Rental Restoration

Most people prepare well for their career either through education or apprenticeship.  Others find their career path evolves as they assume new responsibilities on their way up the ranks.  Very few wake one day to find that they are Chairman of the Board, Director of Marketing and Sales, Labor Relations Manager and Janitor of their very own company worth several hundred thousand dollars;  also known as being a residential landlord.

Throughout the Puget Sound and across the nation, the current housing market conditions are creating a new career called, “The Accidental Landlord”.  The Accidental Landlord is a savvy homeowner who has decided to ride out the rocky real estate sales market by leasing homes they otherwise would have sold.  When the chips are down and prices of investments and commodities plunge, most financial advisors remind us of the ancient tenet of “Buy low, sell high…” and encourage clients to hang on to their assets if at all possible and real estate is no different.

If you have recently become an Accidental Landlord, you should be congratulated for making the difficult decision to hang on to what is probably a substantial portion of your net worth.  In the same breath that I offer you congratulations, I offer you a great deal of empathy… and some advice.  You are embarking on what will be a highly rewarding but at times difficult path and whatever you do, don’t go it alone.

The first thing an Accidental Landlord should do is consult a professional and by professional, I don’t mean your brother-in-law in Atlanta who has owned several rental properties over the years.  There are few places in the country where the ROI is quite as high for landlords or potential landlords who consult an attorney, a professional property manager, and/or join an association of professionals such as the Rental Housing Association.  Washington State boasts some of most intricate landlord/tenant laws, with Seattle’s local codes easily being some of the most arduous and detailed in the United States.  By becoming a landlord, you are indeed subjecting yourself and your assets to intense liability if you fail to follow the letter of the law and there are virtually no accidents or omissions that are looked upon lightly by the local judiciary.  Nothing would be more heartbreaking than avoiding losing tens of thousands of dollars on the sales market, only to lose the whole house on the rental market!

Hopefully, the professional you consult will look at your situation in a holistic manner and help you identify some of the primary crucial issues such as:

Which documents does your local municipality require for a legal lease?  Are there additional addenda to the lease that are appropriate for your property beyond what is required?   What is your exit strategy:  What is your ideal outcome and what your timeline in terms of the end-game?   What needs to be done to ready the house for a renter?  What sorts of liabilities exist in your house that could pose a risk to the health and safety of a tenant?   Where will you set up the tenant’s trust account for their deposit?  Do you have the proper insurance in place?  Do you have an understanding of the Fair Housing Act regulations?  If you are a member of a homeowners’ association, what are their restrictions and policies?  And of course, when are you taking the RHA’s Landlord/Tenant law class?

These are the primary questions you should ask because they get you to slow down and consider what is necessary to mitigate your liabilities and design a long-term plan.

Don’t be tempted to skip those primary questions and immediately launch to the secondary- and sexier- questions such as:  How much rent will you charge?  Do you want to allow pets or not?  What sort of deposit is fair and gives you proper protection?  How will you market the property?  How will you screen tenants?  What length of lease do you desire?  And the sexiest question of all:  who will handle the middle of the night call when the basement bathroom has flooded because there’s a diaper jammed in the ejector sump?

And yes, you’ll need to consult with your professional resources to make these decisions as well.  Recently, we have seen a lot of Accidental Landlords set their monthly rental rates based on their mortgage- what you pay for your mortgage and what the market will bear in terms of rent have nothing to do with one another.  As far as screening tenants, federal regulations prevent easy access to credit reports- an absolute must when selecting a selecting a tenant- and the time to decide how you’ll obtain a credit report is not once you have a prospective tenant standing in front of you.

Again, congratulations on making a smart move in deciding to use this market as an opportunity to become a landlord.  In most cases, it truly will be a profitable decision in long-run.   We are fortunate to have such a wide variety of excellent resources to ensure the Accident Landlords in the Puget Sound don’t become another unfortunate casualty of the current market.

Eleanor