Posted by & filed under Landlords.

All property owners are required to protect their tenants from criminal activity to some degree. Not only are landlords liable for criminal acts committed by their tenants, but they also have a responsibility to protect the neighborhood from the illegal activities of strangers.

With that in mind, landlords need to take steps that not only limit the potential for crime, but also reduce the risk of being held responsible if an assault, burglary, or other crime occurs. Here are a few things you should consider, although please note that this is for informational purposes only and is not intended as legal advice:

  • Review all the state and local security laws that apply to your property, such as deadbolt requirements, locks on the windows, and ensuring areas around the property are well-lit.
  • Take a genuine assessment of the crime in the neighborhood your property is located and use this information to design a security system that will improve the safety of your tenants. Reach out to local law enforcement, your insurance company, and private security professionals to get advice and recommendations.
  • Educate your tenants about neighborhood safety and the types of crime typically seen near the property. You should also go over the security measures you’re providing, including how to use them and any limitations they have.
  • Perform regular maintenance inspections, keeping an eye out for any potential security issues like broken locks or burnt-out floodlights. Check in with your tenants too – ask if they have any suggestions or if they’ve spotted any problems you might have missed.
  • All tenant complaints about suspicious people or activities, dangerous circumstances, or broken security items should be handled immediately. Failing to do so could cause you to take on more liability if a tenant becomes injured after making a complaint.

Although some safety measures can be costly, they’re worth preventing larger issues caused by crime occurring at your property – and potential settlements, which could cost hundreds of thousands of dollars or more. If your safety measures require a rent increase, discuss it with your tenants. Many of them will likely be fine with paying more if it increases the safety of their home.

Another thing to keep in mind: you should be particularly careful when choosing a property manager, especially because they’ll be your tenants’ first point of contact and have access to all the master keys. It’s crucial to run a complete background check on the property manager and pay close attention to their job performance, especially since a tenant could sue you if they have property stolen or damaged because you failed to supervise the property manager closely. If you receive reports of the property manager behaving in a troubling or illegal way, take notice! Investigate the matter and replace the property manager if the claims are valid. Also, you’ll want to make sure that your insurance coverage includes illegal acts carried out by employees.

What if a Tenant Deals Illegal Drugs on the Property?

Liability concerns don’t just involve strangers – sometimes they come from your own tenants. What happens if you have a tenant who is dealing drugs on your property? Unfortunately, this can cause practical and legal issues.

Anyone (whether they’re another tenant or someone in the neighborhood) who’s injured or concerned about a tenant dealing drugs can technically sue a landlord on the grounds of the property being a public nuisance or threat to public safety. In addition, federal or locawl authorities can enact fines on the basis that you’re allowing illegal activity to continue. In some cases, law enforcement may even seek criminal penalties – and in extreme cases, the property can be confiscated. Beyond creating potential legal problems for you, a property where drugs are being dealt can make it difficult to find and retain good tenants, and it could even affect your property value.

How Can Landlords Avoid Liability Caused by Tenants Breaking the Law?

Fortunately, there are several steps you can take to avoid issues caused by tenant-related criminal activity and reduce your liability.

  • Screen your tenants carefully to ensure you’re choosing people who are responsible and law-abiding. Be careful with criminal records, however, since some states have laws regarding when in the application process you can use criminal records. Make sure to review screening laws as they apply to your property to ensure you’re screening everyone legally.
  • Avoid accepting cash for rent payments; instead, choose methods that have a paper trail, such as a check or online payments.
  • Don’t look the other way if a tenant is disruptive in some way. Make sure your lease or rental agreement clearly prohibits selling drugs and other types of illegal activities. If you discover a tenant has violated those terms, begin the eviction process immediately.
  • Stay aware of what goes on at your properties, including any suspicious activities like excessive traffic coming and going from the premises.
  • Be responsive to complaints you receive from tenants or neighbors, especially if they involve drugs or other illegal activities. Once you’ve been notified of the problem, contact the local police department for guidance on handling the issue.

Rental property owners are being sued more regularly for negligence in criminal activity, with many settlements and jury awards ranging anywhere from $100,000 to $1 million, so it’s essential to take the matter seriously and take all steps to prevent problems from arising. You may be at even greater liability risk if similar situations have occurred in the past, so make sure you keep a close eye on your properties and reassess your security measures regularly to keep your tenants – and yourself – protected.

Posted by & filed under Property Management.

flushable wipes placed in toilet

Flushable wet wipes have become increasingly popular over the past decade or so. Marketed as “plumbing and septic” friendly, it’s easy to see why many consumers have embraced the hygiene product –especially when toilet paper shortages affected much of the nation last spring. Despite their name and how they’re marketed, it’s important to know that not all brands of wipes are actually flushable – in fact, many of them can cause major plumbing problems.

Regardless of the brand, wet wipes are made from fibrous materials; some are also reinforced with polymers like viscose. When flushed, they’ll go down the toilet easily, but problems can start when they reach the 45-degree elbow in the plumbing because many of the materials in them don’t break down. Once a wipe or two starts to collect in the elbow, they’ll often continue to catch more wipes, which can eventually lead to a blockage. Unfortunately, wet wipe blockages can lead to thousands of dollars’ worth of damage to plumbing and septic systems.

Whether you’re a landlord or property manager, you definitely don’t want to deal with the potential plumbing issues wet wipes can cause! Many plumbers recommend that only toilet paper is flushed down the toilet and this is a good piece of advice to use with your properties. Not only can damage to the plumbing system be expensive to repair, but cleaning costs can add to the overall bill.

What You Should Do

With this in mind, you may want to consider adding a clause to your lease or rental agreement that states wet wipes are prohibited at your properties – or that any plumbing problems caused by them are the tenant’s responsibility to pay for. You can also direct them to the ample collection of articles online that talk about the plumbing horrors wet wipes can cause. It may seem like a bit of a scare tactic, but it can be very successful in helping tenants understand why they should avoid flushing wet wipes down the toilet.

Although there’s no sure way to stop your tenants from purchasing and using these products, making them aware of the issue and including gentle reminders throughout the year does tend to help. In multifamily units especially, plumbing issues like these can quickly become a nightmare for multiple residents if the main plumbing line gets blocked. Families may have to be displaced for a time, belongings can get ruined – it’s a hassle for everyone involved! So, take some time to educate your tenants and decide what your policy will be. A little education and planning will help everyone in the long run!

Posted by & filed under Uncategorized.

As a landlord or property manager, you’re likely familiar with the Fair Housing Act of 1968 (FHA). The FHA was created to ensure anyone searching for a place to live has a fair chance at finding one, without fear of discrimination based on their protected class. Although it wasn’t the first law of its kind (the Rumford Fair Housing Act of 1963, among others, helped pave its way) the FHA has made the largest impact on the rental housing industry. Please note that this is intended for informational purposes only and is not intended as legal advice.

FHA Overview

The FHA was created during the peak of the Civil Rights Movement, prohibiting discrimination in housing decisions based on seven key factors: race, color, national origin, religion, sex, familial status, and disability. Discrimination based on any of these factors is illegal. This includes circumstances like refusing to rent a home, using different qualifying criteria, instigating separate rules or prices for rent or late fees, or other types of discriminatory behavior. Additionally, discrimination would include things like harassment, threats, retaliation, or refusing to provide repairs or maintenance.

Most types of housing are covered under the FHA; the following types of housing may be exempt in very limited circumstances:

  • Owner-occupied buildings with four or less units
  • Single-family homes sold or rented by the owner without the use of an agent
  • Housing operated by religious organizations and private clubs that limit occupancy to members

Property Advertisement

Advertising vacancies is one of the first steps to finding the right tenant, however, you should be aware that discriminatory advertisements are also prohibited by the FHA.

Some examples of discriminatory advertising include:

  • “No young men”
  • “Females preferred”
  • “White applicants only”

These are all obviously discriminatory, but discrimination in an ad can also be subtle and completely unintentional, like stating that the property is “perfect for single people or couples” or even “nice, quiet, mature neighborhood.”

When writing an ad for your property, keep the focus on the property – not on preferred tenants or directed towards a certain group of applicants. Instead, talk about the features, like how many bedrooms there are, the size of the yard, or that the property has new appliances. When talking about the neighborhood, focus on nearby attractions, such as parks, shopping centers, or services.

Tenant Screening and Interviews

Likewise, it’s important to avoid discrimination while talking to potential applicants. If you’re like many landlords, your first step in tenant screening likely begins with talking to the applicant before you decide to move onto a credit or background check. This might be in person during the showing of the property or via a phone call, text, or email. However you’re communicating, it’s important not to make any inadvertent discriminatory remarks, such as:

  • Do you have a service dog?
  • Do you have kids?
  • Do you like the church in our neighborhood?

While these questions may not be purposefully discriminatory, they could be interpreted as such. Instead, keep all questions and comments directly related to the property and the terms of your lease or rental agreement.

Additional Protected Classes

In addition to federally protected classes, some states have added to the list. California, for example, has extended housing protection laws to include the following groups:

  • Sexual orientation
  • Marital status
  • Source of income
  • Age
  • Arbitrary characteristics (such as tattoos, hair color, etc.)
  • Gender identity and expression

It’s not just state governments that have additional protected classes, either. New York City has its own set of protected classes, which includes:

  • Age
  • Alienage or citizenship status
  • Color
  • Creed, religion, or race
  • Disability
  • Family status
  • Gender or gender identity
  • Lawful occupation
  • Lawful source of income
  • Marital or partnership status
  • National origin
  • Race
  • Sexual orientation
  • Immigration status
  • Military service
  • Pregnancy
  • Presence of children
  • Status of victim of domestic abuse, sexual violence, or stalking

Since laws can vary from state to state – and even from city to city – it’s always recommended to stay up-to-date on local laws in order to protect yourself and your properties from risk. This is especially important if you have rental properties located in different states. By staying informed and updating your policies as necessary, you can prevent potentially costly legal trouble! You may also want to consider working with a lawyer when determining how to rent and advertise your properties to ensure all your legal bases are covered.

Posted by & filed under Rentals.

The roof is your rental property’s first line of defense against the elements, but it’s also arguably one of the most vulnerable parts of the building – and one of the costliest to replace. However, just like bringing your vehicle to the mechanic regularly for maintenance will lower your overall repair costs, roof maintenance can extend the lifespan of your roof and how often it will need replacement.

Tenant Screening Cambridgeport MA

Property maintenance is an essential part of keeping your property maintained and habitable. Capital budgeting also becomes more predictable and simplified when you factor in preventive maintenance and inspections. With that in mind, here are some tips on how to extend your roof’s lifespan and save money in the long run.

Routine Maintenance

Regular maintenance on your roof is one of the most cost-effective options for landlords and property managers. Manufacturers tend to agree; it’s estimated that routine maintenance can extend a roof’s lifespan by 25%. Maintenance would include things like removing snow, re-caulking or re-sealing as needed and clearing debris. If there are trees around the property they should be trimmed back away from the roof to reduce leaves, twigs, moss, and other debris from clogging the gutters and to prevent animals from getting onto the roof. You should also check that the insulation in the attic is adequate, especially if you provide electricity for your tenants. Poorly insulated attics are one of the largest sources of potential energy loss, particularly during extreme temperatures.

Although you may have some small upfront maintenance expenditures, keeping up with your roof maintenance can significantly minimize the roof’s overall cost. A well-maintained roof needs minimal repair annually and will have fewer expenses associated with it overall, plus it minimizes how often the roof will need to be replaced.

Roof Maintenance Inspections

In addition to performing maintenance on your roof, roof maintenance inspections can help you plan and budget for any future costs. For example, a contractor can provide you with a detailed report that will tell you you’re likely going to need repairs in about 3 years, and a complete replacement in 12 years. Using this information, you can reduce the likelihood of budget shortfalls and emergency repairs.

While you should conduct your own visual inspections regularly, most experts recommend consulting with a roofing contractor twice a year for a more detailed inspection and projection of what types of repairs will be necessary in the future. Keep in mind the location of your rental property when scheduling inspections, as things factors like snow and salt air can put substantial wear and tear on a roof that may require more frequent maintenance or repairs.

Lower the overall cost of your roof replacement

Performing regular maintenance and minor repairs as they occur will help prevent larger-scale projects and reduce the overall costs; it also protects your building operations from interruptions that can be expensive and time-consuming. Repairing small leaks, for example, can protect your deck or other structures from becoming damaged and ensure the insulation doesn’t become saturated and require replacement.

Simple maintenance items can save you up to 30% of the entire expense of replacing your roof and may provide even more savings when you factor in the costs of replacing other areas that would have become damaged otherwise. On average, a well-maintained roof will cost approximately $3 – 5 per square foot for a re-roof, as opposed to $12 per square foot for a poorly maintained or structurally unsound roof. These costs can easily be mitigated by implementing a regular maintenance plan.

It’s easy to neglect roof maintenance, especially while capital planning; however, consistent upkeep will significantly reduce the need for repairs and replacement, as well as unforeseen costs. Additionally, as the landlord or property manager, you have a responsibility to keep the property habitable in accordance with your state laws. Hiring a contractor to conduct regular annual or bi-annual inspections will also ensure you have a complete picture of what your roof will need and when, so you can plan and budget accordingly.

Posted by & filed under Landlords.

Tax season is here again, so it’s an ideal time to review several important tax breaks that you could be overlooking with your rental housing properties. Here’s a look at some common tax deductions you may be able to take advantage of this tax season; please note that this is for informational purposes only and is not intended as financial advice. For more information on how these tax breaks can be applied to your rental properties, please consult with a tax advisor.

  1. Repairs & Maintenance
    In general, anything you do to maintain your rental properties and keep them in good condition and livable is tax-deductible. This includes things like appliance repair, fixing a broken window, pool cleaning, or pest control. You can also deduct the money you’ve spent on equipment to maintain the property, like lawnmowers or chainsaws.

    The costs of the supplies needed to complete repairs are also deductible. This includes things like door handles, shelving, light fixtures, plumbing supplies, and labor costs. Rental fees for tools or equipment needed for repairs count as well. In addition, if there’s anything that makes the property uninhabitable for any reason and the tenant needs to stay in a motel while the issue gets resolved, the hotel fees would also be tax-deductible because they are considered to be a part of the repair process. Deductible repairs are essentially anything you need to do to the property to get it back to livable, working condition.

  1. Advertising
    Most business expenses are tax-deductible, including advertising. Regardless of whether you choose to advertise on the radio, television, or the web, you’ll be able to write it off on your taxes. Make sure to keep all your receipts, just in case of an audit. It’s also important to save your receipts to ensure you’re taking advantage of all your deductions and providing accurate information on your taxes.

    One thing to keep in mind is that word of mouth is also a form of (free) advertising, however, you can’t deduct the time you’ve spent talking to people about your property. For example, you can’t write off a lunch where you discussed your property with some friends. Although most landlords wouldn’t think to do this, some might consider it. Be careful and accurate about your advertising deductions and ask a tax advisor if you’re unclear on what falls under tax-deductible advertising.

  1. Property upgrades
    In contrast to repairs, upgrades are anything that adds or increases the value of your property. This includes things like adding a screened-in porch or installing new cabinetry or countertops. Upgrades are usually more labor-intensive and cost more than general repairs or maintenance, and the assumption is that the improvements will add value to the property over many years, not just the current year. For this reason, you can deduct a percentage of the costs of upgrades during the year they’re performed, but not all of them. Depending on the type of upgrade you make, you may also be able to deduct depreciation on your taxes over the course of several years.

    Tax credit amounts can be very specific, which can make it difficult to distinguish some types of improvements from repairs. For example, replacing older windows is a bit of a gray area, and whether or not that would be tax-deductible depends on the age of the windows and the type of windows you’ll be replacing them with.

  1. Services and commissions
    Any fees you pay property managers, attorneys, or other professional services that are specifically related to your property are considered business expenses and therefore tax-deductible. Other fees that would fall into this category are fees from tax accountants, real estate agents, notaries, and investment portfolio managers.

  1. Insurance
    Almost all insurance premiums you pay for your rental property are tax-deductible, including fire, theft, flood insurance, and landlord liability insurance. If you have employees, you can also deduct the cost of their healthcare and worker’s compensation insurance.

  1. Mortgage interest
    If you’re paying a mortgage on your rental property you’ll have to pay interest on it, however, the interest for those payments is tax-deductible as a business expense. Although there’s a yearly limit to how much you can deduct, you’ll want to make sure you can deduct the maximum amount you’re entitled to. Other items you can deduct are points or prepaid interest that you paid when you first took out the loan.

  1. Pass-through deduction
    As of 2018, most landlords qualify for the pass-through deduction established by the Tax Cuts and Jobs Act. This is a special income tax deduction that’s set to expire in 2025, rather than a rental deduction. Depending on your income, you may be able to deduct up to 20% of your net rental income OR 2.5% of the initial cost of the property plus 25% of the amount you pay any employees.

  1. Travel expenses
    Landlords can deduct most of the driving they do for rental activities. This would include driving to the property for maintenance or going to the hardware store for repair supplies. However, travel for improvements cannot be deducted – these types of travel expenses must be added to the property’s tax basis and depreciated over years, like the improvements themselves.

    If you drive your own vehicle for rental activities, you have two options for deducting expenses. You can deduct the actual expenses like gasoline, upkeep, and repairs, or use the standard mileage rate provided by the IRS. However, to qualify for the standard mileage rate, you have to use it in the first year you used your vehicle for rental activities.

    If you need to travel overnight for rental activities (for example, if your property is in another state), you can deduct airfare, hotel bills, meals, and other travel-related expenses. However, be aware that auditors pay close attention to overnight travel deductions because many taxpayers claim them without providing records to prove they’re valid. If you do any overnight travel, make sure you keep good records and all your receipts in case of an audit.

Knowing what you can deduct with your rental properties ensures you get all the tax breaks you’re entitled to and helps recoup the cost of many common expenses throughout the year. Make sure to do the proper research and to reach out to a tax advisor if you’re uncertain if a particular tax break applies to your properties.

Posted by & filed under Rental Housing.

Renting to tenants is risky, so it’s understandable that you want to choose the best applicants when filling a vacancy. Tenants can cause property damage, hurt your reputation, or even potentially sue you for damages, which is why it’s important to screen your applicants before extending an offer.

However, some landlords can get a little overzealous about finding the right tenant. Although it’s legal to deny rental applications, you’re can’t deny applicants simply because they don’t fit your exact criteria for an ideal tenant. For this reason, it’s important to understand the legal reasons you can deny an applicant without the risk of legal ramifications. Please note the information presented here is for informational purposes only and is not intended as legal advice.

Why Can’t I Deny Any Application For Any Reason I Want?

Whether it’s a matter of bad credit or you don’t like the information that they put on their application, there are many reasons you might want to deny an applicant. However, there are federal, state, and local laws that limit the reasons why an applicant can be denied to prevent discriminatory practices that can block renters from having a fair chance at housing.

Legal Reasons You Can Deny an Applicant

Although the laws can vary depending on the location of your rental property, there are five valid reasons for denying an applicant that apply nationwide; some of these reasons may vary slightly depending on your jurisdiction. It’s also recommended to familiarize yourself with any additional state and local laws to ensure you’re doing everything by the book.

  • Income-to-Rent-Ratio
    If the applicant doesn’t make enough money to be able to afford rent, this is a valid reason to deny them. A general rule of thumb is that the applicant should make at least three times the monthly rent to order to rent to them, although this amount might be higher depending on where your property is located.

    For example, if the rent is $3,000 per month ($36,000 per year) the applicant would need to make at least $120,000 per year to rent the property. As a landlord or property manager, you are well within your rights to require evidence of the applicant’s income. This a pay stub or direct deposit statement, or you can have a tenant verification conducted, which verifies the applicant’s income and employment status with their employer. If the applicant cannot verify their income or refuses to, you can deny their application at will.
  • Too Many People Would be Living at the Property
    This reason can get a bit confusing because the number of tenants allowed to live on a property is determined by local, state, and federal housing departments, rather than the landlord. To find out how many people are allowed to live at your rental properties, check the relevant occupancy laws. A general rule you can follow is two people per habitable room plus one additional person.
  • Bad Credit
    As a landlord or property manager, you’re allowed to require a minimum credit score for applicants to be considered for renting your properties. However, this score can’t be changed whenever it suits you or because you’d like to deny a particular applicant. It’s important to stay consistent if you choose to use credit scores as a factor in your decision.
  • Evictions and Unpaid Balances
    You can legally deny an applicant that has unpaid balances from former rental properties, as well as those who have been sent to collections. Although eviction laws are in a state of constant change due to COVID-19 and concerns over the lack of accessible housing in many areas, it’s legal to deny an applicant that has a long history of evictions. However, if the applicant had only one eviction that took place a long time ago, it’s worth considering overlooking this as a cause for denial.

    Likewise, if the eviction has been within the last year during the pandemic, you may also want to get more information about the reasons the applicant was evicted and weigh whether you feel they are truly a risk. Was it due to circumstances related to the pandemic (and out of their control), like becoming sick or losing their job? Do they have a good rental history otherwise? Do they meet your other criteria for a tenant? If so, it may be worth overlooking.
  • Incorrect Information
    If you discover the applicant has provided you with false information, it’s legal to deny them until the information has been corrected and they’ve reapplied. Some examples of false information include creating a fake employer or landlord to use as a reference, or misrepresenting how much their salary is. This is where tenant verification can be valuable because it provides you with accurate information directly from previous landlords and the applicant’s current employer. If you find out the applicant lied, you can legally deny them.

Other Reasons You Can Deny an Applicant

Here are a few other reasons you may be able to deny an applicant, depending on your state or local laws:

  • For most states, if you have a property that doesn’t allow smoking or pets, you can deny applicants who smoke or have pets – even if they say they won’t smoke or keep pets at the property.
  • Some states and cities allow landlords and property managers to deny applicants with specific types of criminal history, generally violent crimes. However, using criminal history can get complicated, so make sure you understand when you can use criminal history to screen applicants, as well as the legal reasons for denial at your property. You’ll also want to carefully consider whether the applicant’s criminal background really has any bearing on their rental reliability.

Invalid Reasons to Deny an Applicant

As previously mentioned, there are also legal reasons you’re not allowed to deny an applicant, specifically Fair Housing Laws under the Fair Housing Act. Fair Housing Laws explicitly forbid rejecting an applicant due to discrimination based on their protected class. This includes denying an applicant based on:

  • Race
  • Ethnicity
  • Age
  • Sexual orientation
  • National origin
  • Disability
  • Religion
  • Gender or gender identity
  • Marital status
  • Familial status
  • Participation in the Section 8 Program or other subsidy programs (this can vary based on your state and/or municipality)
  • Other types of arbitrary discrimination

How to Deny an Applicant

In addition to understanding why you can deny an applicant, it’s also important to know that there are rules and regulations to follow when actually denying them.

In order to deny an applicant, you must let them know of your decision by sending them an adverse action letter that informs them of the reason why they’re being denied and if they can do anything to be reconsidered. This is done using the following steps:

  1. Decide whether you want to accept the applicant with conditions (for example, a higher security deposit for renters with pets) or deny the applicant completely.
  1. Write the adverse action letter. If you’ve never done this or aren’t sure what to include, there are many templates and examples available online. Make sure that you are thorough about your reasons for your decision and provide clear information to prevent confusion.
  1. Mail the letter to the tenant. If you used a credit report, you’re legally obligated to include information regarding their rights under the Fair Credit Reporting Act (FCRA). If you live in California, you’ll also need to include information regarding their rights under the Investigative Consumer Reporting Agencies Act (ICRAA).

Choosing the Right Tenant

Although it can be tempting to choose a tenant based on arbitrary things, like first impressions or just a general feeling they would be a good fit, it’s best to use objective information to base your decision on. The main factors that you should consider are:

  • Credit score
  • Landlord and employer references
  • Income-to-rent ratio
  • Background checks
  • Eviction history

All of these give a clearer picture of whether the applicant is likely to be a reliable and trustworthy tenant. Using our screening services is a convenient and hassle-free way to obtain the information you need to choose the right tenant for your property. When making your rental decisions, spend time considering the legal basis for them, and be sure to send out the proper notifications to applicants you’re denying. This will help to negate any risks associated with claims of discrimination or illegal actions.

Posted by & filed under Rentals.

Whether you’re the landlord of a single-family home or you own a multi-unit apartment building, it’s important to understand whether your rental is considered an investment or a business because the distinction can have important tax consequences. If you’re considered a business owner, you’ll receive valuable tax deductions that don’t apply to investors. With tax season on the way, it’s an ideal time to revisit how rental properties are classified and some of the requirements you’ll need to know about if you’d like to turn yours into a business. Please note that this is for informational purposes only and is not intended to provide legal advice.

Investments versus Businesses

Typically, rental properties are considered investments by the IRS. This is because you may make a profit from the rent, but you don’t necessarily spend time working at the property. It’s essentially passive income. If you use the rent money from the property to pay for bills related to the property, the IRS considers it an investment.

However, even though many rental properties are considered investments, they can be businesses. For example, if you take on the management of your property where you’re regularly making repairs or replacing appliances, it’s more likely considered a business. If you own and manage a rental that’s been vacant for a long time or only has occasional occupants (like a vacation rental), the IRS may consider it an investment because you’re likely spending less time working at it. Likewise, properties that involve limited times partners, real estate investment trusts, and time-shares are considered investments.

In order for your rental property to qualify as a business, you’ll need to show the IRS that you have been performing management duties continuously throughout the year. You don’t necessarily have to do all the work yourself either; you can hire property managers or maintenance employees to assist you with office work, marketing, maintenance requests, and other day-to-day tasks and the property will still be considered a business.

There are no requirements on how many properties you need to own to qualify as a business; it can be a single rental home, multifamily homes, or even a commercial space that a store rents.

What is a Residential Rental Property

It’s also important to know that residential rental properties have some additional rules that set them apart from other types of properties. To be considered a residential rental property, the property must be a residential dwelling unit. This means someone lives there and considers it their home. It can be a single-family home, a duplex, a townhouse, an apartment unit, or even a mobile home, as long as it has living conditions like a bathroom, kitchen, and bedroom. The second rule is that you must have a lease or rental agreement.

Friends and family living at the property likely won’t be considered tenants for business purposes by the IRS, so if you’d like to take advantage of tax deductions, you’ll want to make sure your tenants are third-party people that you’re not otherwise associated with.

The 80% Rule

To be considered a residential rental property, the IRS also requires that the property gets more than 80% of its revenue from dwelling units. This may seem unnecessary, as most landlords probably receive 100% of the revenue from their units, but some property owners have mixed buildings, particularly in larger cities.

Your property could consist of a convenience store on the first floor with a handful of apartment units above it. In this case, you’d have to receive 80% of your income from the rental units for the property to be considered a residential rental property; otherwise, it would be considered a commercial property.

The 80% rule also applies to duplexes and apartments where the landlord is also residing. In this case, you’d need to make sure that 80% of the revenue coming in is coming from the other tenants in the building (excluding yourself).

Depreciation Tax Breaks

A large advantage to owning a residential rental property is that you can recover the cost of the property as a capital expense by depreciating it each year on your tax returns. Although you can’t depreciate a primary home, you can depreciate appliances, furniture, or other things inside the home.

To determine your annual depreciation allowance, you’ll need to know the property’s cost basis and the recovery period. You can find the cost basis by adding up what you paid for the property (including closing costs, legal fees, and taxes) as well as any improvements or remodeling you’ve done to it in the time you’ve owned it.

Over time, residential rental properties depreciate with a recovery period of just over 27 years; this is in contrast to non-residential rental properties, which depreciate over about 40 years. What does this mean for you? You’ll be able to write off residential properties quicker than a non-residential rental property. Items in the unit like appliances have a recovery period of fewer than 10 years.

Different Business Structures

In addition to different classifications for your rental properties, there are also different business structures for landlords:

  • Sole Proprietorship – This is one of the most common types of business structures, as well as the easiest to operate. A sole proprietorship is when an individual (or a married couple) runs the business. Although there are fewer legal controls and taxes, sole proprietors are personally liable for any debts incurred by tenants or the owner’s business.

  • General Partnership – A general partnership is made up of at least two people (who aren’t married) who agree to work together and share the profits, losses, and management duties of the business. Typically, each person is also individually liable for any debt that incurs, so make sure to have all the details of your partnership in writing.

  • Estate – An estate business structure is similar to a sole proprietorship, except that becomes an estate when an individual owner passes away. Due to the legal issues or the operations of the business, the property may go into estate status so that the property or business can continue running until the legal issues have been addressed.

  • Limited Liability Company – Also known as an LLC, a limited liability company is typically formed by one or more individuals through a written agreement that outlines income, tasks, management, and distribution of income or losses. LLCs can engage in any lawful business activity except for banking or insurance. To become an LLC, you’ll have to file with the Secretary of State where the property is.

  • Tenants In Common – This is a business structure that allows two or more people to own the same property while having separate assets and liabilities for it.

Tips for Turning Your Rental Property into a Business

Have you decided you want to turn your rental property into a business? Here are a few tips that can make the process a little easier.

  • – Keep separate books and records for every rental property you have.

  • – Log at least 250 hours of maintenance or rental services each year that were performed by you or an independent contractor; this shows that you’re actively working at the property.

  • – Keep time reports or any other documents that show the number of hours you’ve worked on the property, all the tasks or services you did, the date and time that the services were completed, and who completed them (if you hired someone).

  • – Consider taking a real estate and/or business class.

  • – If you’re a new landlord or you don’t have much business experience, you may want to consider getting a partner; however, you may want to avoid partnering with friends or family, as that can cause tension in your relationship. Find a partner who has experience in the areas you’re lacking.

  • – Hire help, like property managers or maintenance employees, to make your job a little easier.

Owning a rental property can be a lot of work and turning it into a business can definitely make things more complicated. Hopefully, this guide has given you some clarity on how your property is classified and how to turn it into a business – if it’s not already.

Posted by & filed under Rental Housing.

In September, the Centers for Disease Control and Prevention (CDC) issued a temporary nationwide eviction moratorium on most evictions for nonpayment of rent to curb the spread of COVID-19. The CDC stated that the moratorium, which is set to end December 31, 2020, would help reduce the spread by allowing people to follow stay-at-home orders and social distancing measures. It’s also intended to reduce homelessness and in turn, people moving into congregate housing like homeless shelters, which can increase the spread of the virus. The moratorium, as it currently stands, covers tens of millions of renters across the U.S.

The following is an overview of the moratorium; please note that this is for informational purposes only and is not intended as legal advice.

Does the Federal Moratorium Halt All Evictions?

The moratorium only covers evictions due to non-payment of rent and other fees or charges; landlords can still move to evict bad faith tenants. Any evictions that were initiated before September 4, 2020, that haven’t been completed are subject to the moratorium. The reasons a landlord can still move to evict a tenant includes:

  • Conducting criminal activity on the property
  • Threatening the health or safety of the other residents
  • Damaging or posing an immediate and significant risk of damage to the property
  • Violating applicable building codes, health ordinances, or other regulations related to health and safety
  • Violating any contractual obligation other than the timely payment of rent, late fees, penalties, or interest

The CDC guidance states that landlords may initiate eviction proceedings at any time, however, tenants covered under the order cannot be evicted until the order expires on December 31. If you do choose to evict during the moratorium period, make sure you follow all local procedures but be aware that the process may take longer than normal. In jurisdictions that have a local eviction moratorium, the stricter of the two moratoriums is likely to apply, although the CDC hasn’t provided clear guidance regarding this. You can find an up-to-date list of the state and local eviction moratoriums that are currently in place here.

Does the Federal Moratorium Cover All Forms of Rental Housing?

Eviction and Mask

The CDC order covers all standard rental housing, including mobile homes or property in a mobile home park. Some types of housing are exempt; these include individual hotel rooms, motels, or temporary guest home rentals. Your state or local government may have eviction protections in place for the federally exempt housing, so it’s recommended you research local applicable laws if you own these types of rental properties.

How Do Renters Qualify for Eviction Protection?

Tenants are not automatically covered by the moratorium; to qualify for eviction protection, they must essentially “opt-in”. This is done by filling out and submitting a form to their landlord stating that they’ve lost income due to the coronavirus pandemic and have made an effort to look for financial assistance. Translations of the form (in several languages) can be found here.

The CDC recommends that each adult listed on the lease, rental agreement, or housing contract should complete and sign the form, although tenants who file a joint tax return may submit a single form. Landlords are not required to make their tenants aware of the CDC order, but they must comply with it.

Other qualifications for the moratorium include:

  • Earning no more than $99,000 annually (or $198,000 if filing jointly) in 2020, or the tenant wasn’t required to report income to the IRS in 2019, or received an Economic Impact Payment
  • The tenant is unable to pay rent in full due to a loss of income, loss of work hours, or extraordinary (exceeding 7.5% of the household’s adjusted gross income for the year) out-of-pocket medical costs
  • The tenant is doing their best to make timely partial payments that are as close to the full rent payment as possible.
  • It’s likely the tenant would become homeless, need to live in a shelter, or would have to move in with another person if they were evicted

Tenants should also be aware that they will still be responsible for paying all back rent and fees that accumulated during the moratorium.

If a landlord violates the moratorium, they may be subject to a fine of up to $100,000, one year in jail, or both. If the violation somehow results in the death of a tenant, the fine is increased to $250,000. If an organization is found violating the moratorium, it may be subject to a fine of $200,000 per violation or up to $500,000 per violation if it results in the death of a tenant.

Can Landlords Challenge a Tenant’s Declarative Statement?

On October 9, the CDC issued new guidance for the moratorium, stating that landlords could challenge their tenants’ declarations and initiate eviction proceedings at any time. However, the CDC doesn’t give any guidance on the standards or procedures for such a challenge, so it’s likely the burden of proof will rest on the landlord in court, who will need to prove that the tenant isn’t being honest about their financial situation. Anyone who makes false claims to be covered by the moratorium may be subject to criminal penalties under 18 U.S.C. § 1621 (perjury) or other applicable criminal law.

The CDC guidelines are fairly straightforward, but if your state or local government has also enacted a local eviction moratorium, you should review your local laws before moving to evict a tenant. Be sure to keep detailed documentation on the reasons for eviction, as well as all your communications with the tenant. If you’re uncertain of how to proceed with eviction in your area, consult with legal counsel to ensure that you’re taking the right steps and conducting the process legally.

Posted by & filed under Rental Housing.

The housing crisis isn’t a new development in California; since about 1970, the state has experienced an increasing housing shortage, and by 2018, California ranked 49th in the nation in housing units per capita. Rising rents, stagnant wages, and overall high cost of living have all been named as factors in the increase in homelessness and poverty, leading lawmakers to pass Assembly Bill 1482, a statewide form of eviction and rent control. In this blog, we’ll be looking at the rent control portion of the bill. Please note that this is for informational purposes only and is not intended as legal advice.

Assembly Bill 1482 took effect on January 1, 2020, and is set to automatically expire on January 1, 2030. Known more widely as the Tenant Protection Act of 2019 or Protection Act, the law limits the ability of landlords to increase rent rates beyond the cap in a single year. Prior to the passage of the Protection Act, as many as 47 cities and counties already had strict rent control protections. The passage of the law extended rent caps (on rent increases only) anywhere in the state where rent control wasn’t already in place.

If the city your property is located in already had rent control laws, the Protection Act won’t override them. However, it does cover units that weren’t previously covered by local rent control laws. For example, in the city of Los Angeles, the local rent control law only applied to buildings that were constructed prior to 1978. With the passage of the Protection Act, newer units built between 1978 and 2005 now have rent control.

Rent Control Exceptions

The Protection Act covers all multi-family rental units in the state, with some exceptions:

  • New buildings are exempt until they reach 15 years old
  • Duplexes, where one unit is occupied by the owner, are exempt
  • Single-family home and condos are exempt unless they’re owned by a corporation or real estate investment trust (REIT)

How Much Can Rent be Increased?

One of the main questions on many rental housing professionals’ minds is how much they’ll be legally allowed to raise the rent. Annual rent increases are capped at 5% of the gross rental rate, plus the cost of living, and is not to exceed 10%. 

Please note that during a declared State of Emergency, whether statewide or in a single region, California Penal Code Section 396 prohibits charging a price that exceeds more than 10% of the original price before the State of Emergency was declared. This is considered “price gouging,” and is banned for 30 days after the State of Emergency declaration unless otherwise extended by the governor. For more information on whether your region is currently affected by a State of Emergency declaration, as well as the projected end date, please contact your county officials. 

The gross rental rate is determined by using the lowest rental amount charged in any month in the immediately preceding 12 months. This doesn’t take into account things like incentives, discounts, or credits. Even If the rent increase doesn’t exceed the amount permitted under the statute, landlords are still prohibited from increasing the rent more than twice during a continuous 12-month period.

Landlords are required to give tenants notice of their rights under the rent control law. For leases entered into, on, or after July 1, 2020, the statutory language must be included as an addendum to the lease or as a separate written notice that’s signed by the tenant. For leases that existed before July 1, 2020, the notice was required to be provided to the tenant or an addendum to the lease added no later than August 1, 2020.

For sub-tenancies, the rent paid by the tenant plus the rent paid by the subtenant cannot exceed the amount of rent allowable under the Protection Act (tenants can’t make money subleasing). The Protection Act is also careful to point out that the “no profiteering rule” on subleasing doesn’t mean that tenants have the right to sublease without their landlord’s consent.

New Territory for California

California’s rent control law put an additional 2.4 million units under regulation, bringing the total for the state to about 8 million. Will rent control solve the problems that it’s meant to address?

Like most legislation, it will be difficult to know exactly how the Protection Act will play out, especially with factors like the COVID-19 pandemic and continued economic instability. It’s also possible that lawmakers will pass clean-up legislation prior to the expiration of the rent control law. In the meantime, state-wide rent control is new territory for California, which means there are likely to be some kinks for landlords, tenants, judges, and lawmakers alike to work out.

Posted by & filed under Property Management.

Although some states still have restrictions on evictions due to COVID-19, many of them have now begun the process of hearing eviction cases again. As a landlord or property manager, you likely know your local eviction laws fairly well. However, there’s been a growing movement over the past couple of years to amend the normal eviction process to provide greater protections to renters.

Landlord Tenant Law book

The trend overall has been for greater leniency on tenants while increasing restrictions on rental housing professionals, so it’s important to make sure you stay up to date on the most recent eviction laws in your area. You most likely know the reasons you can legally file for eviction – but are you aware of some of the reasons you can’t? Here’s a look at four reasons that could get you into legal trouble.

Discrimination

Even if you’ haven’t been a rental housing professional very long, you’re likely familiar with the Federal Fair Housing Act, which prohibits housing discrimination for seven protected classes, including race or color, religion, sex, national origin, familial status, and disability. Based on the stipulations of the Fair Housing Act, this also means you cannot evict a tenant based on discriminatory factors related to their protected class.

It’s important to understand any biases you may have, and make sure that your eviction decision isn’t based on your personal feelings. If you or one of your staff evicts a tenant due to discriminatory reasons, you’re likely to receive a minimum of a fine from the Department of Housing and Urban Development – worse, they may even put you out of business.

It’s also important to keep in mind that some states have additional protected classes. California, for example, offers legal protection for tenants based on sexual orientation, gender identity, gender expression, marital status, medical condition, ancestry, source of income, age, and genetic information – in addition to the federally protected classes. Make sure that you know about any state-mandated protected classes in addition to the ones outlined in the Fair Housing Act.

Retaliation

Not only is evicting someone to get back at them unprofessional, but it’s also flat out illegal. Although some rental situations can become frustrating, that shouldn’t be the reason for evicting a tenant, even if they make frequent complaints, contacts the health department, or reports you to a housing authority.

If you do have an especially difficult tenant, the best course of action is to take a moment to step back and look at the situation objectively. Unless you have a legal reason to evict them, like breaking the lease, you should try to resolve any issues that come up calmly and professionally. Don’t threaten eviction or take other retaliatory steps. If you suspect you will have to evict them for any reason in the future, keep a list of justifiable (and legal) reasons. If eviction does become necessary, this will provide proof the eviction wasn’t due to retaliation.

Protected Tenants

Similar to Fair Housing Laws, some states and cities have laws that classify some residents as protected tenants. Some examples of this are age (60-65 years and older), disability, and chronic illness. The length of time the tenant has been a resident at the property can be a qualifying factor, for example, if the tenant is 65 and has lived at the residence for 10 years. It’s often difficult to evict a protected tenant, even with legitimate reasons like non-payment of rent, so it’s important to discuss your rights with legal counsel if you’re considering it.

The Resident is Withholding Rent Until a Safety or Health Issue is Resolved

Although it’s rare, tenants can legally withhold rent if there is a serious safety or health issue on the property that hasn’t been resolved. This can vary based on your area, but a common reason is unsanitary conditions due to owner negligence, like a broken toilet, insect infestations, or a lack of power. If the tenant’s health or safety is at risk, they are legally allowed to withhold rent.

Protect Yourself by Knowing Your State’s Laws

Eviction is a time-consuming and potentially stressful process – so it’s important to make sure that it’s the right course of action and within your legal rights. Although screening your tenants will greatly reduce the chances you’ll have to evict them, there’s no 100% guarantee that problems won’t arise in the future. When considering eviction, make sure to base on non-discriminatory factors, like breaking the terms of the lease or non-payment of rent. Review federal, state, and city eviction laws to make sure you’re taking all the proper steps. If your property is located in an area with more complicated eviction laws, you may also want to discuss your options with legal counsel to ensure you’re following all laws accordingly.