• A landlord is a person or organization that owns real estate and leases it to tenants in exchange for rent.
• A landlord can rent either to commercial or residential tenants based on zoning restrictions and type of property.
• Landlords and tenants have been bound by a lease agreement, that is a legal contract outlining each party's rights and obligations.
• Being a landlord can generate passive rental income, but it also entails unique legal and financial risks.
• Landlords are not permitted to discriminate (based on things like race, religion, sexual orientation), enter the property without proper notice, evict a tenant improperly, and increase the rent without notice.
Understanding Landlords
As mentioned previously, a landlord is anyone who rents out their property. This party is known as the lessee or tenant. Real estate investment is a source of profit for landlords. By owning property and leasing it out, a landlord can earn a steady income stream and have the potential for property appreciation.
Individuals, businesses, and other entities, such as government agencies, can be landlords. Likewise, the types of properties they possess can vary. This means that their property holdings are not limited to homes alone. In addition to single-family homes, their real estate portfolios may contain the following:
• Multifamily dwellings, including multifamily homes, apartment buildings, and condominiums
• Land and empty lots
• Holiday homes such as cottages and villas
• Commercial properties, such as stand-alone commercial properties, shopping malls, office buildings, and mixed-use buildings
When renting out property, landlords typically use leases. A lease is a legally enforceable agreement outlining the terms under which one party agrees to rent property from another. It ensures that the lessee or tenant will have access to an asset and that the lessor (the property owner or landlord) will receive regular payments for a specified period.
Special Considerations
There are landlords who do not reside on or in close proximity to their properties. These landlords are known as absentee landlords. It can be risky for a property owner to be an absentee landlord. Damage or total loss due to tenant negligence or misconduct is an ongoing concern. Without adequate monitoring, squatting situations can also arise, and evicting tenants can be problematic.
Managing security deposits is a crucial obligation for any landlord. Although landlords have the right to require tenants to pay a security deposit to cover property damage and unpaid rent, the deposit never belongs to the landlord. Regulations and laws governing the amount and maintenance of security deposits. These regulations vary by state. Landlords who violate these laws may face legal repercussions.
Rights and Responsibilities of Landlords
The rights and responsibilities of landlords vary from state to state, but there are general laws that all states share.
Additionally, property owners have the right to collect rent and any prearranged late fees. They also have the right to increase the rent according to the terms of the tenant-landlord lease. Landlords have the legal right to evict tenants who do not pay rent. The eviction procedural varies from state to state. The majority of states allow landlords to collect past-due rent and legal fees.
Owners of property must:
• Accountable for preserving the habitability of their rental properties
• Administration of security deposits
• ensuring that a property is clean and vacant prior to the arrival of a new tenant
Additionally, the landlord must adhere to all local building codes, perform prompt repairs, and ensure that all essential services, including plumbing, electricity, and heat, are operational.
Types of Landlords
Just as there are different types of properties a landlord can own, there are also different types of landlords. They could be individuals, businesses, or government agencies.
Individuals may rent out multiple properties to supplement their incomes or diversify their investment portfolios. As an example, a middle-aged couple may start deciding to purchase a second home and rent it out to increase their monthly income. Keeping the property rented out after retirement can help these individuals supplement their Social Security benefits and other investments.
Other landlords, such as corporations, may definitely be in the business of purchasing properties for such express purpose to rent them out. For instance, a real estate company may acquire office buildings and rent them to various businesses for a monthly fee.
Especially in large cities, municipal governments frequently own housing corporations. These organizations own, rent, manage, and maintain subsidized or affordable housing for those in need. For these dwellings, rental payments are commonly based on a tenant's income.
Advantages and Disadvantages of Being a Landlord
Financial advantages and disadvantages exist for landlords who invest in rental properties.
A benefit is that a landlord can leverage borrowed funds to purchase a rental property, requiring a smaller portion of the total property cost in exchange for rental income. This debt can be secured by the rental property, thereby releasing other landlord assets.
The majority of rental property expenses are tax-deductible. If there is no net profit after expenses, rental income is tax-free. As the mortgage on a rental property is paid down, landlords increase their ownership percentage and gain access to the property's appreciation.
When a landlord sells a property, however, they must pay taxes on any capital gains unless they reinvest the proceeds in another rental property. This procedure, known as a 1031 exchange, is subject to specific requirements. The new property must be determined within 45 days of the sale, and the entire transfer must occur within 180 days.
Advantages of Being a Landlord
• Utilization of leverage to acquire the property
• Tax-deductible costs
• Income stream
• Potential for appreciation
Disadvantages of Being a Landlord
• Various property maintenance and management responsibilities
• Taxes on capital gains
• Tenant-related difficulties
• Unanticipated costs
• Unique legal liabilities
Special Considerations
Oregon became the first state to implement statewide rent control in 2019, limiting landlords' ability to evict tenants without cause and capping rent increases.
What are prohibited actions for a landlord?
Here are the four main things a landlord is prohibited from doing:
Discriminate
The Fair Housing Act prohibits landlords from denying a lease based on race, color, national origin, sexual orientation, marital status, disability, or gender.
Enter without proper notice
Before entering a property, landlords must provide proper notice, unless the situation is an emergency, such as a fire or leak. State laws vary, but many require at least 24 hours' notice.
Evict tenants improperly
Incorrectly evict tenants, a landlord may evict a tenant for a variety of reasons, but they must always follow the correct legal procedures. The landlord's legal position is compromised if proper procedures are not followed.
Increase rents without notice
Before increasing a tenant's rent, landlords must provide adequate notice (typically that means a minimum of 30 days). And based on the state, rent control laws may prohibit landlords from increasing rents above a certain limit, even at the time of lease renewal.
How Can You Become a Landlord?
Being a landlord does not require a specific license, degree, or certification. When you acquire a rental property, you essentially take on the role of landlord. Consequently, it makes sense to familiarize oneself with landlord-tenant laws, state regulations, and property management best practices in order to operate the property as smoothly as possible.
How much notice must a landlord give a tenant to vacate the premises?
In most states, landlords must give a month-to-month tenant 30 days' notice to terminate the lease.
What is covered by landlord insurance?
Typically, landlord insurance covers three types of losses:
Property damage
Property damage is the destruction of a home by perils such as fire, wind, hail, or snow.
Liability
Provides legal protection for the landlord if a tenant is injured on the property.
Loss of rental income
If the property cannot be rented out due to protected damage, landlord insurance also may cover the loss of rental income.
How Much Time Does a Landlord Have to Make Repairs?
State by state, landlord-tenant laws differ. In general, however, a landlord has between three and seven days to address critical issues (such as no heat or running water) and 30 days to address less urgent issues.
How Do I Report a Landlord for Negligence?
In the majority of instances, you must notify the landlord of any issues before filing a formal complaint. If the landlord does not respond or correct the problem, you can file a complaint with:
• The local department of health
• Rental Housing Protection Agency
• Multifamily Housing Complaint Line of the U.S. Department of Housing and Urban Development (HUD)
• The community police
How Much Can a Landlord Raise the Rent?
The amount by which a landlord may increase the rent is determined by local regulations. In areas without rent control, state-by-state rent increases vary. In California, for instance, the Tenant Protection Act of 2019 imposes a limit on rent increases in unregulated areas.
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