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.

Posted by & filed under Property Management.

How to Prepare For A Potential Wave Of Evictions

In 2019, New York state passed a law that effectively banned the use of eviction reports for screening rental applicants. The law, which is part of The Housing Stability and Tenant Protection Act of 2019, penalizes rental property owners who deny applicants on the basis of either a pending or prior eviction litigation. The law was met with widespread criticism, as well as fears that other states would adopt similar regulations.

This was all before COVID-19 was a concern. Since the pandemic, many states enacted temporary eviction bans, many of which have since expired. New York state recently extended its eviction moratorium until January 1, 2021, however that date is still subject to change. Despite this, many areas of the nation have reopened and are now conducting eviction hearings again. Could unemployment rates coupled with a potentially large number of evictions cause other states to consider a law similar to New York’s eviction screening ban? The future remains uncertain, but here’s a look at what the New York law entails.

New York’s Real Property Law

Section 227-F of the Real Property Law clearly bans the use of eviction records. It states:

  1. Rental property owners cannot refuse to rent to or offer a lease to an applicant on the basis of a current eviction litigation or a prior one. The provision also establishes a “rebuttal presumption” that the owner is in violation of the law if they request eviction records from a tenant screening company or reviews eviction-related court documents and denies the applicant.
  1. The attorney general can bring an action or special proceeding in the supreme court if they believe they have satisfactory evidence that “any person, firm, corporation or association or agent or employee thereof” has violated the above provision. Each violation could cost between $500 – $1,000.

While the law bans the refusal of applicants based on eviction records, it also discourages landlords and property managers from even looking at eviction records for fear of being fined if they deny an applicant – even if the eviction history played no part in the decision.

The full economic repercussions of the pandemic have still yet to be seen and there’s still uncertainty about how the spread of the virus might look in the winter. As of October 2, 2020, CNBC ran an article estimating as many as 35 million Americans could face eviction, with an average of 1 in 6 renters being behind in their rent as of September. Without further economic relief efforts from state and local governments, we could be facing widespread evictions in areas that no longer have moratoriums. If this happens, it’s possible more areas will enact a law similar to New York’s to account for the many evicted tenants who will be on the search for housing.

Posted by & filed under Rental Housing.

With housing shortages, rising rent prices, unemployment due to COVID-19, and other issues, rent control has become a hot topic this election year. As a refresher, rent control (also called rent stabilization) caps a tenant’s rent at a specific dollar amount or limits the percentage the rent can be increased by after the tenant’s lease is up. While rent control has been utilized across the country for decades, there’s been a notable increase in states’ implementation of rent regulation measures over the past few years.

Rent Laws

Currently, 6 states have some form of rent control laws. Likewise, many states either have no form of rent control or preempt it entirely. Here’s a look at how each state currently handles rent control laws; please note that this is intended for informational purposes only. We recommend further research into your state and local laws to better understand how they affect your rental properties and policies, as well as discussing changes to your policies with legal counsel.

State-Wide Rent Control

  • California
    California is the most recent state to enact rent control, and only the second state to make the laws applicable state-wide. The AB 1482 bill was passed on September 11, 2019, and went into effect on January 1, 2020. This bill placed a 5% cap per year (plus inflation) on rent increases within the state. The cap doesn’t apply to properties that have been issued a certificate of occupancy within the previous 15 years. It also doesn’t place limits on the powers of local authorities, so local governments may choose to enact more aggressive rent control legislation.

  • Oregon
    Oregon was the first state to implement state-wide rent control measures, with Governor Kate Brown signing SB 608 into law in February 2019. This placed an annual limit of 7% (plus inflation) on rent increases in the state. Properties granted a certificate of occupancy within the past 15 years are exempt, as well as landlords who provide reduced rent to tenants as part of a federal or local program, or subsidy.

States With Rent Control Legislation

  • New Jersey
    New Jersey doesn’t have state-wide rent control laws, but local legislators have had the authority to implement them since the 1970s. Currently, over 100 municipalities in New Jersey have some form of rent control. The caps and exemptions for these laws vary from city to city.

  • New York
    New York utilizes two different systems for rent regulation: rent control and rent stabilization. Rent control typically applies to buildings built before 1947, while rent stabilization applies to buildings built between 1947 and 1974. For areas that are outside New York City, rent control may also be referred to as the Emergency Tenant Protection Act (ETPA). Although rent control measures aren’t state-wide, most cities and communities in New York state have some type of rent regulation measure in place.

    In New York City, Nassau, Westchester, and Rockland, The Rent Guideline Boards set the rates for increases in rent-stabilized apartments. These rates are evaluated annually and are applied from October 1st to September 30 each year.

    For rent-controlled apartments, New York City uses the “Maximum Base Rate System” (MBR). This method establishes a maximum base rent for each apartment and adjusts the amount every two years based on operating costs. Landlords may raise the rent by either:

    – the lesser of either the average of the five most recent Rent Guidelines Board annual rent increases for one-year renewals, or
    – 7.5% each year until they reach the MBR

    Rent increases are prohibited from exceeding the rates determined by the Rent Guidelines Board, and tenants have the right to challenge any proposed increases. For areas outside of NYC, the New York State Division of Housing and Community Renewal regulates the maximum allowable rates for rent-controlled apartment increases. Rents are prohibited from exceeding these rates.

    Also important to note: in June 2019, the Housing Stability and Tenant Protection Act was passed, which made rent stabilization a permanent fixture of the state’s housing code and closed loopholes used by some landlords to skirt around rent regulation laws. These include things like an end to “vacancy bonuses,” decreasing the percentage a landlord can raise the rent for property improvements, capping the number of family units to one per building, and ending high-income deregulation.

  • Maryland
    Only the city of Takoma Park currently has rent stabilization regulations. This applies to all individual condos and multi-family rentals. Single-family homes, accessory apartments, and duplexes where one of the units occupied by the owner as their primary residence, are exempt. The rent stabilization allowance is re-valuated annually by the city and has been set at 0.4% for the year, from July 2020 to June 2021. All landlords with properties under rent stabilization are required to give at least a two-month written notice of a rent increase and are prohibited from an increase that exceeds the approved allowance.

  • Washington D.C.
    Washington D.C. passed the Rental Housing Act in 1985, which set the annual limit on rent increases based on the Consumer Price Index, plus 2% (with a maximum of up to 10%). For properties with tenants who are 62 or older or disabled, the maximum increase is capped at the Consumer Price Index only, with a maximum of up to 5%.

    Rental units that were built after 1975, federally or district subsidized units, and rentals units that were vacant when the act went into effect are exempt. Despite attempts by local lawmakers to extend the current rent control program to 2030, the program is set to expire on December 31, 2020.

States the Preempt Rent Control

While a number of states have rent control regulations, a greater number of them preempt local governments from enacting rent regulation laws on private rental properties. These include:

  • Alabama
  • Arkansas
  • Colorado
  • Connecticut
  • Florida
  • Georgia
  • Idaho
  • Illinois
  • Iowa
  • Kentucky
  • Louisiana
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • New Mexico
  • North Carolina
  • North Dakota
  • Oklahoma
  • South Carolina
  • South Dakota
  • Texas
  • Utah
  • Washington

States That Preempt Mandatory Exclusion Zoning and Rent Control

Exclusionary zoning was introduced in the early 1900s and has been used in the past to keep families with lower socioeconomic means from being able to find affordable housing in middle and upper-class neighborhoods. Six states preempt local governments from enacting mandatory exclusion zoning or rent control, including:

  • Arizona
  • Kansas
  • Indiana
  • Tennessee
  • Wisconsin

States Without Rent Control or
Preemptions

Seven states have no rent control regulations in place or preemptions:

  • Delaware
  • Maine
  • Montana
  • Nebraska
  • Ohio
  • Rhode Island
  • Wyoming
  • Hawaii

Dillon States Without Rent Control or Preemptions

In addition to states that lack any form of rent control, there are also several Dillon states that don’t have rent control laws or preemptions. Dillon state rules essentially mean that local governments are only allowed to exercise powers that are expressly granted by the state. Unless the state allows local governments to pass rent control laws, the laws must be passed by the state or not at all. The Dillon states include:

  • Alaska
  • Nevada
  • New Hampshire
  • Pennsylvania
  • Vermont
  • Virginia
  • West Virginia

Will we see more states and local governments enact rent control laws in the future? Given the trend over the past decade and the increasing concerns over affordable housing, it’s very likely. As always, we recommend keeping a close eye on proposed laws and bills passed in your area to make sure you’re aware if there any changes made to existing laws that could affect your property.

Posted by & filed under Property Management.

Eviction is one of the worst-case scenarios for many landlords. It can be a long, taxing process that slowly eats away at your time and money – not to mention the impact it has on an emotional or mental health level. Needless to say, eviction is a situation that most landlords want to avoid whenever possible.

What To Do When Your Tenant Files for Bankruptcy

Unfortunately, eviction isn’t the only situation landlords should be cautious about. Since the pandemic, the economy has been in a state of flux. Not only does this mean instability for investors, but also the job market, leading many citizens to be in worse financial standing than they were a year ago. This increases the chances you may have a tenant file for bankruptcy. If this happens, what actions can you take – and how can you prevent it from happening again?

What is bankruptcy?

Bankruptcy is a legal process that enables someone who cannot repay their debts to gain debt relief assistance while ensuring some form of repayment to creditors. Bankruptcy can include things like the liquidation of assets or other changes to a person’s financial or material wealth to reach a repayment agreement. While bankruptcy allows for a “fresh start” with debt, it can make it more difficult to borrow in the future.

If you encounter bankruptcy with a tenant, there’s a chance you’ll know it’s coming (if you and your tenant keep communication open) but it will more likely come as a surprise. In some cases, your tenant may be paying rent on time, while their other debts grow beyond their means. There are a few specific types of bankruptcy you should be aware of to be able to handle them appropriately. The two most common ones that affect landlords are Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 bankruptcy involved the liquidation of an individual’s assets to pay off debts. The debtor must give all their assets to a trustee, who then administers the assets in a way that satisfies creditors. If the tenant’s rent is paid and up to date, they can continue their lease. If they’re behind on rent, they’ll likely need to move.

Chapter 7 bankruptcy is also known as “straight bankruptcy” because it’s the most direct type. Chapter 7 is typically used for people who have a lot of unsecured debt, like medical bills, utility bills, and credit card debt.

Chapter 13

Chapter 13 bankruptcy is based on creating a debt repayment plan and can be seen more as a type of financial reorganization rather than a fresh start. When someone files for Chapter 13, their debts are reorganized into a payment plan that repays creditors over 3 – 5 years. This type of bankruptcy is typically utilized to resolve short-term financial setbacks, like an illness or job loss.

What Should I do if my Tenant Files Chapter 7?

If your tenant files for bankruptcy, the court will grant an automatic stay, which means all creditors are required to stop debt collection attempts until the case has made its way through the court system. Tenants who are renting will have to assume (continue with their lease and making rent payments) or reject their current lease. Tenants will only be able to assume the lease if they can pay past-due rent quickly, as well as provide assurances that they’ll continue to pay rent on time. They’ll typically have 60 days to make this decision.

The court doesn’t have a strict definition of how quickly back payments must be made, but it’s typically required to be paid back within a year. Your tenant will also be required to show some proof of income to show that they’ll be able to make timely payments without falling behind on their regular rent payments.

If your tenant rejects the lease, the lease becomes part of the assets that are liquidated or put onto a payment plan. Rejection of the lease is considered voluntary termination, so the tenant will be expected to leave the property and will no longer be bound by the terms of the lease.

Once the tenant’s assets and debts have been cataloged, a judge will decide if the bankruptcy can continue and if so, how best to use the assets fairly to pay off creditors. Once the judgment has been made, you’ll be notified of how you can expect to be paid for any back rent that’s owed to you. You’ll also be told what to expect with the remainder of the time the tenant will be at your property. If you find the decision to be unfair, it is possible to challenge the decision.

If the court does order the tenant to make payments through a repayment plan, you’ll eventually get the money owed to you. In some cases, however, the court may not require the tenant to pay you back at all. While this can feel like a huge blow, the best way to handle it is to move on and put your focus into finding a reliable tenant to fill the vacancy.

Steps to take once your tenant files for bankruptcy

Once your tenant has filed for bankruptcy, you’ll need to start making some plans to protect yourself financially. This isn’t to say that you can’t be sympathetic to your tenant – but rather that you should make sure that you’ll be able to sustain your financial wellbeing. Here are a few ways you can be sure that you’re included when it comes time to divvy out creditor repayments:

  • The Automatic Stay:

As previously mentioned, when a tenant is granted an automatic stay, creditors can no longer collect or attempt to collect debts until a ruling has been made for the case. This includes you, as the landlord; you won’t be allowed to collect past-due rent. You also won’t be able to file for eviction, unless it’s an ongoing case that has been ruled on or is allowed to continue. New eviction filings are allowed if the tenant has done something illegal or is endangering your property in some way.

If you have a guarantor named under the lease, you can still pursue and collect back rent from them, even while the tenant is in bankruptcy. In most cases, however, there likely won’t be a guarantor, so as soon as your tenant files for Chapter 7 or Chapter 13, stop trying to collect rent and keep track of what you’re owed for the court proceedings.

The automatic stay only pauses debt and past-due rent collection; your tenant is still legally required to continue paying rent for as long as their lease is active. It doesn’t change anything regarding the amount you’re owed or the date rent is due. If your tenant stops paying their rent on time, you can request the court to begin eviction proceedings and they will decide whether that’s a viable option.

  • Claiming Debt

If your tenant owes you any money for past due rent, you should create a claim outlining how much they owe you and why. This document will be filed with the bankruptcy court if you’d like the debt to be included in the court-decided payment plan or liquidation of assets. It’s recommended that you always file a claim if there’s a bankruptcy case. This ensures you won’t lose out on any money, especially if the tenant decides to reject the lease. If they do reject the lease, your claim can include:

  • Past-due payments and associated damages
  • Unpaid rent or fees caused by the bankruptcy filing
  • Damages from the lease rejection, which can be up to one year’s worth of rent

To make sure you’re getting back as much as possible, it’s recommended to consult with a bankruptcy professional.

Other Actions You Can Take

If you’d prefer not to wait through the bankruptcy process, you can try some alternative options. Although not all these may be possible, they could save you some time and money.

  • Pre-bankruptcy

Depending on your tenant’s financial situation, you may have some warning signs that they may be thinking about bankruptcy. Or, they may have even told you they were considering it. In either case, you may be able to set up a pre-bankruptcy resolution with your tenant before they actually file. Here are some considerations:

  • Are there any changes you could make to the lease that would make it easier for your tenant to continue paying rent?
  • Is there a way you could amicably terminate the lease before the tenant files for bankruptcy?
  • Can you forgive some of their debt or arrange for it to be repaid via early lease termination?

While your tenant may not agree to these options, there’s no harm in exploring them – and in many cases, coming to a pre-bankruptcy agreement will reduce stress for you and your tenant.

  • Bankruptcy history

Do you happen to know that your tenant has a history of filing for bankruptcy? If so, this is something you should bring to the judge’s attention. Make sure you’re only doing this if you don’t believe the bankruptcy was filed in good faith, for example, if the tenant only filed to avoid paying you past-due rent.

No one wants to deal with a bankruptcy filing but if you do encounter one, stay calm and keep organized. Start by trying to set up a pre-bankruptcy resolution. If that isn’t a viable option, file your claim for any debts as soon as possible once the bankruptcy is filed. While you’re waiting for the verdict, be sure to keep track of any additional missed payments. Once the case has a ruling, follow the court-ordered solution.

Preventing Future Issues

Bankruptcy filings, like evictions, can be stressful and time-consuming. Although there’s no way to completely guard against a tenant filing for bankruptcy, you can take an important step in eliminating some of the risk through tenant screening. By running a credit and background check, you can get a better understanding of how an applicant handles their finances, whether they’ve had previous bankruptcies and their overall level of debt and financial wellness.

We recommend our RentalConnect program to help you select the right tenants for your property. You can choose from three different report packages, making it easy to find one that will fit your rental criteria. With RentalConnect, there are no on-site visits, sign-ups, or membership fees, and the cost of the reports is deferred to the applicant. Order yours today or reach out to us for more details!

Posted by & filed under Property Management.

Do you have a good relationship with your tenants? Or do you find yourself keeping them at a distance as much as possible? Many landlords underestimate the importance of their relationship with their tenants, not realizing that improving relations can make their job easier and bring greater success. While the tenant/landlord relationship is a professional one, it doesn’t mean that you can’t have a good, solid working relationship too! Here are 10 tips to help you improve your interactions and foster a relationship built on mutual respect:

Be Empathetic

Tenant Landlord Talks

If you’re like most landlords and are renting out to the general public, your tenants could be from very different backgrounds than you. This means they may have different values; what’s important to you may not be important to your tenants. Something that irks you, like an overgrown yard, may seem like a dereliction of duty on the part of your tenant, but it may just be an oversight.

Another thing to consider is that we all hit rough patches now and again. Late rent doesn’t necessarily mean they’re irresponsible or signal a red flag – they could be in a temporarily difficult financial situation. It’s important to realize that your tenant is human and unfortunately, things happen! However, this doesn’t mean you should let late rent payments or other types of irresponsible behavior become a habit. Be understanding when it’s warranted, but don’t allow tenants to take advantage of your good nature.

Make Your Relationship a Priority

You might feel like you should only contact your tenant about rental-related issues, but it’s important to check in with them every once in a while to establish more of a rapport. You might have heard about a new restaurant opening near the property or know about an event coming up that they might be interested in.

Keeping an eye on the events and happenings in the neighborhood and acting as a pseudo-concierge can help your tenants feel more connected to you and their community. Not only does this bring more value to your relationship, but it also encourages tenants to engage with their neighborhood and put down roots – which is beneficial to both of you! They’re more likely to enjoy where they live and you have better odds of them renting your property long-term.

Share Responsibilities

Regardless of your standard policies, try to share responsibilities with your tenant when it’s warranted. For example, if your tenant is having a problem with pests and you’ve determined it’s not caused by a cleanliness or sanitation issue, offer to pay for the first round of extermination services. The cost is low and it benefits your property – but beyond that, your tenant will appreciate the gesture.

You should also ensure that the standard of living at the property is up to your personal standards. Would you want to have a cracked toilet seat or other types of cosmetic damage in your own house? Small improvements can go a long way in making your property feel like home.

Encourage Tenants to Get Involved in the Community

As the property owner, you’ll likely know a lot about the community due to neighborhood events and local associations. Since renters aren’t typically invited to these things, consider inviting them yourself. This encourages a buy-in into the neighborhood and helps your tenants establish a feeling of belonging.

Remember: It Can be Hard to Find Good Tenants!

If you have great tenants, it’s important to keep them – and the easiest way to do that is by keeping them happy. The cost of finding new tenants or having your property vacant for periods of time are often greater than the cost of small, thoughtful gestures like sending a card during the holidays. You can also offer larger (but still relatively low cost) things, like having the property deep-cleaned every six months. This will make your tenants feel appreciated and valued for taking good care of your property.

Think About Customer Service

Your tenants are essentially your customers; you’re providing a service, and technically, a product. One of the most important considerations in customer service is keeping your customers happy. Unhappy tenants will ultimately end up looking for a new place to live. So, make sure that they enjoy living there! Keep up on repairs, even if they’re out of sight. If your tenant makes a complaint about something being broken, don’t wait to address the issue. You should also check in with them on occasion to see how things are going at the rental and to see if anything is needed. Some tenants may not want to bother you for something minor; checking in is a great way to get the conversation started.

Be Flexible

Life is full of unexpected circumstances, but being flexible is a good way to gain value among your tenants. If your tenant loses their job, for example, consider offering them a two-week grace period for rent. If your tenant moves out and the property is in excellent shape beyond a minor repair, consider waiving the repair fee as a way of showing your appreciation for taking care of it.

Be Responsive

If you’re planning to go on a trip, let your tenants know. No one is ever upset about over-communication, but your tenants might get upset if they try to contact you and you don’t respond in the normal time frame. Keep lines of communication open with your tenants so they understand that you’re available when they need you. Give them several options for communication, including text or email.

If your tenant contacts you about an issue, like a broken garbage disposal, don’t wait to schedule repairs. Even if there’s no immediate solution to the problem, respond to them as soon as possible. Let them know that you’re working on resolving the situation and will keep in contact with them until the problem is solved.

Be Consistent and Reliable

Keep your communication consistent and make sure that you’re available by phone, text, or email regularly. You may even want to consider designating an emergency contact in case you’re not available. Reliability is one factor that can make or break your relationship with your tenants – so make sure they can consistently depend on you.

Offer Online Rent Payment

Lost checks and money orders are a headache for everyone involved, so you may want to consider making rent payments as easy as possible for you and your tenant. Online payments are easy, convenient, and ensure you receive rent on time. You can offer it through apps like Venmo or even banking applications.

Conclusion

Once you’ve screened your applicants and found the perfect tenants for your property, make sure to keep them! Good tenants can be hard to find. By putting in the work to foster a positive relationship, you’ll find your job is easier and your tenants are far more likely to rent from you long-term.

Posted by & filed under Tenant Screening.

Credit Score Selection

Credit scores are one of the best ways for rental housing professionals to gauge an applicant’s financial competency and reliability. As you probably know, the closer the score is to 850, the easier it is to secure loans, lock in lower interest rates, and find housing. That’s all from a consumer standpoint, but what about the differences between credit-scoring models? Which one should you choose when screening applicants?

Credit Risk Scoring Models

First, it’s important to understand that there are many credit risk scoring models, but the ones that are most commonly used are FICO and VantageScore. Both of these models use the credit card information pulled from Experian, TransUnion, and Equifax (the top 3 credit bureaus) and analyze it to determine a credit score.

The formula used by each model can differ based on the reason the report is being run. So, the formula used to calculate the credit score for a car loan might be different than the formula used to determine the credit score for housing. While the differences are generally small, it is important to note that a consumer’s credit score can be slightly different based on what they’re applying for.

You could work with other scoring models, but FICO and VantageScore are the most trusted in the industry – and considered the gold-standard for tenant screening. Other scoring models may skew the score in favor of the applicant or in favor of whoever is ordering the report. Some even disregard sending over the actual numbers, giving you smiley faces or checkmarks as a grading system instead. To make sure you’re getting the most accurate information possible, it’s important to make sure you’re working with a reputable screening service.

FICO vs. VantageScore

Here’s a look at how the two major credit scoring models differ:

FICO was developed by Fair Isaac and Company in 1989 and is one of the oldest credit scoring models used today. The company has revised the model several times since it was first developed, and the most recent version is FICO Score 8. Some of the benefits of using FICO are:

  • – It’s widely recognized and used by lenders, making it the standard for many industries including rental housing. This also means many applicants are familiar with the credit range of 300 – 850 and know their previous FICO score.

  • – The model is constantly being updated to accommodate a wide range of industry standards. Since FICO is the oldest model and has been around for decades, Fair Isaac and Company have plenty of experience with making adjustments to make the model fit given the current financial climate.

  • – FICO offers a base scoring model, as well as industry-specific scores.

VantageScore was developed by Experian, TransUnion, and Equifax (the three major credit bureaus) in 2006. While FICO is an independent credit scoring company, VantageScore gets its information directly sourced from the bureaus’ data. Some of the benefits of VantageScore include:

  • – Since VantageScore pulls information directly from the credit bureaus, millions of consumers who didn’t have enough credit built up to meet the minimum scoring requirements (also known as “credit thin”) in the past now have a credit score. To generate a score, FICO requires consumers to have a credit account that’s at least 6 months old. In addition, that account must have had activity within those 6 months. VantageScore makes it possible for credit thin applicants to receive a score as long as they have one credit account. The account can also be less than 6 months old. This means that if you’re screening a young applicant or someone who just has a limited credit history, you’re more likely to get a report that includes a credit score.

  • – It doesn’t make a difference which of the three main credit bureau you request the report from – the information on it will be the same. This can reduce confusion for your applicants. With FICO reports, the model is tailored to be bureau-specific, so you may receive one score from Experian and a different score from Equifax.

If you’re screening an applicant, it’s important to note that the differences between the two scoring models only affect the credit score. The rest of the information on a credit check will be based on the data, rather than a calculated model. The information below will be the same, regardless of whether you choose FICO or VantageScore:

  • – A summary of the applicant’s positive and negative credit accounts
  • – Payment history
  • – Prior credit inquiries and the dates they were made
  • – Total estimated past due and monthly debts
  • – A breakdown of their accounts

How will COVID-19 affect credit scores?

It’s not completely clear how COVID-19 will affect credit scores yet. Every consumer has a different credit situation, coupled with the fact that the models rank certain financial situations differently. Currently, the Coronavirus Aid, Relief, and Economic Security Act (CARES) prevents financial data reported from lenders to lower consumer’s credit scores. VantageScore is also working on making adjustments to their model to minimize the negative impacts of things like forbearance and deferment. Experian, TransUnion, and Equifax are also providing free weekly consumer credit reports for one year.

Which should credit scoring model should I choose?

When it comes to choosing which credit model to go with, think about what works best for you and your properties. Is your rental in a college town, with many young applicants who are likely credit thin? If so, VantageScore may be the better option. Do you feel safer going with the score that’s preferred by lenders and has a long history? You may want to choose FICO.

By understanding the differences in scoring, you’ll be able to assess whether a tenant might be impacted by one model than another. This is also one reason why supplementing your credit check with additional screenings, like a background check or tenant verification is so valuable. Regardless of which score you choose you’ll have additional information to base your decision on. Our RentalConnect service is a great option for landlords, as there are several levels of reporting available to choose from, all while deferring the cost of the screening onto your applicants. It’s easy, convenient, and available online 24/7. If you have any questions about RentalConnect or any of our other screening services, feel free to contact us.

Posted by & filed under Rentals.

You may not realize it but when you decide to rent out a room in your house, you’re more than just a roommate; you effectively become a landlord. While the rules and regulations regarding roommates can vary based on your location, it’s important to know the details of being a landlord in order to make your roommate situation as successful as possible. Without completely understanding your role, you could find yourself facing legal trouble.

Many of the lessons, tips, and procedures that work for professional landlords can be used in your own situation to make sure that you and your roommate are working together fairly and legally.

Things To Consider When Renting Out A Room

If you have unused or extra space in your home, renting out a room can be a great way to make some extra money. Whether you’re planning to rent an actual bedroom or an in-law unit, it’s important to remember that you’ll be sharing the property with another person – which may be problematic or frustrating from time to time.

Renting a room is different from subletting. Subletting is when you are a tenant at a property you don’t own and you rent some of the space out to someone else. With subletting, you’re still responsible for paying rent to a landlord. If you’re renting out a room in a property you own, your relationship is one of a landlord/tenant, rather than co-tenants.

Legally Renting Your Room Out

Even if you own the property, there can be conditions that affect whether you’re allowed to rent out a room. For example, if your property has a homeowner’s associations, they may prohibit additional occupants. Another thing to consider is that your city may have zoning laws that prevent you from renting out a room without a license or permit. Or, there could be restrictions on the number of unrelated occupants you can have at your property.

In some cases, there could even be certain conditions you’ll need to fulfill to be able to rent to someone else, such as independent outdoor access to the rental space or inspections. Be sure to check your local zoning laws, as well as state laws, city ordinances, and homeowner’s association bylaws, if applicable.

Renting Out a Room In Your Primary Residence

Once you know you can legally rent a room in your home, the next steps are preparing it for a roommate and marketing it. Here are some steps to take to take:

  • Prepare the room
    Ideally, the room or unit you’re renting will already be habitable, with electricity, heating, and accessible plumbing. If you have more than one bathroom, make sure to decide which one will be assigned to the tenant. Tenants have a legal right to privacy, so you may also want to think about installing a lock on their bedroom door so they can feel secure about their belongings when they’re not home. Doing these things will help you stay compliant with landlord-tenant laws.

    Many renters are interested in finding a room that’s already furnished; if you decide to offer furnishings, make sure to take an inventory of what belongs to you. You’ll also want to complete a walkthrough inspection with the tenant before they sign the lease. One easy way to inventory your items is to take photos of everything. This will also help to document the condition of the room before the tenant moves in.
  • Marketing your room
    Before you begin marketing your room, think about who would be your ideal roommate. Are you interested in living with a student? A retiree? Someone who’s a fellow animal lover? Come up with a list of criteria you’re looking for, but do make sure to be aware of Fair Housing Laws.

    Federal Fair Housing Laws do allow some exceptions to traditional protected classes when it pertains to choosing a roommate. The laws state that you’re not allowed to use discriminatory language in your rental advertisement, which would typically include gender. However, it’s fine to include a gender preference in your ad, as long as no other qualifiers are added. This means if you’re a female and would like a female roommate, you can state this, but you’re not allowed to specify race, religion, sexual orientation, etc.

    In 2012, the 9th Circuit Court ruled that applying a nondiscrimination requirement to homeowners or a tenant’s roommate selection would be an invasion of privacy; therefore, the anti-discrimination provisions of the laws don’t apply. This is because choosing a roommate increases your personal risk and affects your quality of life.

Listing your room for rent

After you’ve made sure the rental space is ready and decided what type of roommate you’re looking for, you can start advertising your room. There may be places that renters might not look, so it’s best to have your listing in several locations.

If you’re considering a single person looking for a room, you may want to put flyers up near a college campus or a senior center. Think about where your target tenants may be spending time, rather than casting a wider net. You can also ask your friends or family if they know of anyone looking for housing. This gives you the added benefit of finding someone who’s essentially in your network and not a complete stranger.

Regardless of how you find your roommate, you should always conduct some form of tenant screening, such as a credit check and background check. This can save you a lot of time and hassle down the road! It also gives you the added assurance that the person you’ve chosen is likely to be a responsible, stable renter. In combination with screening, be sure to also ask the applicant for references from past roommates. References from landlords work too, but talking to someone who actually lived with the person will give you a much better idea of how they will be to live with.

Screening your roommate

If you’re sharing your home with someone, it’s very important to choose someone who will be a good renter. Not only so you can feel confident they’ll pay their rent, but also because issues of any kind can become amplified when you’re living with other people. To protect yourself legally, and conduct screening properly, you should have a compliant rental application that grants you, as the landlord, permission to conduct screening and contact their references. Once they’ve filled this out and agreed to the terms, you run your background and credit checks. Our RentalConnect service is a great option, as it allows you to defer the cost of the screenings onto the applicant.

Writing your lease agreement

Before you select an applicant, you should also make sure to create a lease agreement. Although it may not seem necessary, having a lease agreement in place will give you added protection and outline the expectations of both the tenant and you as the landlord. Some states accept oral rental agreements, however, you should always have everything in writing, with a signature from both parties. A lease agreement will help you both navigate what to do if any issues arise. Learn more about how to write an iron-clad lease here.

In addition to the terms on a typical lease agreement, here are a few things to include for roommate situations:

  • The length of time the occupancy will cover. Most lease agreements are typically one year, but if you’re renting to a student you may want to consider a 9 to 10-month period to correlate with the school year.

  • Define the common areas. Shared spaces can often lead to conflict, especially if no guidelines are provided in the beginning. Unless they’re going to live in an in-law unit, your tenant will need to have access to parts of your home, like the kitchen, living room, and laundry room. Parking and the use of the backyard also fall into common areas, so make sure to clearly specify your usage rules and whether any areas are off-limits.

  • Utilities. Another thing you’ll need to decide is how to split utilities, which should also be clearly outlined on the lease. For convenience, you may want to add their portion of the utilities into the cost of rent or simply split the costs of utilities down the middle. Another option is to have the tenant be solely responsible for a single utility.

  • House rules. Clearly state your expectations for your tenant’s behavior, especially regarding things like noise, overnight guests, pets, vacations, smoking, and household chores. This will help to eliminate any gray areas or issues that can pop up over time. Give your tenant a copy of the rules so they can refer to it over time.

  • Rent and deposit. Have your rent rate, due date, and security deposit clearly stated in the lease, as well as the penalty for late rent. If you do end up having an issue with the tenant not paying their rent, keep in mind that you can evict them as you would if you were renting a separate property to them. However, you’re also required to follow rules and regulations about official rental notices, maintenance, and security deposits.

Tax considerations

Keep in mind that any money you receive from rent is considered taxable income, although you will be able to claim expenses and deductions that wouldn’t be applicable without a roommate. This includes things like replacing old carpet in the rented room or painting it.

If you’re renting a room in your house, the best practice is to determine the square footage of it and the percentage of your house it takes up. So, if you have 2,500 sq. foot home and the rented room is 500 sq. feet, the room would be 20% of your total square footage. This means your tenant would be responsible for 1/5 of mortgage interest, utilities, or real estate taxes.

Treat it like a business

Ultimately, the best way to ensure success when renting out your room is to treat it like a business. Even though you’re not a rental housing professional, you should still make use of all the rental tools and processes available to you. Things like written lease agreements, inspections, maintenance, dealing with money, and evictions are a part of being a landlord, regardless of whether you’re renting a room of your own home or renting a separate property. By following these guidelines, you’ll be prepared to rent out your room as successfully as possible.