E-Renter News

Landlords must know the guidelines of the Fair Housing Act (FHA), passed by Congress to prohibit discrimination in housing—including rental housing—based on religion, race, color, national origin, sex, family status and disability. Tenants who believe they have been discriminated against can bring charges against rental property owners, even if the property owner did not intend to discriminate.

Advertising is an area that landlords must pay attention to. Ignoring the guidelines of the FHA, whether intentional or not, can get you in hot water very quickly. Here are a few examples of possibly discriminatory advertising, and how to avoid it.

1. Single family house, ideal for couples with children.
Could be discriminatory because it sounds as if couples with children are preferred.
Avoid discrimination by sticking to the facts:
Single family house, 3 BR, large back yard.

2. Upstairs apartment for rent. No smoking, drugs, or children.
Discriminatory because it prohibits children. Unless the property is designated “55 or over,” or another adults-only designation, landlords cannot prohibit children.
Avoid discrimination by opening the listing to children:
Upstairs apartment for rent. No smoking or drugs.

3. House for rent. Good neighborhood, close to Faith Christian Church.
Discriminatory because it could indicate preference to one religious group.
Avoid discrimination by eliminating reference to church:
House for rent. Quiet neighborhood, walk to grocery store and schools.

4. Now leasing 2 and 3 bedroom units. Great views, close to hiking trails. Walk downtown. Great for runners, joggers.
Could be discriminatory by implying disabled people would not be welcome.
Avoid discrimination by eliminating last sentence and adding "bus":
Now leasing 2,and 3 bedroom units. Great views, close to hiking trails and bus lines. Walk or bus downtown.

More ways to avoid charges of discrimination:
Eliminate any symbols from your advertising—except for the Equal Housing Logo.
Concentrate on describing the property, not the potential tenants.
When using photos of people in ads, make sure to show a wide range of people, including different ages and races.

Patrick is a landlord who experienced a potentially serious problem with a tenant. During the lawn maintenance company’s weekly visit to his property, the tenant began verbally abusing the workers, threatening them with harm if they didn’t “get off his property.” Luckily, Patrick happened to be onsite and witnessed the altercation; he called police immediately.

The situation could have escalated, but the lawn company workers chose not to react to the tenant’s threats. They ignored him, continued their work quickly and got out of there. They chose not to press charges when the police arrived.

While predicting a tenant’s behavior is impossible, it is easy to question how something like this could happen. Did Patrick run a background check on the tenant? Did he check his work and personal references and speak to previous landlords or property management companies?

Thorough tenant screening is the only way to prevent opening your property to a liability like this guy. Talk to the last two or three landlords if you can. Why? Because a current landlord may be anxious to see a tenant like this move out—they have a vested interested in providing a good reference.

And when performing background checks on tenants, be sure to include social security and criminal checks as well as credit screening. A person with a temper like Patrick’s tenant could have a criminal history or other reasons to be operating under a false identification.

Patrick’s situation could have ended much worse. Luckily, nobody was hurt. But now Patrick has a problem tenant with nine months left on his lease. On to the eviction process!

A recent article in the Wall Street Journal describes the best and worst markets for conservative real estate investors, based on data from Local Market Monitor in Cary, NC.

The report, focusing on potential price-appreciation, rather than rental income, looked at just single-family homes. It analyzed data similar to that used in the firm’s housing-market forecasts—“equilibrium” home prices, which predict what a market’s home values should be in relation to incomes, job growth and population.

The new report says if you’re a conservative investor, the best markets are where there is a low probability that home prices will fall further. The top five are:

• Durham, NC
• Huntsville, AL
• Indianapolis, IN
• Knoxville, TN
• Lexington, KY

In these markets, according to the report, income is growing moderately and employment is stable because a large percentage of jobs are in healthcare, education, rather than construction and financial services.

Experts caution that education and healthcare jobs could see cuts later in the economic cycle, so these areas could yet experience some downturns.

The so-called speculative markets are those where investment housing values could continue to fall but then could appreciate more than 3% – 5%, according to the study. These are better for investors willing to take more risks, and include:

• Hagerstown, MD
• Jacksonville, FL
• Port St. Lucie, FL
• Modesto, CA
• Myrtle Beach, SC

“Dangerous” places for real-estate investors, where home prices are still falling and local economies are unstable, include:

• Reno, NV
• Las Vegas, NV
• Naples, FL
• Orlando, FL

Rounding out the “10 Worst” markets for single-family real-estate investment properties are Phoenix, AZ, Prescott, AZ, and four Florida cities: North Port, Fort Myers, Daytona and Lakeland.

The rest of the “10 Best” markets are Jackson, MI; Oklahoma City, OK; Little Rock, AR; Greenville, SC and Winston-Salem, NC.

As with any investment, real-estate investors must do their homework—especially when buying in areas where they do not live, know the local market or have good real estate contacts. Caution is always key!

Just when you may have been thinking that U.S. sales of existing homes could not get any worse—they have. Even cynical economic forecasters were surprised by the seasonally-adjusted rate of 3.83 million reported today by the National Association of Realtors. That’s drop of 27.2% from June to July, more than twice the expected drop—and a 25.5% drop from July 2009.

The news comes during a week of stagnant economic reports, where unemployment refuses to budge and home buyers stayed home, despite the lowest mortgage rates ever and more reasonable housing prices than we’ve seen in some time.

Said Scott Brown, chief economist at Raymond James & Associates, as quoted in The Washington Post: “this is a pretty dicey time” for the U.S. economy. Another economist, Paul Dales, said the numbers “…suggest that without the housing tax credit, housing market activity is very, very weak (and) would eventually lead to a double dip in house prices.”

The federal tax credit helped existing home sales increase in the first part of the year, and when it was over, experts predicted that sales would decline, and then recover. Apparently the recovery has yet to begin—and it seems no region of the country is immune to the sagging sales numbers:

• Midwest -35%
• South -23%
• Northeast -30%
• West -25%

Looking for good news? Here’s a piece: home prices held up in July, up .7% from 2009. That trend, experts say, is not expected to continue. Foreclosures will continue to drag prices down and add to the oversupply of homes.

Landlords and property managers, hold tight: it’s likely your good tenants are not going to be moving into their own homes any time soon, and as foreclosures continue, more renters should be hitting the rental market.

A heartbreaking side story to the U.S. foreclosure crisis is the huge number of animals being surrendered to shelters. Family pets are being told they’re not welcome in the new living situation, and both people and animals are suffering as a result.

Things got so bad in Phoenix, AZ, that a real estate agent donated a rental property to serve as a “halfway house” to shelter dozens of animals that real estate agents discovered in foreclosed homes and empty backyards. Those unfortunate animals are not included in the unprecedented numbers of foreclosure pets being abandoned at shelters.

Losing their home to foreclosure has meant millions of Americans are returning to rental housing. That’s good news for landlords who need tenants. But it’s turning out to be bad news for many animals. If you’re a landlord with a “no pets” policy, you might want to reconsider—for the sake of your tenants and their furry family members.

More and more rental properties allow pets. It’s good business, since 39% of U.S. households include a dog and 33% a cat. People spend more money on their pets every year. Opening your rental units to pets will help you keep them filled—and often with responsible tenants.

Here are a few tips for landlords who are considering taking down their
“no pets” signs:

Tenants can be creative when it comes to offering items other than cash for their rent payments. When times get tough, and unemployment increases---as it has over the past two years---even more landlords are fielding these offers.

Some landlords we know have reported tenants offering unusual trades in lieu of cash for the rent, including:

Legal offers:

• Jewelry
• Cars
• Motorcycles
• Boats
• Landscaping Services
• Cleaning Services

Illegal offers:

• Other “personal” services
• Drugs

Obviously, the last two items on the list are to be avoided—but what about trading goods for rent? Is it ever in a landlord’s best interest to do so?

Let's consider another question: Does the bank accept a diamond ring in lieu of your mortgage payment? Not any bank we’ve ever encountered. And is there a professional property management company on the planet that would accept anything other than cash? So why should a smaller-scale landlord? If your tenant is forced to come up with cash, they will. Let him sell the ring, the car or the boat, and give you the proceeds.

What about trading services (legal, of course) for rent? It might sound like a great idea to allow a professional landscaper to take care of your rental property in exchange for a portion of the rent. Or having a housecleaner do all of your move-out cleanings in return for a rent reduction. But this arrangement might be defined as an employer/employee situation. You don’t want to be fined for failing to pay employee taxes. Check with your attorney before entering into an arrangement like this.

As far as the accepting illegal substances or services in exchange for rent…that’s just not a smart thing for any landlord to do.

Rent control laws limit what landlords can charge tenants who rent their properties. They exist in communities in only five states:

• California (mostly Los Angeles)
• The District of Columbia
• Maryland
• New Jersey
• New York (typically in New York City)

Rent control laws were put in place to stabilize rents so tenants would not be priced out of their homes when the market conditions changed. They affect both the amount of rent that can be charged, and the amount rent can be increased. Some rent control laws also cover lease renewals and a landlord’s responsibility to make repairs. They sometimes govern how landlords deal with senior citizens.

In some areas, rent control ends when a lease ends—so landlords sometimes abused eviction privileges. Therefore, evictions became regulated, and landlords were required to have a good reason for eviction—like nonpayment of rent, illegal activity and other breaches of the lease agreement.

Rent control laws grew in popularity through the 1970s and 1980s, but landlords won some repeals in the late 1980s. Now, in most cases, when a tenant moves out of a rent-controlled apartment, the landlord may raise the rent before it becomes controlled again. And new construction is often exempt, so tenants in newly-constructed buildings typically have no rent protection.

If you become a landlord in a states with rent control laws, consult your attorney. At the very least, familiarize yourself with the laws that govern the rental property you own.

Most landlords require each adult who’ll be living in a rental unit to submit a lease application, with separate tenant background checks for each potential resident. But don’t most tenants agree that one lease is enough?

Not in the case of three roommates who wanted to rent one apartment through a property manager we know. She was unsure whether or not she was required to fulfill this unusual request. The three women wanted everything in writing for each of them—separate applications, separate lease agreements, separate security deposits—the works. The property manager was not excited about going through that much paperwork—as anyone can understand!

The fact is that landlords and property managers are not under any obligation to provide more than one lease agreement per property. In fact, it would be risky to do so!

Separate Lease Agreements Mean More Difficult to Evict
If two of the roommates are fulfilling their obligations under their respective lease agreements, but the third is behind on her rent, what is a rental property owner’s recourse? She wouldn’t be able to hold the others responsible, so would she then move to evict just the delinquent tenant?

And then there’s the return of the security deposit when the three of them move out. Separate lease agreements could mean a nightmare when it comes to determining who gets what portion of the security deposit, who is responsible for which ding on the wall or who damaged the light fixture. And what about when just one of them moves out? How would that work? (It wouldn’t.)

The rent and security deposit are assigned to the rental unit, not to individual tenants. Therefore, one lease should also be assigned to the rental unit. It is up to the roommates to figure out who owes what percentage of the rent, who receives what portion of the security deposit and that the rent is paid on time every month.

It’s difficult enough to be a landlord or property manager—don’t make it more difficult by enabling inconvenient demand by your tenants.

I Inherited a House! Should I Rent It?

That’s the question recently posed to a financial advisor we know. To help her client make the decision of whether to sell the house or keep it and turn it into a rental—and become a landlord in the process—she advised taking a look at the following factors:

Will you have any use for the home now or in the future? If keeping the home to use as a vacation spot or a retirement home is appealing, then it makes sense to rent it out. If it will be a vacation home, then making it a vacation rental is the way to go—to avoid having tenants in when you want to use the place. For a future retirement home, renting to long-term tenants makes more sense.

Is it too expensive to keep without renting? If the home is left empty until you vacation or retire there, you’d probably be better off selling it. Depending on the tax and utility bills, staying in a nice hotel for vacation and buying a retirement home closer to retirement will be cheaper in the long run.

The advantages to keeping the house as a rental include:

• Occupied houses suffer less damage to plumbing and heating systems
• Empty houses attract squatters, vandals and animals
• Rental income will cover the taxes and can even make a nice profit

Becoming a landlord has disadvantages, too:

• Dealing with problems like broken pipes and tenant issues
• Long-distance ownership often necessitates hiring management help
• Depending on the condition of the house, repairs and maintenance could be costly
• Owning income property requires excellent record keeping for tax preparation
• Rental home ownership isn’t always worth your time and investment—especially if not managed properly

Once all of the pros and cons of owning a rental property are considered, it can make more financial and personal sense to just sell an inherited house and move on. But in many cases, keeping the house as a rental can turn out to be a money-making venture for the landlord.

What’s the most important question to ask tenants? Is it:

• Where do you work?
• How much money do you earn?
• What’s your rental history?

All great questions—but they won’t tell you as much about a prospective tenant’s character as asking tenant this: “Why are you leaving your current place?” Be prepared to hear a variety of reasons or excuses, rants against landlords, and maybe even humorous stories about what’s wrong with their apartment or house.

Observe body language and listen carefully for clues about what type of personality you’re dealing with:

• If the applicant gets noticeably angry when you ask “Why are you moving?” then you might consider it a large red flag—hostility is never a good reaction to a simple question.
• Does the prospective tenant look around the room, at their hands or anywhere but at you when answering the question? Avoiding eye contact is a sign that they might not be telling the complete truth, as is a flushing in the face, stammering and fidgeting with pens or other objects. These aren’t the only clues, of course—and don’t forget, some people are very good liars, and won’t exhibit any of these signs.
• Do you find the tenant lacking responsibility? For example, are they blaming the landlord for a lack of cooperation or understanding when they didn’t pay the rent on time? Do they describe other tenants complaining about their behavior? Not living up to the rules shows a lack of accountability you might want to avoid.
• Did you hear defensiveness in the tenant’s answer? This often goes hand-in-hand with a lack of responsibility. If the prospective tenant avoids answering directly or gets defensive just because you asked, that could be a bad sign. “Why do you want to know?” is not the answer you’re looking for!

Obviously, there are dozens of legitimate reasons to move out of a rental property. While having a new prospective tenant is always a good thing—you don’t want to inherit someone else’s problem tenant. Encourage the applicant to talk about their current situation—and you might be hearing a preview of what it will be like to be their landlord!