Renting Out Your House: Should you hire an attorney?

If you’re considering taking on the weighty task of renting out your home, or rooms in your home, by yourself, make sure to carefully consider the responsibilities, risks and, of course, rewards before diving in. Below are some important considerations to make when deciding if you want or need to hire a real estate legal professional.

Consider the responsibility (and how much of it you want to take)
Weigh the pros and cons of taking on the full responsibility of becoming a landlord of a rental property. The pros include tax breaks, income (which may result in profit once you’ve covered your bills and other operating costs) and the freedom to operate and maintain your property as you choose.

The cons in include legal responsibility, dealing with tenants, collecting rent, staying on top of your home insurance policy and dealing with property repairs and maintenance. All of these make renting out a property a lot of time consuming work.

Decide if you want to hire a professional
If this is your first time renting out a home, hiring a real estate attorney or other legal real estate professional is highly recommended. Even if you’ve been doing it for years, most people seek at least some guidance from a real estate attorney. The legal fees you pay usually end up well and truly overshadowed by the money saved by avoiding legal traps and gaffs. There are three particular areas with which legal professionals can be very helpful in this renting process and they are selecting tenants, understanding real estate law, and correctly completing paperwork. If you don’t plan to work with an attorney, make sure you’ve considered how you plan to tackle these issues, yourself.

Choosing your tenants

This task is somewhat deceiving in that it appears much simpler than it really is. As a landlord you must come up with, or find a professional you help you create, a legal and effective screening process for selecting tenants. You will be relying on your tenants, of course, to not only pay the rent on time but also to keep your home in good condition. Running credit history checks, reviewing criminal records and contacting references are just a few essential steps in the screening process, which you can do yourself but which are much simpler when handled by a real estate professional. A quick Internet search will provide you with an avalanche of outfits offering to perform credit history checks and criminal record checks for you, but be a wary consumer and take a close look first at what they’re actually offering and what they ask in return. Your best bet is usually to work with a real estate attorney to create a clear, thorough application form or forms for potential tenants, and review each application with a keen eye. If you’re going it alone, make sure you don’t forget to ask for the following in your application form:

- Applicants’ full identity

- Applicants’ full rental history

- References, including professional and previous landlord(s)

- Disclosure agreement to be signed by applicants, agreeing to a full credit check

Also remember that there are often local and federal laws in place that concern tenant screening with regard to the Americans with Disabilities Act. These usually dictate things like treating all applicants equally, laying out clear guidelines for acceptance or rejection of applications and keeping the application and selection process transparent. If an applicant is rejected, be prepared to explain to the applicant exactly why their application was not acceptable.

Finally, be very careful with confidentiality. Your applicants will likely be providing you with very sensitive information that, if placed in the wrong hands, could lead to consequences like identity theft. Take great care with this information to avoid any legal problems for you or your applicants down the line.

Understanding and complying with the law

There are a number of hidden (and not-so-hidden) legal issues that rental property owners must consider when renting out their property. Complying with local real estate law and tax laws is an area in which a legal representative can be very helpful, especially if you’re new to the real estate world.

Abiding by IRS requirements is a biggie. All income generated from rental properties must be declared on your tax return, but you should first be aware of which home rental expenses are tax deductible so that you can determine if you qualify or tax deductions. Be careful not to exceed the yearly limit, however, of how much you may deduct. This may seem confusing if you’re unfamiliar with real estate tax law, because it is. A real estate attorney can assist with these and other tax-related questions.

State-specific real estate and rental property laws are some of the trickiest and require either a good deal of independent research or the help of a real estate law professional.

In short, the challenge of complying with and understanding the law is one best dealt with by paying a legal professional for assistance and consultation.

Paperwork

An attorney can provide valuable guidance when it comes to drafting all of the paperwork involved with renting out a residence. The most important administrative issues are the lease and the security deposit agreement.

The lease

The lease is simply the agreement made between the property owner and the tenant. Its most basic purpose is to attest to the right of the tenant to live on the landlord’s property while he or she is paying rent. It gets more complicated than this, however. The terms of the lease must be defined and agreed upon by both parties before the rental agreement can be solidified. Creating this document can be done by the layperson using pre-made forms, but if you’re new to real estate you would be well advised to hire an attorney to draw up the lease to help protect your property and your legal rights.

The lease should, of course, be put in writing, with copies distributed to and agreed upon by all involved parties. Within a lease, the most important points to cover include: the names of all tenants, the address of your rental property, the agreed-upon monetary rent amount, how often rent is due, on what day the rent is due, the amount due as a security deposit, who will take responsibility of utility charges and home maintenance, conditions of the security deposit, the start and end date of the landlord-tenant contract, well-defined amount of notice required by landlord or tenant to give if canceling the lease, clear guidelines and penalties for overdue payments, and finally, your contact information if you are the landlord, or the contact information of the property management company you’ve hired.

The security deposit

The security deposit is the sum of money (usually refundable, depending on lease terms) your tenants will pay upfront to be used in case of property damage or skipped rent payments. Property owners should only use the money from security deposits to take care of unpaid rent payments by tenants or to make repairs to damage caused by the tenant.

Be aware that in some states you may be required to pay interest on security deposits paid to you by tenants. This may affect the amount your charge as a security deposit and is a good thing about which to consult with an attorney who is versed in this brand of law.

As a landlord, it’s a wise idea to fill out a checklist when your tenants first move in. This checklist confirms the state of the residence at the time of move-in, and the tenant can be present to oversee and agree with completion of the list. At the end of the lease, bring out the same checklist and compare the move-out state with the move-in state of the residence. From here you can determine any required cleaning or repairs to be paid for out of the security deposit.

  • Written by: M Spatz
  • Tuesday, 24 January 2012