from smoke-related damages.
2. Pet Policy and Regulations:
If pets are allowed, it is important to specify the pet policy, including restrictions on certain breeds, size limitations, vaccination requirements, and rules regarding pet waste disposal. Clear guidelines ensure responsible pet ownership and prevent any disturbances caused by pets.
3. Noise Regulations and Quiet Hours:
Setting specific quiet hours helps maintain a peaceful environment for everyone. Tenants should be aware of noise restrictions, especially during nighttime, to ensure everyone’s comfort and uninterrupted sleep.
4. Maintenance and Repairs:
Clarify the responsibilities of both the landlord and tenants regarding property maintenance and repairs. Tenants should understand their obligations to report any damages promptly, while the landlord should provide maintenance and repair services in a timely manner.
5. Safety and Security Measures:
Lay out safety protocols, such as installing smoke detectors, maintaining fire extinguishers, and keeping emergency exit routes clear. These rules ensure the safety and well-being of all tenants.
6. Proper Waste Disposal and Recycling:
Specify rules for waste disposal and recycling to maintain cleanliness and comply with environmental regulations. Tenants should be aware of proper waste segregation and disposal methods.
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7. Parking and Vehicle Regulations:
Establish guidelines for parking, including assigned parking spaces, visitor parking, and regulations for vehicle maintenance. Clear rules prevent parking disputes and ensure smooth parking operations within the rental property.
8. Guest Policy and Visitor Restrictions:
Define the guest policy, including the maximum number of guests allowed, duration of their stay, and any restrictions regarding overnight visitors. This ensures that the property is not overcrowded and that the peace and privacy of other tenants are respected.
9. Alterations and Modifications:
Outline the rules for making alterations or modifications to the rental unit. Tenants should seek permission from the landlord before making any changes to the property’s structure or appearance.
10. Rental Payment and Lease Terms:
Specify the terms of rent payment, including due dates, accepted payment methods, and consequences for late payment. Clear guidelines regarding rental payment prevent any misunderstandings and ensure compliance with the lease agreement.
Communicating and Enforcing the House Rules:
1. Including House Rules in the Rental Agreement:
The house rules should be clearly stated in the rental agreement to ensure that all tenants are aware of them from the beginning. It is crucial to have all tenants read and sign the agreement to demonstrate their understanding and agreement to abide by the rules.
2. Providing Written Reminders:
Regularly provide written reminders of the house rules to ensure that they stay fresh in the tenants’ minds. This can be done through notices, newsletters, or emails.
3. Addressing Violations and Consequences:
In the event of rule violations, it is important to have a system in place to address and resolve the issue. Implementing fair consequences for violations helps enforce the house rules and maintain a harmonious living environment.
By implementing and effectively communicating these house rules, both landlords and tenants can enjoy a peaceful and mutually respectful rental experience.
The Importance of House Rules for Renters
When it comes to renting a house, having clear and well-defined house rules becomes crucial. In this section, we’ll dive into the importance of establishing house rules for renters. From ensuring a peaceful living environment to setting clear expectations, we’ll explore how these rules play a vital role in harmonious cohabitation. So, tighten your seat belts as we uncover the key aspects of creating an ideal living space for both tenants and landlords.
Ensuring a Peaceful Living Environment
Creating and maintaining a peaceful living environment is essential for renters and landlords. By following key practices, you can ensure a harmonious atmosphere in your rental property.
- Establish noise regulations: Implement specific rules on noise levels and quiet hours to prevent disturbances and promote a peaceful atmosphere for all residents.
- Address noise complaints promptly: Deal with noise complaints immediately and enforce consequences when necessary to prevent ongoing disruptions and maintain tranquility.
- Prohibit illegal substances: Clearly state in the house rules that the use or possession of illegal substances within the property is strictly prohibited. This ensures the safety and well-being of all occupants.
- Encourage cleanliness: Emphasize the importance of cleanliness and tidiness within the property. This creates a pleasant and peaceful living environment for all residents.
- Respond to maintenance requests promptly: Promptly address maintenance issues reported by tenants to maintain a peaceful living environment and ensure the property remains in good condition.
Remember, incorporating these rules in the rental agreement and providing written reminders can help ensure that all tenants are aware of their responsibilities. By actively enforcing these rules, you can create a peaceful living environment that enhances the renting experience for everyone involved.
Establishing Clear Expectations
Establishing clear expectations is crucial when setting house rules for renters. This ensures that both the landlord and tenants are on the same page when it comes to their responsibilities.
First and foremost, it is important to outline specific rules and regulations that tenants must adhere to. These should cover areas such as noise, waste disposal, parking, and guests. By establishing these expectations from the start, a harmonious living environment can be fostered for all residents.
In addition, clear expectations promote better communication and understanding between the landlord and tenants. It is advisable to provide written reminders of the rules, include them in the rental agreement, and address any violations promptly. Open and effective communication is vital in resolving issues and ensuring that everyone is aware of what is expected of them.
Lastly, clear expectations allow the landlord to address the consequences for not following the rules. These consequences may include late payment charges, property damage, or even legal action. By establishing these consequences, tenants are encouraged to take their responsibilities seriously and show respect for the rules.
The Top 10 Essential House Rules for Renters
When it comes to renting a house, it’s important to establish some ground rules to ensure harmony and a pleasant living environment. In this section, we will delve into the top 10 essential house rules for renters. From no smoking indoors to understanding the pet policy and regulations, we’ll cover everything you need to know. We’ll also explore noise regulations, proper waste disposal, and parking regulations, among other important aspects. So, let’s dive in and discover the key guidelines that will help create a comfortable and respectful rental experience for everyone involved.
No Smoking Inside the House
Prohibit smoking inside the house. It poses health risks, causes property damage, and disrupts the comfort of other residents. Maintaining a smoke-free environment ensures the well-being and safety of everyone. Violators will face immediate consequences, including fines and potential eviction.
To emphasize the rule’s importance, informing all tenants about the harmful effects of smoking and the reasons for the no-smoking policy is necessary. Clear guidelines and reminders help ensure compliance. State laws and tenancy regulations may also restrict indoor smoking.
To accommodate smokers, designate outdoor smoking areas that won’t affect others. Creating a smoke-free environment improves air quality, reduces fire risk, and maintains a clean living space.
Strictly enforcing the no-smoking policy protects the property, upholds the rights of non-smoking tenants, and ensures legal compliance. Respecting and following this rule fosters a harmonious and healthy living environment for all tenants.
Pet Policy and Regulations
To ensure a harmonious living environment, tenants must adhere to the Pet Policy and Regulations set by the landlord. You can allow pets in the rental property, but there are specific guidelines to follow.
- Pets must be registered with the landlord and provide evidence of vaccinations and licenses as per the Pet Policy and Regulations.
- Pet owners are responsible for any damage caused by their pets and will be held liable for the cost of repairs, as stated in the Pet Policy and Regulations.
- Pets must be well-behaved and not disrupt other tenants or neighbors, in accordance with the Pet Policy and Regulations.
- Pets must be kept on a leash when outside the rented property, as required by the Pet Policy and Regulations.
- Pet owners must clean up after their pets and dispose of waste properly, as outlined in the Pet Policy and Regulations.
- No aggressive or dangerous animal breeds are allowed, in compliance with the Pet Policy and Regulations.
- Pets are not permitted to enter common areas such as the lobby, gym, or swimming pool, in accordance with the Pet Policy and Regulations.
- If a pet causes damage or excessive noise, the landlord has the right to request its removal, as stated in the Pet Policy and Regulations.
- Failure to comply with the pet policy and regulations may result in additional charges or termination of the lease, as stated in the Pet Policy and Regulations.
By adhering to the Pet Policy and Regulations, pet owners can ensure a safe and enjoyable living space for everyone. It is important to be responsible and respectful pet owners, following these rules and regulations set by the landlord.
Noise Regulations and Quiet Hours
Noise regulations and quiet hours play a crucial role in creating a harmonious living environment for tenants. It is essential to establish clear guidelines concerning acceptable noise levels and designated quiet hours in rental properties. During these quiet hours, which usually fall in the evenings and early mornings, residents must refrain from engaging in activities that could disrupt the tranquility of their surroundings. By effectively managing noise, residents can ensure that their neighbors are undisturbed and enjoy a peaceful living environment.
To ensure compliance, rental agreements can include specific provisions for noise regulations and quiet hours, creating legal obligations for both landlords and tenants. These regulations may encompass limitations on loud music, parties, or any excessive noise that may disturb others. Failing to adhere to these regulations can result in warnings, fines, or even eviction, depending on the severity of the violation.
It is crucial for renters to be aware of and respect these noise regulations and quiet hours to maintain positive relationships with their neighbors and foster a pleasant living experience for everyone in the community. By considering the well-being of others and adhering to these rules, renters contribute to a peaceful and respectful living environment.
Maintenance and Repairs
When it comes to maintenance and repairs in a rental property, both the landlord and the renter must understand their responsibilities. Here are some key points to consider:
1. Regular maintenance: The landlord must properly maintain the rental property and address necessary repairs, such as fixing leaks, replacing broken appliances, or repairing damages.
2. Reporting issues: Renters should promptly report any maintenance or repair issues to the landlord to allow for timely action.
3. Emergency repairs: In case of emergency repairs that pose safety risks or could cause further damage, renters should immediately contact the landlord, who should respond promptly and arrange for appropriate repairs.
4. Responsibility for damages: Renters are responsible for covering the cost of repairs caused by their negligence or misuse.
5. Repairs and deductions: Renters may be able to deduct the cost of necessary repairs from their rent if agreed upon in the rental agreement.
Pro-tip: Maintain open communication with your landlord, regularly inspect the property for maintenance issues, and promptly report them to ensure a safe and well-maintained living environment.
Safety and Security Measures
Rental property safety and security measures are crucial to ensure the well-being of tenants and the property. Here are essential safety and security measures to consider:
- Install secure locks on all entrances and windows to prevent unauthorized access.
- Provide adequate lighting in common areas and outdoor spaces to deter potential intruders.
- Install smoke detectors and carbon monoxide alarms in appropriate areas to protect against fire hazards.
- Establish protocols for emergencies, including clear evacuation plans and contact information for emergency services.
- Regularly inspect and maintain safety equipment, such as fire extinguishers and emergency exits, to ensure proper functionality.
In one rental property, the landlord implemented strict safety and security measures that included CCTV cameras in common areas and a secure entry system. This proved crucial when a break-in was captured on camera, allowing the authorities to identify the perpetrator and take appropriate action. The tenants felt safe and protected knowing such safety and security measures were in place.
Proper Waste Disposal and Recycling
Proper waste disposal and recycling are crucial for renters. They play a vital role in maintaining environmental sustainability and complying with local regulations. When it comes to proper waste management, renters should keep the following points in mind:
1. Separate and Sort: Renters should diligently separate recyclable materials such as paper, plastic, glass, and metal from general waste. These items should be placed in designated recycling bins.
2. Educate Yourself: It is essential to familiarize yourself with the specific recycling guidelines in your area. Be aware of which items can and cannot be recycled to prevent any contamination.
3. Avoid Contamination: Contaminated recyclables, such as greasy pizza boxes or dirty plastic containers, render the entire batch non-recyclable. Make sure to rinse containers and remove any food residue before recycling them.
4. Reduce and Reuse: Minimizing the use of single-use items and opting for reusable alternatives helps in reducing waste. Whenever possible, reuse items like glass jars, shopping bags, and containers.
5. Utilize Proper Disposal Facilities: Take advantage of nearby recycling centers, drop-off points, or collection programs for special items such as electronics, batteries, or hazardous materials. It is important to never throw these items in regular trash bins.
6. Follow Local Regulations: Stay updated with local waste disposal schedules, collection methods, and guidelines. Adhering to these rules ensures efficient waste management in your community.
Parking and Vehicle Regulations
Parking and vehicle regulations are crucial for maintaining order and ensuring the smooth functioning of a rental property. Designated parking spaces should solely be used for vehicles and should not be obstructed or utilized for any other purposes.
Tenants must register their vehicles with the landlord or property management for easy identification. Guest parking should be limited and regulated to prevent overcrowding or shortages. Unauthorized vehicles cannot be parked on the property without prior approval from the landlord.
Proper maintenance of vehicles, including regular inspection, registration, and insurance, is required. Any damage caused by tenant vehicles must be promptly reported, and appropriate steps should be taken to rectify the situation. Vehicle repairs or maintenance are not allowed on the property unless explicitly permitted by the landlord.
It is mandatory for all residents to obey all traffic laws and regulations, including speed limits, to ensure the safety of everyone. Any violations of the parking and vehicle regulations may result in consequences such as fines or towing.
Renters must be aware of their responsibilities and must adhere to the rules established by the landlord or property management. By following these regulations, a harmonious living environment can be maintained, and the safety and convenience of all residents can be guaranteed.
Guest Policy and Visitor Restrictions
Guest Policy and Visitor Restrictions are important for renters. Establish clear guidelines for a peaceful living environment and to protect privacy and safety.
1. Guest Policy: Specify the number of guests allowed, any time restrictions or overnight stay limitations. Prevent overcrowding and disturbance to other tenants.
2. Visitor Restrictions: Clearly outline restrictions on visitors, such as requiring a resident to accompany guests or notifying the landlord in advance. Maintain security and prevent unauthorized access.
3. Guest Registration: Consider implementing a guest registration process to track visitors for security and identifying potential issues.
4. Common Area Usage: Clarify rules for guests using shared facilities like the lobby, gym, or pool. Ensure guests are aware of the rules.
5. Violation Consequences: Clearly state consequences for policy and restriction violations, including fines, warnings, or termination of the lease in extreme cases.
Effective policies and restrictions foster a harmonious living environment, protect tenant rights and privacy, and maintain the rental property’s integrity.
In 2019, a rental property in a quiet suburban neighborhood had unauthorized parties and disruptive behavior due to excessive guests. To address the issue, strict policies and restrictions were implemented. Tenants had to register guests in advance, and the number of guests allowed was limited. A curfew was also introduced for peace at night. These regulations successfully restored tranquility and enhanced the living experience for residents.
Alterations and Modifications
Altering and modifying rental properties requires following guidelines:
1. Obtain written consent from the landlord before making any alterations and modifications.
2. Ensure that alterations and modifications comply with state laws and regulations.
3. Understand that the tenant is responsible for repairing damages caused by alterations and modifications.
4. Note that violating the rental agreement may lead to legal action by the landlord.
5. Common alterations and modifications include painting, installing shelves, and hanging pictures. Always check with the landlord first.
Did you know that some landlords may charge a broker’s fee for certain alterations and modifications, in addition to repair and restoration costs?
Rental Payment and Lease Terms
Rental payment and lease terms are crucial aspects to comprehend in a rental agreement. It is essential to keep in mind the following key factors:
1. Payment Schedule: Familiarize yourself with the due dates and frequency of rental payment. Ensuring timely payments will help you avoid any late charges.
2. Grace Period: Determine whether the lease agreement includes a grace period. This provision allows for a few extra days to make the payment after the due date without incurring penalties.
3. Payment Method: Find out which methods of payment are acceptable, such as online transfers, checks, or cash. It is important to adhere to the designated payment method.
4. Rental Increase: Stay informed about potential rental increases throughout the lease term. They should be clearly stated and comply with relevant tenancy laws.
5. Lease Renewal: Understand the process and timeframe for requesting a lease renewal. Plan ahead and communicate with your landlord regarding your intention to continue renting.
6. Breaking the Lease: Familiarize yourself with the consequences and obligations if you need to terminate the lease before it expires. Consult state laws and refer to the rental agreement for proper procedures and any potential financial liabilities.
7. Late Payment Charges: Be aware of the consequences associated with late rental payments. The rental agreement may specify a specific late payment charge or a percentage of the monthly rent.
8. Security Deposit: Understand the terms and conditions for the return of your security deposit. This includes any deductions for damages beyond normal wear and tear.
Thoroughly reviewing and comprehending the rental payment and lease terms will contribute to a seamless tenancy experience.
Fun Fact: According to a survey, approximately 65% of renters in the United States opt for electronic rental payments.
Communicating and Enforcing the House Rules
When it comes to renting, clear communication and enforcement of house rules are key. In this section, we’ll explore two important aspects: including house rules in the rental agreement and providing written reminders. Discover how these practices not only promote a harmonious living environment but also establish a framework for a respectful and enjoyable tenant-landlord relationship. Get ready to navigate the world of house rules and ensure a smooth and compliant rental experience.
Including House Rules in the Rental Agreement
- Include all relevant house rules in the rental agreement to establish clear expectations between the landlord and tenant.
- Specify rules regarding late rent payment, including consequences such as a late payment charge or eviction.
- Outline the process for renewing the lease, including any conditions or requirements.
- Include rules regarding tenant conduct to ensure a peaceful living environment, such as managing noise levels and prohibiting illegal substances.
- Specify responsibilities for cleanliness and maintenance of the rental property, including reporting necessary repairs or maintenance requests.
- Outline rules for using external spaces like parking areas or communal areas, and specify any restrictions or regulations.
- Address rules related to altering the property or making modifications, such as obtaining prior written consent from the landlord.
- Incorporate rules regarding giving notice to move out, including the required notice period and leaving the property in good condition.
- Include rules regarding the landlord’s access to the property for inspections or repairs, ensuring compliance with tenancy laws.
- Specify any other specific rules or requirements relevant to the rental property, such as restrictions on hanging pictures or the need for renters insurance.
When I rented an apartment, the rental agreement included detailed house rules to ensure both the landlord and I understood our rights and responsibilities. The agreement outlined rules for rent payment, maintaining cleanliness, and using shared amenities. It also included information about the consequences of breaking the lease and the process for renewing it. By stating the house rules in the rental agreement it makes communication and conflict resolution easier. It provided a sense of security and clarity for a smoother rental experience.
Providing Written Reminders
– To ensure compliance with house rules, it is important to provide written reminders for renters.
– These reminders can be distributed to all renters through various channels such as email, the community bulletin board, or physical delivery.
– It is essential to make these reminders easily visible and accessible in common areas or near the main entrance of the rental property.
– The language used in the reminders should be clear and concise to avoid any ambiguity or confusion.
– It is also important to highlight any important deadlines or upcoming events related to the house rules.
– Including the contact information for the landlord or property manager in the reminders is crucial.
– Send reminders and updates to keep renters informed about any changes or updates.
– Encourage renters to acknowledge receipt of these reminders.
– Keeping a record of all provided reminders, including dates, copies, and any responses or acknowledgments, is necessary.
– The reminders should be regularly reviewed and updated to tackle common issues among renters or reflect any changes.
Addressing Violations and Consequences
- Establish a clear procedure for addressing violations to ensure a fair and consistent approach. This process should include written notices detailing the violation and the consequences.
- Keep thorough records of any violations, including photographs or videos, to support claims and actions taken.
- Communicate promptly with the renter about the violation, providing clear information on the broken rule and its importance. Allow the renter to provide their perspective and explanation.
- Clearly outline the consequences of each violation, such as written warnings, fines, or termination of the lease agreement, in accordance with local laws.
- Apply the consequences consistently to all renters to ensure fairness and avoid favoritism or discrimination.
- Establish an appeals process that is fair and transparent, with a designated person or committee to review appeals.
- Familiarize yourself with local rental laws and regulations to ensure enforceability of the consequences.
- Enforce the consequences as outlined in the violation process. Failure to follow through may undermine the effectiveness of your rules.
- Regularly review and update the rules and consequences to address new issues or concerns that arise.
- Cultivate a culture of awareness and compliance by providing educational materials that clearly outline the rules and consequences.
Frequently Asked Questions
What are the essential house rules for renters?
The essential house rules for renters include timely payment of rent, maintenance of external spaces, penalties for breaking the lease, no entitlement to assets in the dwelling, deductions from the deposit for damages, restrictions on sub-letting, and the option for renter’s insurance.
What responsibilities do renters have?
Renters have the responsibility of maintaining cleanliness, following pet-related policies, using appliances and fixtures properly, serving a notice period before moving out, and restoring the dwelling at the end of the term.
How can renters ensure a good relationship with their landlord?
To ensure a good relationship with their landlord, renters should inform the landlord about repairs, use the premises for residence only, respect the rights of other tenants, avoid disruptive behavior, not store hazardous substances, not engage in illegal activities, and be polite and respectful.
What tips can help renters when dealing with their landlord?
Tips for renters include preparing necessary paperwork, reviewing the conditions of tenancy, maintaining written correspondence, specifying notice periods for landlord visits, demanding repairs, maintaining communication with the landlord, getting renter’s insurance, clarifying security deposit terms, assessing existing damage upon moving in, and addressing safety concerns with the landlord.
What should the house rules set by landlords cover?
The house rules set by landlords should cover areas such as rent payment, security deposit, maintenance and repairs, entry and privacy, noise and disturbances, pets, subletting and guests, smoking and illegal activities, alterations and decorations.
How can landlords ensure compliance with the house rules?
Landlords can ensure compliance with the house rules by including them in the rental agreement or lease, providing legal recourse for landlords if tenants fail to comply.
Source: PayRent
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The rental market boom is showing a seasonal dip. Rent levels dropped in September for the first time in six months, according to the latest market report from Rent.com.
Overall rent levels dipped 2% compared to August, the largest monthly decrease since last year. The national median rent price is $2,011, the cheapest price since April, the research firm found.
Still, prices were slightly higher than a year ago, rising 0.4% due to increased inventory and lower-than-usual demand, as prices had steadily risen since bottoming out in February.
Overall, state rents remain up over the year, maintaining the 2023 trend of a 60/40 split of markets that are up versus down. In September, 62.7% of markets registered a yearly price increase, compared to 37.2% that saw a price decline in the same period.
However, price growth nationally is being held down by below-normal demand and increased inventory, the report noted.
States With the Lowest YoY Rent Growth
The change in rent prices was not the same across the country. The Midwest saw the largest price hike of 5% growth compared to last year, while rent prices in the West have been declining for several months, declining 1.61% compared to September 2022.
In the West, Montana led declines with a yearly drop of 15.5%. Washington and Oregon also saw the third and fourth-highest yearly decline. Elsewhere, Idaho, Nevada, and Utah declined in the 5% to 8% range.
In the Northeast, Pennsylvania was the only state to have a large decline, slumping 4.5% year over year. Meanwhile, in the South, Florida led with the highest monthly decline of more than 3%, while other traditionally expensive states, including California, New York, and Massachusetts, also saw monthly declines of over 2%.
| State | Year-over-Year Rent Growth | Month-over-Month Change in Rent | Median Rent |
| Montana | -15.49% | -0.22% | $1,715 |
| Oklahoma | -10.62% | -2.40% | $960 |
| Oregon | -10.09% | -0.73% | $1,702 |
| Washington | -7.96% | -0.97% | $2,312 |
| Idaho | -7.84% | -2.98% | $1,570 |
| Nevada | -5.72% | -0.68% | $1,566 |
| Utah | -5.71% | -1.38% | $1,602 |
| Florida | -5.49% | -3.35% | $2,114 |
| Pennsylvania | -4.50% | -0.95% | $1,651 |
| Virginia | -3.00% | -1.29% | $1,986 |
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States With the Highest YoY Rent Growth
Yearly price increases were driven by the Midwest region, where seven of the largest gainers are located. Iowa had the largest yearly increase in the area, jumping 12%. Mississippi leads with the highest yearly rise, skyrocketing almost 16% from a year ago, and was also the only Southern state to make it to the top 10 gainers list. Still, its monthly gains were relatively flat.
Meanwhile, both Dakotas saw a yearly increase despite a 2% decline over the month for South Dakota, with Kansas, Wisconsin, and Illinois also having strong yearly growth. Illinois was the only state with a monthly rent increase above 1.5%.
New York also saw a yearly rise in prices of 11.28% despite a monthly decline, while New Hampshire was flat over the month but rose 7.38% compared to the same period a year ago.
| State | Year-over-Year Rent Growth | Month-over-Month Change in Rent | Median Rent |
| Mississippi | 15.86% | 0.06% | $1,175 |
| Iowa | 12.13% | -0.97% | $1,158 |
| South Dakota | 11.32% | -1.91% | $1,164 |
| New York | 11.28% | -2.18% | $2,762 |
| North Dakota | 9.58% | 0.04% | $1,067 |
| Minnesota | 9.41% | -0.21% | $1,599 |
| Kansas | 8.99% | 0.02% | $1,207 |
| Wisconsin | 8.95% | 0.27% | $1,534 |
| New Hampshire | 7.38% | 0.17% | $1,987 |
| Illinois | 6.85% | 1.81% | $2,019 |
The Bottom Line
September’s decrease might just reflect a seasonal change that landlords haven’t seen since the pandemic, the report found. In other words, the trend of prices falling in the fall and winter before rising again in the spring and summer could be back.
While the monthly price declines could be concerning for landlords, the yearly rise in prices shows that the rental market is still strong. And with the Fed not backing down from rising interest rates and housing prices continuing to skyrocket, it’s likely that the rental boom could be here to stay for just a little while longer.
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In short, due diligence in real estate means “do your homework.”
This goes beyond looking for the “perfect” property, whether for your personal residence or an investment. Due diligence means conducting thorough research to ensure the home is a good investment before you sign on the dotted line.
Millions of homes on the market today don’t live up to their promised returns. Unless you do the work to discover property faults, clouds on the title, weak real estate cash
flow, or other reasons not to buy a property, you won’t discover them until it’s too late. If you want to avoid making a bad investment, learn how to do your due diligence.
So how do you do due diligence when buying a house? Keep all of the following in mind before shelling out hundreds of thousands on your next home or investment property.
What is Due Diligence in Real Estate?
You already know the basics of due diligence in real estate: bringing in experts to conduct the appraisal and home inspection. Both reports reveal crucial information about the home you need – its current market value and condition, respectively. If a home isn’t worth as much as you bid, it’s time to renegotiate the contract or walk away.
If the property comes with greater repair problems than you knew, you can of course also negotiate a lower home price, or pull out if you included a real estate offer contingency. In this case you also have a third option: ask the seller to pay for the repairs.
As long as you included a real estate offer contingency, your earnest money deposit is protected during the due diligence period. Wait beyond this period however, and you risk your earnest money.
But the home inspection and appraisal only represent the tip of the iceberg. There is much more to due diligence in property investing.
How Do You Do Due Diligence in Real Estate?
Due diligence is a broad term. It encompasses the vast amount of homework you have before buying a home. Here are the most common steps:
Research the Neighborhood
When you buy a home, you buy the neighborhood along with it.
Find out the local crime rates, the area’s noise level at all times of day, and the area’s demographics (young families, older couples, income levels, etc.). For rental properties, gauge the demand in the area by researching the vacancy rate.
Which will also help you calculate the property’s cash flow, if you’re buying a rental.
Calculate Cash Flow & Returns
Before making an offer, you should know the precise real estate cash flow you can expect to earn on the property.
That starts with pinpointing the market rent for the property. Research rental listings on websites like Craigslist, Trulia, and Zillow.
Then you can estimate expenses to calculate the rental property’s cash flow. These include, but aren’t limited to:
- Vacancy rate
- Property management costs (even if you plan to self-manage – they still represent labor costs!)
- Repairs & maintenance
- Property taxes
- Property insurance
- Rent default insurance
- Monthly mortgage payment
- Travel, bookkeeping, accounting, legal, and other miscellaneous expenses
Note that property taxes could jump up after you purchase, based on the new purchase price amount.
Review Property Loan Options
You may have many financing options when investing in real estate. Compare rental property loan terms here.
Determine the options at your disposal based on your credit score, down payment (LTV), and the programs available in the area. Finding proper financing is a large part of due diligence in property investing.
Financing directly impacts your rental cash flow and returns, so invest the time to develop relationships with several lenders.
Pay for a Home Inspection
This is one of the most important components of due diligence in real estate. A professional home inspector peers under the hood at every component in the property, including foundation issues, problems in the mechanical systems like HVAC and plumbing, inadequate roofing, and termite infestation/damage.
Also consider tests for lead paint, radon, asbestos, and mold if you have any reason to believe there’s a risk. You need to know before buying, not after.
As a final thought, attend the home inspection if you can. Ask probing questions and get a sense for the red flags the home inspector looks for, to improve your own eye for problems in the future.
Buy Title Insurance
A title search determines if there are any ownership defects in the chain of title. In other words, can someone come and claim ownership that you weren’t aware of when you buy the home? Undisclosed heirs, contested property lines, and easements on the property can all cost you enormous sums, headaches, and possibly heartache.
A title search also uncovers any unpaid contractor’s liens or other financial liabilities that transfer with the property. In other words, if you buy a home with a lien, the lien becomes your debt. You don’t want any surprises after buying, and to protect yourself spend the few hundred bucks to buy title insurance.
Get an Appraisal
If you need financing to buy the property, lenders require an appraisal. Even if you plan to buy with cash, pay for an appraisal. The inspector tells you in-depth what’s wrong with the home. He doesn’t discuss the home’s value – that’s the appraiser’s job.
An appraiser does a high-level property inspection. But he also looks at the property and lot size, location, and the home’s condition. The appraiser takes note of any upgrades and compares the home to the area’s most recently sold comparable homes. It helps ensure you don’t overpay for the property.
Evaluate the Homeowners Association
Whether the home purchase is for your primary use or an investment, know the HOA rules. Can you rent the property out? How many units can you own?
Also, evaluate what the HOA requires. Get into the nitty-gritty details. Can you paint the condo? How many cars may park at the condo? What property changes require HOA approval?
Finally, evaluate the HOA’s finances. Look closely at reserve funds, the association’s budget, and how often they assess special assessments. Is the association often subjected to litigation or do they have any pending litigation right now?
These fees can wreak havoc on your cash flow.
Confirm Flood Risk
Properties in a flood plain require special flood insurance, adding to your annual ownership costs.
If you take out a mortgage or rental property loan to buy the property, the lender will run a flood search, but you should know the answer before then. Ask the seller, and consider running your own flood search. Leave yourself a real estate contingency to renegotiate pricing if you discover the property needs flood insurance.
Price Out Insurance
Flood insurance isn’t your only potential insurance premium. You’ll need homeowner’s or landlord’s insurance to protect the property itself from fire, storm, and other types of damage.
If you’re buying a rental property, also consider buying rent default insurance. If the tenants stop paying, the insurance company pays the rent until you finish the eviction process and replace them with a paying tenant.
Insurance costs factor into your ROI, so evaluate it carefully.
These represent the basic (and most common due diligence steps). If there’s anything else that concerns you, of course, look into the situation before committing to buy the home.
Screen Inherited Tenants
When you buy a rental property already occupied by tenants, you need to screen them as if they were submitting a rental application for the first time.
Start by requesting copies of the rent roll to review their payment history. But keep in mind that unscrupulous sellers may not provide an accurate rent payment history, so return to the source and request copies of the original tenant screening reports.
Credit reports, eviction history reports, criminal background checks, identity verification, and personal references are all key factors in the tenant screening process. Even if potential tenants have excellent credit, that doesn’t mean they make great tenants. How do you know they’ll take care of the property, treat the neighbors with respect, or not leave you with a vacant and destroyed property?
The last place you want to find yourself is locked in a year-long legal battle trying to remove professional tenants, who may well damage the property out of sheer spite.
Tenant due diligence is an essential part of the real estate investment process, when you buy a property with inherited tenants.
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Is a Turnkey Property Worth It?
In your search for real estate properties, you may come across several turnkey properties or rent-ready properties with no work necessary on your end.
Should you buy a property sight unseen? As with any property, do your due diligence in property investing first. Look at the basics – the home inspection, title report, and appraisal. Then consider the rental possibilities (financially and physically speaking). Don’t overlook the pros and cons of turnkey properties, especially any long-distance properties you may consider.
Can a Buyer Back out After the Due Diligence Period?
Each state has different due diligence periods. Know how long you get and if you need more time, don’t be afraid to negotiate with the seller. While the law is the law, there are ways you can ask for more time if something isn’t adding up or you ran out of time.
Once the period ends, you have limited options. Can you back out? Yes. But will you keep your earnest money? Probably not.
Unless you have contingencies in your real estate contract that give you more time to back out of the contract, you’re stuck. If you back out after the due diligence period and without a valid contingency, you give up your earnest money. The seller keeps the funds to make up for the time and money lost while taking the property off the market.
Doing Due Diligence in Property Investing Makes the BRRRR Process Possible
Are you a serious property investor? If so, you likely want to include the BRRRR process in your strategies – buy, renovate, rent, refinance, and repeat.
This tried-and-true real estate concept helps you grow your real estate portfolio quickly. Essentially, you get your down payment back quickly, which opens up the possibilities to buy another property and BRRRR all over again.
Due diligence in real estate is the smartest way to invest. With the right steps, you know all aspects of the property, its finances, and whether it’s a good investment. While no process is fool-proof and there’s always a ‘lemon’ in the group, using the right steps limits the bad investments and increases your chances of a profitable real estate investment.
Final Thoughts on Due Diligence in Real Estate
When you buy an asset worth hundreds of thousands of dollars, you can’t afford to make mistakes.
Do your homework before committing your hard-earned cash. Get it right, and you’ll never make a bad investment again.
Want to know more about how to handle inherited tenants? We did a podcast ALLLL about this subject! Click Image to listen👇
Thank you to Asbestos.com for providing this informative guide.
Homes built before the 1980s could expose homeowners, their families and others to asbestos. It may hide in cement, floor tiles, insulation, walls and pipes. Our Guide to Asbestos in the Home can help protect you and others from exposure.
If you’re doing work on your home, like taking down walls or replacing floor tiles, take caution. You could contaminate the air with toxic asbestos fibers.
Our Guide to Asbestos in the Home offers information about asbestos, its dangers, what to do if you suspect it’s in your home, the dos and don’ts when handling asbestos and other useful information to keep you, your family and others safe in your home.
Is Asbestos in Your House Dangerous?
When residential construction products made with asbestos, a mineral composed of thin fibers, are damaged, those fibers become airborne. Asbestos fibers pose a danger to anyone who inhales them.
After years of exposure to those fibers, people may develop a cancer known as mesothelioma, which forms tumors on the lining of the lungs, abdomen or heart.
Quick Fact
Most asbestos-related diseases are diagnosed at least 15 years after exposure.
Source: American Cancer Society
Where Can Asbestos Be Found in Your House?
If you have an older home, asbestos may be found in various building materials used in your house, such as paint, insulation and floor tiles. Many U.S. homes and public structures, such as schools, government housing and office buildings built before the 1980s, contain asbestos in:
- Cement asbestos board siding/undersheeting
- Asbestos roofing felt for shingles
- Asbestos insulation around steam pipes
- Some vinyl floor tiles
- Textured paint
- Asbestos-containing vermiculite insulation
While many residential uses for asbestos were phased out, it remains legal in the U.S. for more than a dozen applications.
Common Exposure Scenarios
Asbestos exposure in your home can occur in different ways: DIY renovation, drilling through drywall or replacing an old pipe. The following scenarios describe how homeowners can expose themselves to asbestos at home.
Attic Renovation
While remodeling the attic of his 1960s home, John found piles of brown pebble-like insulation. He decided to replace the existing insulation with new fiberglass insulation to save money in the winter months. He scooped the loose insulation into some garbage bags and installed the new material.
John had no idea that his attic was insulated with asbestos-containing vermiculite. By disturbing the material, he spread asbestos fibers in the air. John should have left the insulation alone and had it tested for asbestos before disturbing it.
Brake Dust in Home Garage
Ralph loves working on his 1965 Corvette Stingray. When his brakes started to squeal, Ralph wanted to replace them in his own garage. After removing the rear tires, he saw the brake drums were covered in dust. He banged the sides with a hammer and blew off the dust with an air compressor.
Because some brake components contain asbestos, spraying them with compressed air can release toxic fibers into the air. Ralph should have taken his car to the shop for service or wiped down the brake drums gently with a wet cloth.
Drilling into Asbestos in Drywall
Erica recently won a painting at a silent auction and couldn’t wait to bring it home and hang it in her living room. She measured carefully and used a drill to install drywall anchors to keep the painting in place. The painting wasn’t level, so she had to drill a few more holes before it hung perfectly.
She had no idea her home was built with asbestos-containing drywall. When she drilled through the wall to hang her painting, asbestos fibers from the drywall escaped into her living room. Erica should have known about the asbestos in her walls and left it alone.
Removing Vinyl Floor Tiles
Herman just purchased a 1950s fixer-upper in his home town, and his first project was upgrading the master bathroom. He decided to start by removing the vinyl floor tile. He removed the existing tiles with a scraper and installed the new tile.
Asbestos was a common ingredient in vinyl floor tiles in the 1950s. Using a scraper to remove the old flooring can release dangerous asbestos fibers. Herman should have installed the new tile over it.
Popcorn Ceiling Removal
Janine was tired of the popcorn texture on the ceilings in her home, so she decided to scrape it off and repaint with a smooth finish. After putting on eye protection and a dust mask, she grabbed her ladder and got to work. After lots of scraping, a little sanding and some careful painting, she was finally done.
Many textured ceiling finishes, including popcorn ceilings, have concealed asbestos. Scraping off the popcorn finish released microscopic asbestos fibers that easily passed through Janine’s dust mask. She should have hired a professional trained in safely removing asbestos hazards.
Although it is the safest option, hiring asbestos abatement professionals can be expensive. However, before removing the entire popcorn surface, homeowners can scrape off a sample and perform home testing with a store-bought kit. Removing even a small piece for testing still requires protection, such as eye protection and an N95 respirator.
Cutting Insulation on Pipes
When fixing up the basement of his late-1800s Victorian home, Brent noticed the insulation around some of the hot water pipes was starting to deteriorate. Not wanting to lose any heat efficiency, he cut the old insulation with a utility knife and replaced it with new fiberglass insulation.
Brent should have known that many older plumbing systems are wrapped in asbestos insulation. The insulation may have already posed an exposure risk before he started the project, but cutting the damaged material released even more fibers into the air. Brent should have hired an asbestos professional to seal the asbestos insulation.
What Can I Do About Asbestos in My Home?
The Environmental Protection Agency recommends testing your home for asbestos if the existing building materials are damaged or you plan on disturbing them. Situations where testing is recommended include having damaged drywall or insulation, or if you’re planning on remodeling.
Disturbing these building materials can release asbestos fibers into the air. Generally, you can’t tell which materials contain asbestos unless they’re labeled. If the building materials are in good condition or if you’re not planning a home remodel, testing is generally not required.
If you find something in your home that you suspect is asbestos, don’t touch it. Even if the material is in good condition, the best option is to leave it alone.
According to the U.S. Environmental Protection Agency, if the material appears damaged or future activities could disturb it, contact a trained and accredited asbestos professional. Limit access to the area until a professional can confirm the presence of asbestos.
The best way to avoid asbestos exposure is to be knowledgeable about the asbestos materials in your home, including their locations and current condition.
How Can I Tell if a Material in My House Is Asbestos?
It’s extremely difficult to identify asbestos just by looking at it, so you need to send samples to a lab for testing.
Homeowners can collect samples and have them tested, but it’s much safer for you and your family to hire a trained asbestos professional for the job.
Search for “asbestos inspection” online to find a licensed expert in your area. The U.S. Department of Commerce offers a list of accredited asbestos laboratories online.
What Does Asbestos Look Like?
Asbestos ore in its natural form may appear in a range of colors, including white, green, blue and brown. When asbestos is processed it breaks down into fluffy fibers.
While asbestos in household products is not easily identified by sight alone, sometimes it is possible to see asbestos fibers embedded in damaged asbestos-containing materials.
Tiny asbestos fibers often end up in household products when asbestos is mixed with other materials, such as plastic or cement. When these materials are damaged, small asbestos fibers that look like fuzzy pieces of fraying fabric may be visible. However, seeing fibers protruding from a product does not mean it contains asbestos. Only testing can confirm the presence of asbestos.
How Much Asbestos Exposure Is Harmful?
In general, it takes a lot of repeated exposure to asbestos for related conditions to develop. It is rare for someone to get sick from asbestos products in their home, but it is possible.
Most people who develop asbestos-related diseases were exposed to asbestos at work for years. About 20% of heavily exposed asbestos workers end up developing a related condition.
Still, heavy short-term asbestos exposures have been known to cause disease. According to a National Institute for Occupational Safety and Health report on asbestos, “No evidence of a threshold or safe level of exposure has been found.”
Asbestos Safety Dos and Don’ts
If you own an older home, take every precaution to avoid damaging materials that may contain asbestos.
Even if a repair seems minor, you should hire a professional when asbestos may be present. Improper handling of safely managed asbestos can create an exposure risk where there was none before.
Do’s
- Avoid any contact with dangerous asbestos materials.
- Take every precaution not to damage any materials that may contain asbestos.
- Talk to your home inspector or real estate agent about any known asbestos risks in your home.
- Only hire trained professionals for asbestos inspections, testing, repairs or removal.
- If you are planning on a demolition, contact the appropriate regulatory agency in your local or state government.
Don’ts
- Don’t saw, sand, scrape, drill or disturb materials that may contain asbestos.
- Don’t sweep, vacuum or dust debris that may contain asbestos.
- Don’t collect asbestos samples for testing without proper training.
- Don’t perform any work on or near asbestos materials unless you’re trained and certified.
- Don’t remove asbestos unless repair or concealment is impossible, and there’s a high risk for exposure.
- Don’t dispose of asbestos materials with normal household waste.
How Do I Get Tested for Possible Exposure to Asbestos?
If you are concerned that you were exposed to asbestos, start by talking to your primary care physician. There is no test to determine if you’ve been exposed to asbestos, but there are tests to detect asbestos-related diseases.
Your doctor can order imaging scans that reveal signs of asbestos-related disease.
Asbestos-related conditions are difficult to detect, and not all primary care doctors have the tools and experience to diagnose them.
If you know for certain that you were exposed to asbestos, it is a good idea to seek annual screenings from a qualified lung specialist such as an occupational pulmonologist.
Most asbestos-related diseases are diagnosed at least 15 years after exposure.
Quick Fact
Asbestos is the No. 1 cause of mesothelioma.
Source: National Cancer Institute
How Much Does Asbestos Testing Cost?
The most popular testing method, Polarized Light Microscopy (PLM), can range from $20 to $100 per sample. Some labs use Transmission Electron Microscopy (TEM), which is more expensive.
The cost of asbestos testing varies depending on the number of samples tested and the methods used.
DIY test kits require you to mail samples to an accredited lab, which may charge an additional fee that is typically around $40 for analysis.
However, if you collect samples, you can create exposure risks. It’s best to hire a certified professional. The total cost of labor can run between $350 and $600 — a small price to pay for peace of mind that the job will be safely completed.
What Happens if I Violate Asbestos Laws?
Any activity involving asbestos must follow U.S. Environmental Protection Agency regulations as well as any state asbestos laws. Some asbestos violations result in written warnings.
Others can bring criminal charges, prison time or daily civil penalties as high as $25,000 for each violation, depending on the severity of the infraction.
WRITTEN BY
Michelle Whitmer, Asbestos Expert and Writer
(888) 382-0020 OR michelle@asbestos.com
Michelle Whitmer has covered science and medicine for Asbestos.com for more than 15 years. She has been featured in multiplatform media, including The New York Times and KYW Newsradio. Whitmer is pursuing American Medical Writers Association certification, has completed OSHA Asbestos Standard for the Construction Industry training and is CDC certified in Health Literacy.
- Expertise: Asbestos and talc, asbestos in makeup
- Certified in OSHA Asbestos Standard, AHERA Asbestos in Schools and CDC Health Literacy
- Member of the American Medical Writers Association, National Association of Science Writers and the Academy of Integrative Health & Medicine
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A multi-family property can be a great addition to your real estate investment portfolio, but it’s important to look for any red flags before making a commitment. From the obvious things like pests and water damage to information that needs a bit more research, taking the time to examine the property can help you make an informed decision.
Low Current Interest in the Property
One of the first things investors should look for is the number of inquiries the property has been receiving. If the number is very low, it could indicate that something wrong with the property is turning away potential buyers.
Another thing to look for is how quickly current tenants are vacating the property. If tenants leave quickly and in large numbers, that could indicate serious problems. Don’t forget to look at the reviews of the property – these can be very valuable in determining whether investing is a good idea.
Investors can also look at the rental rates the property is charging. If the rates are significantly lower than other properties in the area, it could be a sign that the property isn’t well-maintained or in a desirable location. If the rates are higher than other properties, it could be a sign that the property is overvalued.
Signs of Water Damage
The damage caused by water can quickly become expensive and difficult to repair, so look carefully before investing in a property. Signs of water damage include:
- Stained ceilings, walls, and floors
- Peeling paint or wallpaper
- Discolored or warped tiles
- Cracks or bulges in the walls
- Musty odors
- Unexpectedly high humidity
- Evidence of mold growth
- Rotting wood
These should be taken seriously, as they can indicate a much larger underlying issue. It’s important to thoroughly investigate any potential signs of water damage—or even indications that it could be imminent, as a widespread issue could very well fall under the maintenance the property owner is responsible for, as opposed to tenants.
A Busy Sales History
A review of the sales history of a property can tell potential investors a lot. If there have been multiple sales in a short time, this could be a sign of instability or a lack of investor confidence in the property. It could also be a sign of a problem with the building or the neighborhood that could cause difficulty in maintaining or increasing the value of the property.
In addition to looking at how often the property was sold, try to find out why it was sold, if any changes were made, and how the property has been managed. Investors might be able to find out some of this by speaking with any previous buyers or sellers. These conversations can provide additional insight into the area and the building.
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Signs of Pests
Pests are often a sign of a poorly maintained property. Look for signs of common household pests, such as rats, mice, roaches, or bed bugs. Signs of an infestation may include the presence of droppings, gnaw marks, and nests. Be sure to ask the current owner about any previous pest issues and take note of anything suspicious. Investors may want to call in a pest control professional to inspect the property and advise on any necessary treatments.
It’s important to also consider the risk of future pest problems. Look for any potential entry points that pests may use to enter the property, such as cracks in the walls and holes in the foundation. Additionally, check the surrounding area for any potential sources of food or shelter that may attract unwanted critters. Be sure to take preventive measures to reduce the risk of future infestations, as tenants might not be happy about being asked to help with pest control.
Work Done Without Permits
Another potential red flag for investors is work done on the property without the appropriate permits. This can be a major issue and should be investigated thoroughly before committing to the purchase of a multi-family property. A lack of permits can indicate that:
- The work was not completed to code: This can be extremely dangerous and costly, as it may require significant repairs or upgrades to bring it up to code.
- The owner is trying to hide something: This could mean hidden water damage or other potential issues that can be costly to repair or replace.
Investors familiarize yourself with the local government. That’s where you go to check if the property has the required permits for any renovations that have been done. If not, they should determine why the permits were not obtained and if the work was done correctly. In some cases, the investor may need to hire an inspector to check the work.
Don’t Ignore Red Flags When Investing
Investing in a multi-family property can be a great financial investment, but it’s not without risk. Maximize your chances of success. Keep an eye out for warning signs such as a busy sales history and unpermitted work. Doing research and having an experienced real estate professional inspect the property can help ensure that the property is a good investment.
Want to read more about what to do when buying your next rental investment? Check out our blog Buying Rental Property? Make Sure You Evaluate These Structural Items!
If you are a landlord or a property owner, at some point you may have to deal with squatters setting up camp in or on your property. Squatters may inhabit your land or property and refuse to budge. It can be frustrating to encounter squatters on your property, but there are steps to take to address the situation. What are squatter’s rights?
Squatting, also called adverse possession, refers to a person intentionally entering a property that they do not own or have permission from the legal owner to reside in or on, with the intention of acquiring that property.
“The phrase ‘squatters rights’ is really misleading, because, as a general rule, they are merely trespassers, and don’t have any rights,” says Teri A. Walter, civil trial lawyer, founder and managing partner at Walter Law Firm in Texas, which specializes in business litigation. “The phrase comes out of the adverse possession laws. Adverse possession is a legal theory of gaining ownership of property without actually purchasing it.”
This “right” can be converted to title to the property over a period of time by adverse possession, depending on a state’s law. Attorney Natela Shenon of Shenon Law Group in California, which specializes in business law, says certain elements have to be met in order for it to be effective.
For example, in California she says the possession has to be hostile, notorious and continuous, without any interruption for the statutory period, which in that state is five years.
“Another requirement in California is that the squatter has to be paying property taxes for the statutory period for the piece of land he or she is occupying,” says Shenon.
Each state has different laws regarding squatter rights, so experts recommend checking local and state laws to ensure landlords retain legal protection of their property and know their rights.
What To Do If You Have a Squatter
There is a legal process landlords and property owners should follow should they encounter a squatter on their property.
“Once it is discovered that there is an unauthorized person in a vacant property, an owner needs to serve a Notice to Vacate/Surrender Possession that includes language to the effect that the persons in possession are squatters and have no legal right to be in possession of the property, that the owner does not consent to the occupant’s possession of the property,” says attorney Eileen M. Kendall, Kendall Law in California, which specializes in real estate law and business law.
She says if the squatters do not vacate, the owner can then file the unlawful detainer complaint in the superior court to get a writ of possession that can be executed by the sheriff to remove the squatter.
When dealing with squatters, there are some things landlords and property owners should not do. Shenon says a landlord or a property owner should not abandon their property and not stop paying property taxes on the property.
“They also should not allow anyone to use or be on their property for an extended period of time without a written agreement that specifically gives permission for use by the owner—remember adverse possession has to be hostile and without permission—for only a limited period of time,” says Shenon.
Shenon says other terms can be added to the agreement to avoid any confusion as to ownership and to prevent any claims to adverse possession in the future.
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How Do You Avoid Getting a Squatter?
There may be potential warning signs that a property is being occupied by a squatter. Walter says these include higher than expected bills for power and water or having those bills suddenly terminated. She says squatters typically will not bother to set up utilities in their own name but may if they plan to make a claim of ownership of the property.
“Seeing unexpected cars in the driveway, locks changed, changes to the landscaping or exterior look of the property, or maintenance of the house or yard that you did not arrange,” says Walter.
Walter says there are several things landlords and property owners can do to avoid having a squatter and protect their property.
“Many of these actions are the same kinds of things you’d want to do in order to avoid burglaries,” says Walter.
One important thing to do is to not allow a property to remain vacant for long, and when it must be vacant, to leave the electricity and water on and to leave lights on inside and around the property to give the appearance of being occupied, says Walter. She says to not allow mail to pile up, make sure to keep drapes drawn so people cannot see inside, to drive by periodically to pick up mail or trash and check to make sure the property is still secure.
“Be in touch with your neighbors, and make sure they know how to contact you if they see something that looks suspicious,” says Walter. “If the property is a vacant lot, fence it off, keep it mowed and trash removed and post a ‘No Trespassing’ sign.”
Squatter Rights FAQ
What are Squatter Rights?
Squatter rights, also known as adverse possession laws, refer to laws that allow a squatter to live in another person’s property if the lawful owner does not evict or take action against the squatter.
What do you do if you have a squatter on your property?
If a squatter is on or in your property and they refuse to leave, call the police. However, if a squatter claims to be a tenant, an eviction is the best method to remove them. But, if the “tenant” actually claims ownership, then file a suit against them to confirm title in your name.
Why do squatters have rights?
Rights are only valid as long as squatters fulfill all adverse possession requirements, which vary by state.
Which states have squatter rights?
Squatter rights exist in all 50 states. But, how and when the enforcement happens varies widely by state, city, and municipality.
Krista Reuther
Krista is the Senior Content Marketing Writer at TurboTenant where she writes data-driven, actionable articles to help landlords and renters alike. With decades of writing and editing experience, she produces top-quality content across various industries, including real estate, SaaS, and survey design/implementation.
Have you listened to the Your Landlord Resource podcast?
Check out our 3-part series where we break down our 37 page lease and its addendums! It’s like a mini masterclass where we discuss the importance of each section, paragraph by paragraph. Definitely something you don’t want to miss!
By Phil Schaller
A strong support system for your tenants can translate to a more profitable rental property. Here at RentalRiff, we believe in providing a great experience for tenants. To us, rental properties are not a commodity; they are someone’s home. Our focus on the tenant experience and how we’ve structured our service may be our biggest differentiator.
There are many benefits to creating a fantastic tenant experience. Aside from the human elements (and we think these are the most important), there is tremendous value to be captured as a landlord and rental property owner.
As we’ve discussed in other blog posts, there are certain things you can control as a landlord and certain things you can’t. Tenants moving to a new city is out of your control, as is a tenant purchasing a home of their own. Tenants moving out because of poor maintenance support or a general lack of communication is definitely in your control. If you can optimize the elements of your rental business that are within your control, you will be better off for it.
Here are some of the main benefits to creating a great customer experience:
No. 1 – Higher tenant-retention rates
This one’s a bit of a no-brainer.
If your tenants like renting from you and feel supported they are more likely to renew their lease, plain and simple. J Turner Research did a large study on residents recently and found that 35 percent of tenants that felt unsupported and underserved moved out. With vacancy rates in the Seattle area currently sitting around 7.5 percent, this can mean thousands of dollars lost.
No. 2 – Better treatment of your property
Not only are unsupported tenants more likely to move out, they’re also more likely to treat the property poorly.
Security deposits exist for a reason, but tenants will treat the property better if they don’t feel neglected by their landlord. Obviously, this means less wear and tear on the property and fewer large, avoidable repairs needed down the road.
No. 3 – Tenants are more accepting of higher rents
Increasing rents at a steady clip is an important part of running a successful rental property business.
Another important element is retaining good tenants. When you’ve created a strong support system for your tenants you can both increase rents and retain good tenants. Again, this goes back to controlling what you can control, but if the tenants feel taken care of they are more likely to accept the higher rent and stick with your property.
No. 4 – Higher likelihood of collecting rent on time
There are many property management tools out there that automate the rent-collection process (we definitely recommend using these tools) but, again, happy tenants are more inclined to make their rent on time. Tenants will want to stay and be more proactive in keeping up their side of the bargain.
There are many important components that go into running a successful rental property, and maintenance and tenant support are just two of those. They can be major pain points for landlords, and it’s easy for the property-level needs of your tenants to slip through the cracks. If you can optimize your processes and create a positive environment for your tenants, in the long run, you’ll have more success as a rental owner.
Happy landlording!
About the author:
Phil Schaller is an experienced landlord and the founder/CEO of RentalRiff – an alternative service to traditional property management that provides ongoing oversight and upkeep of rental properties, while serving as the main point of contact for tenants. If you are interested in learning more about RentalRiff’s rental property maintenance service you can reach him at 541-600-3200. Maintenance and repair costs are included and property specialists are licensed/insured. Phil is a Pacific Northwest native, father of two, and fly-fishing addict.