The Accidental Landlord

January 13, 2011

by christiborden

In today’s tumultuous lending environment, so many would-be buyers are being forced into leasing. And this has created an upset to the supply/demand balance … forcing unsuccessful would-be home sellers into making their homes available for lease due to the lack of ready, willing and able buyers. Thus, what I call The Accidental Landord is born!

In many instances, this is a wise maneuver because it allows the seller to maintain a stream of income to cover most if not all expenses (maybe even make a profit), while allowing the seller to sell at a future time when the market is more favorable.

That said, there are so many factors that you, as a future landlord, should take into consideration before making this move. First and foremost, in the State of Texas, you have a wonderful resource available from The Real Estate Center of Texas A&M. Click on the title to view the Landlords and Tenants Guide,  available in PDF format that you can download and read at your convenience. Be sure to grab a comfy chair because it is over 115 pages long and filled with pages and pages of legalese detailing your responsibilities and that of your tenant. I make sure all of my clients have access to this guidebook prior to the execution of a lease contract because it is so very important to understand the rules from the beginning.

Another thing to consider is whether it makes financial sense to lease. Ask your Realtor to run a market analysis of leases for properties similar to yours in the last year. This will give you an idea of where to price your lease. If you are in an area with few leases available or if you have something special to offer (pool, extra bedrooms, extra garage spaces, modern upgrades, close proximity to schools, shopping, transportation, etc.) then you may be safe to list above the average. On the other end of the spectrum, if you are in an area with an abundance of lease inventory and your property is very similar to the competition, you may need to consider pricing at or below market rates to attract a tenant. Another thing you need to consider is you are responsible for your mortgage payment, property taxes, landlord insurance and in most cases, any homeowner’s association or amenities fees. You may negotiate any costs for lawn or pool maintenance and repair items in the lease itself. Do the math! If your expenses add up to more than you think you can lease it for… you may be better off selling.

Big questions to ask yourself: should I allow pets or smoking? As a Realtor who may have to sell a lease home later or try to find another tenant years down the road, these are very tricky.

First, let’s chat about pets. We Texans love our pets and the majority of tenants seeking placement will have a pet or pets in tow. Realizing that pets can and do cause tremendous damage to properties, you may wish to decline to allow pets or to offer consideration on what we call a “case by case” basis. By declining pets outright, you limit the pool of tenants who will see and make applications to lease your property. By allowing case by case basis for pets, you get the pet owner traffic but can turn down any tenant with pets that you feel might be harmful to your property. If allowing a pet, you can ask for a sizeable pet deposit (either refundable or non-refundable) to help defray future repair costs to carpets, wood trim and landscaping – items usually damaged by pets.

Second, let’s chat about smoking. Now, I am not trying to start a dialog about the health issues or social issues behind smoking… I am only speaking from a property owner standpoint and I can tell you that the damage caused by repeated smoking indoors is extensive. Properties will retain the smoke odor (which permeates flooring, walls, all fabric surfaces, etc and also tends to discolor paint on cabinetry and trim) long after the smoker has left. In fact, many times these surfaces must be treated and/or replaced to eliminate the smoke odor – which could be very costly, indeed. This is a personal choice and smokers are not legally considered a “protected class” so you are perfectly in your right to only lease to non-smokers. That said, not everyone is truthful about this issue so some due diligence may be required.

And while we are on the subject of “Protected Classes”, you as a Landlord are required to know and comply with the Fair Housing Laws. Click here to view these requirements as they apply to everyone, not  just Realtors. And remember, ignorance is no defense where fair housing laws are concerned. One look at the penalties and you will certainly want to comply.

One last thought: I have been told by more than one successful real estate investor that a smart landlord is one with an outside property manager. It keeps everything on a non-personal, professional level and helps make sure your tenant is well cared for while living in your property. A happy tenant makes for a happy landlord.

So if you find yourself in the shoes of The Accidental Landlord, a little homework and due diligence will help keep your shoes on the right path.