First-time (potential) landlord - what issues need to be considered before renting out a house to a tenant?

Question

A sibling and I inherited a house in North Carolina, and are considering renting it out on a monthly lease. However, I'm new to being a (potential) landlord so I don't know all the issues involved. We have a standard lease we are reviewing, but what other issues apply?

- should we incorporate first
- do we need a business license
- is there an inspection or certification needed before a property can be rented out
- aside from the lease, is there other paperwork the tenant should complete
- is there a service like Airbnb but for longer-term rentals we should consider

I know that's a lot to ask, so if you have a website I should go to instead please post the link. Thanks in advance for your replies!

Answer 1

Why not just sell it? That may be the better option.

Where do you live? Being a remote and first time landlord will be a challenge.

Are you looking to just get some rental income because you holding onto the house for a personal reason, or are you looking at this like a business, ie what is profit, loss, risk, time involved, etc?

You need to find a book on being a landlord and carefully read it.

The first thing is to decide what you are trying to accomplish with this endeavor?

Owning a rental property can be good way to generate some income, and I am assuming there is no mortgage on the property.

You need to do the math on this, rental income x occupancy rate (say 90%) = gross income. Expenses - taxes, insurance, water bill, minor repairs, sinking fund. Sinking fund is money you need to set aside for longer term repairs, like roof replacement, painting, replacing older things like water heater or furnace, replacing older doors and windows, doing some basic insulation and sealing of air leaks (the higher the tenants utility bills the more likely they move out), replacing driveway, etc.

When setting up a rental property you need to have it in reasonable condition. Think about a business like a restaurant, if the floors are dirty, the bathrooms are leaking and dirty, the AC does not work, the place smells odd, etc, they will end with declining sales. If your rental is grungy, out dated windows, the fridge and stove are old and worn out, the doors and locks are cheap and do not provide updated security like a steel framed door with deadbolts, HVAC is junky, etc. You will not get quality tenants, and you will have to evict and pay an attorney for that, then the they will damage the property either as retaliation, or just because they are the type of people that break things.

So you will need to get estimates on hiring someone to get it up to a condition that it is at or above average for local rentals.

Permits. Rules vary by city. In my area a landlord must register the property with the city and get an inspection and clear all the violations related to rental properties before being given an occupancy permit. Those are related to smoke detectors, GFCI required, working windows, no leaks, all keys are available, etc.

If you do rent you have to have a local attorney review your lease or provide one to you.

You MUST pull a credit report. There are companies that can do that for you and provide the rental application form.

You MUST verify employment and 1 or 2 references.

A landlord is at risk of being sued. You must meet with an attorney to get legal advice on that topic and the best way to protect your other assets. Worst case is that someone is injured on the property, and you are personally sued and you put your personal house and other property at risk. This is back to the quality of the property, updated electrical, smoke and CO detectors, working fire extinguishers, that the furnace is not a CO leak hazard or the venting 100% properly done, gas lines are inspected and test, all by licensed certified professionals. And by having better tenants you lower the risk of something crazy happening, just my opinion, no guarantees on that.

Best of luck.

Answer 2

From your statement and questions, it might be to your advantage to hire a property manager to manage the property on you and your sibling behalf.



Normally a property manager would charge you 4-10% of the rent to manage the rental on your behalf. The percentage of the rent would be determined by the responsibilities, you would have the property manager perform. With paying 10% of the rent to the property manager, the property manger would take care of everything. You would be informed of any damages that required repair.



Do you or your sister reside in North Carolina? If not it is difficult being an absentee landlord for an experienced landlord. You have no experience whatsoever.



You need not take the following action



#1. There is no requirement to form a corporation.



#2. You are not normally required to have a business license to be a landlord



#3. There is not requirement of an inspection or certificate necessary.



In the renting of this house, you would need to provide any potential tenant with a rental application. In this rental application, there should be a clause that would authorize you to obtain a credit and background check on each applicant listed on the rental application.



You would also need a means of obtaining a credit report on each applicant. You would need to google for a company that would provide you with credit reports. Normally there is a fee for the use of to obtain a credit report. If you decide to run a background check to find out if your potential tenant has a criminal record, you would be charged a fee for this also



You would be required to find out the cost of these two report you would want to run and charge this amount to your potential tenants.



You would need to go to the web site of North Carolina and find out the rental laws of North Carolina. You would also need to do the same with the city and county web site to find out if there are local laws that have been enacted covering the rental of property.



The lease agreement you are reviewing might be a generic lease agreement. There might be clauses that are required to be enclosed by the state, city and county.



I hope this has been of some benefit to you, good luck.





"FIGHT ON"

Answer 3

Unless you are planning on doing this a lot down the road and want to learn the ropes I'd suggest getting a property manager. For around 7-10% of the rent plus one months rent whenever a new tenant is needed, they'll handle everything. There are so many pitfalls and problems (one bad tenant can end up costing you more than a years rent) that can cost you huge that having this professionally done is definitely the way to go.

Answer 4

You should contact an estate lawyer. You will need one when you encounter tenant problems. Youhave to check if there is an ordinance against AirBnB in your town. In some cities it requires a 30-day rental minimum so people arent going in and out contrary to regular tenants' rights.

Answer 5

You do not need a business license, nor do you need to incorporate.



I would recommend coming up with a lease agreement, which both you and your tenant would sign. Basically it just details the monthly rent, due date, whether or not they will pay for their own utilities, how long the lease will last, and any other requirements that you would like to include. Here's a good site to get that started:



https://www.legalcontracts.com/contracts/lease-agreement-form/?loc=US



I would also stipulate that the tenant should have a renter's policy, and make sure you take out a landlord's policy for the property as well. Be sure to include coverage for burglary and vandalism.



Do a walk through with your tenant before-hand as well, sort of like what happens when renting a car. Note any existing damage and have them sign it; that way they cannot claim that any new damage was not caused by them.



There's also some good information regarding a landlord's obligations here:



http://www.dca.ca.gov/publications/legal_guides/lt-8.shtml



Good luck :)

Answer 6

Gatsby is asking the question you should be asking yourself. Do you really want to be and landlord? And if you do, is this the right property?

Ask yourself THIS question: "If I had the money, would I buy this property as an investment rental?"

The point being that cash from the sale of the property might be put to better use elsewhere (starting a business, buying a different rental property, investing in the market....).

Far, FAR too many people become "default landlords" because they inherit a property - - - only to learn that the property is a horrible investment. Don't decide you want to be a landlord simply because you inherited a property.

Answer 7

1. Nope. Unnecessary with only one property, plus it could potentially trigger your mortgage’s due on sale clause. Just get the property insured (landlord tenant policy) and get yourself an umbrella policy to cover your butt.



2. Unnecessary. The property is considered an investment, not a small business.



3. Check your local tenancy laws. Where I am, that’s not a thing.



4. I have my tenants sign a basic “house rules” document to set expectations. I also have them register their vehicles with me, have them provide proof of renter’s insurance, and their energy account numbers to prove they’ve transferred power to their names.



5. Cozy.co is the one I use, and I love it. It has tenant screening services, advertising help, rent collection (so your tenant can pay their rent online), even document storage for insurance. And it’s FREE! Honestly, it saves me so much time and so many headaches.



I also recommend BiggerPockets.com for reading. Their blog and forums have tons of good info!

Answer 8

1. Setup an LLC as the owner of the property, use a local attorney for this. Have that same attorney draft you a lease that will satisfy local tenant laws.

2. Hire a property management company, again locally. If in an area with lots of rentals, this shouldn't be a problem. I have to assume, since you mention the state, that you or your brother might not be super local...you want someone in the area to have an interest in the property.

3. Follow the directions of the property management company. You may need to have an inspection and a CO, they can answer for the specific jurisdiction.

Answer 9

Make sure you have everything in the way of maintenance insured. In other words, if the gas boiler breaks down the tenants have been provided with a number to call, rather than setting about arranging their own solution and then presenting you with a bill. Same with the electrics. Check if there are any special safety requirements for rented properties (for example, do you need a landlords gas safety / electricity safety certificate in your state? The utility companies can tell you all about such things, and will probably have a separate team devoted to landlords, it is very much in their commercial interests to do so.

Answer 10

Find a local managing agent who knows what they are doing and knows the laws where you live and who can credit check/manage the property for you and also can advise you about your passive income which you will need to declare

Answer 11

Find and hire a good property manager who is familiar with the local area.

Answer 12

go see a lawyer

Answer 13

You also ought to talk to an attorney so that you and your sibling are protected. You might consider setting up an LLC first.