This article summarizes some key California rental laws applicable to residential rental units.
We’ve used the Official State Statutes and other online sources cited below to research this information and it should be a good starting point in learning about the law.
With that said, our summary is not intended to be exhaustive or a substitute for qualified legal advice. Laws and statutes are always subject to change, and may even vary from county to county or city to city.
You are responsible for performing your own research and complying with all laws applicable to your unique situation.
If you have legal questions or concerns, we recommend consulting with the appropriate government agencies and/or a qualified lawyer in your area. Your local or state bar association may have a referral service that can help you find a lawyer with experience in landlord-tenant law.
Official Rules and Regulations
- Cal. Civ Code §§ 1925 – 1954 – Title 5: Hiring of Real Property (scroll down)
- Cal. Civ Code §§ 1961 – 1962.7 – Title 5: Chapter 4: Identification of Property Owners (Scroll Down)
- Cal. Code of Civil Procedure – Table of Contents
- California Health and Safety Code – Table of Contents
- California Department of Consumer Affairs – Landlord Tenant Rules
- A Guide to Residential Tenants’ and Landlords’ Rights and Responsibilities (PDF)
- Security Deposit Maximum: Two months’ rent for unfurnished dwellings; 3 months’ rent if furnished dwellings. (Civ. Code §§ 1950.5 and 1940.5g)
- Security Deposit Interest: No state-wide statute, but 15 (or so) localities have rent control ordinances that require you to pay interest, including Los Angeles. (reference)
- Separate Security Deposit Bank Account: No Statute
- Pet Deposits and Additional Non-Refundable Fees: Not Allowed (Civ. Code §§ 1950.5m)
- Deadline for Returning Security Deposit: 21 days (Civ. Code §§ 1950.5g)
- Security Deposit can be Withheld: (handbook)
- For unpaid rent;
- For cleaning the rental unit when the tenant moves out, but only to make the unit as clean as it was when the tenant first moved in;
- For repair of damages, other than normal wear and tear, caused by the tenant or the tenant’s guests; and
- If the lease or rental agreement allows it, for the cost of restoring or replacing furniture, furnishings, or other items of personal property (including keys), other than because of normal wear and tear.
- Require Written Description/Itemized List of Damages and Charges: Yes. Receipts and documentation not needed to accompany the itemized list of repairs if repairs and cleaning cost less than $126. (Civ. Code §§ 1950.5g 4A)
- Record Keeping of Deposit Withholdings: No Statute
- Failure to Comply: A bad faith claim or retention by a landlord may subject the landlord to statutory damages of up to twice the amount of the security, in addition to actual damages. (Civ. Code §§ 1950.5(l))
Lease, Rent & Fees:
- Rent is Due: Unless there is a contract to the contrary, and the lease is for less than one year, rent is due at the end of the month. Most leases state that rent is due at the beginning of the month. (Civ. Code §§ 1947) and (Civ. Code §§ 1962)
- Payment Methods: Landlord must allow at least one form of payment that is neither cash nor electronic funds transfer, unless tenant has had an insuffienct funds payment, or stopped payment on a money order. Then the landlord can require payments to be paid in cash. (Civ. Code §§ 1947.3(1-2))
- Rent Increase Notice: 30 days if rent increase is less than 10 percent of the lowest amount of rent charged during the last 12 months. 60 days if rent increase is more than 10 percent of the lowest amount of rent charged during the last 12 months. (Civ. Code §§ 827(b)(2-3))
- Late Fees: Allowed, but they must be “reasonable” and obey rent control laws, and are only enforceable if specified in the lease. (handbook)
- Application Fees: The maximum fee is adjusted each year based on changes in the Consumer Price Index since January 1, 1998. In 2012, the maximum allowable fee is $44.51 (Civ. Code §§ 1950.6(b)). Use Cozy to avoid charging application fees because the tenant pays for the credit report directly.
- Prepaid Rent: Landlord is allowed to collect one month’s pre-paid rent (first month’s rent) plus two or three months’ security deposit. (handbook)
- Returned Check Fees: Equal to the actual bank fee. Or landlord can charge a flat “service” fee which is $25 for the first occurrence, and $35 for each occurrence thereafter (handbook). I recommend using Cozy to collect rent online to nearly eradicate late payments.
- Tenant Allowed to Withhold Rent for Failure to Provide Essential Services (Water, Heat, etc.): Yes, because the property is under the “implied warranty of habitability.” (handbook)
- Tenant Allowed to Repair and Deduct Rent: Yes, but not more than the cost of one month’s rent, and tenant cannot use this remedy more than twice in a 12-month period. (Civ. Code §§ 1942)
- Landlord Allowed to Recover Court and Attorney’s Fees: Yes (Civ. Code §§ 789.3d)
- Landlord Must Make a Reasonable Attempt to Mitigate Damages to Lessee, including an Attempt to Rerent: Yes (Civ. Code §§ 1951.2)
Notices and Entry:
- Notice to Terminate Tenancy – Fixed End Date in Lease: No notice is needed as the lease simply expires. I recommend giving 60 days notice anyway.
- Notice to Terminate Any Periodic Lease of a Year or More – If ALL tenants have lived there longer than a year, the landlord is required to give 60 days notice. (handbook)
- Notice to Terminate a Periodic Lease – Month-to-Month: Landlord is required to give 30 days notice. Tenant is required to give 30 days notice. (Civ. Code §§ 1946)
- Notice to Terminate a Periodic Lease – Week-to-week: Landlord is required to give 30 days notice. Tenant is required to give seven days notice. (handbook)
- Notice to Terminate Lease due to Sale of Property: For periodic tenancies only (example: month-to-month), 30 days notice if ALL of the following are true: (Civ. Code §§ 1946.1) (handbook)
- The landlord has contracted to sell the rental unit to another person who intends to occupy it for at least a year after the tenancy ends.
- The landlord must have opened escrow with a licensed escrow agent or real estate broker, and
- The landlord must have given 30-day notice no later than 120 days after opening escrow, and
- The landlord must not previously have given you a 30-day or 60-day notice, and
- The rental unit must be one that can be sold separately from any other dwelling unit. (For example, a house or a condominium can be sold separately from another dwelling unit.)
Note: A landlord can only end a periodic tenancy when a property or unit is sold, and not a fixed-term tenancy that has not yet expired.
- Notice of date/time of Move-Out Inspection: 48 hours (Civ. Code §§ 1950.5(f))
- Eviction Notice for Nonpayment: Three days (Civ. Procedure Code §§ 1161(2))
- Eviction Notice for Lease Violation: Three days to remedy lease violation or landlord can file eviction (Civ. Procedure Code §§ 1161(3)). Landlord can also terminate the lease for subletting without permission or illegal activity on the premise. (Civ. Procedure Code §§ 1161(4))
- Required Notice before Entry: 24 hours (Civ. Code §§ 1954a)
- Entry Allowed with Notice for Maintenance and Repairs (non-emergency): 24 hours (Civ. Code §§ 1954a)
- Emergency Entry Allowed without Notice: Yes (Civ. Code §§ 1954b)
- Entry Allowed During Tenant’s Extended Absence: No (Civ. Code §§ 1954)
- Notice to Tenants for Pesticide Use: No Statute
- Lockouts Allowed: No (Civ. Code §§ 789.3b(1))
- Utility Shut-offs Allowed: No (Civ. Code §§ 789.3a)
Disclosures and Miscellaneous Notes:
- Landlord Must Accept First Qualified Applicant – The 2012 Fair Housing Handbook of California says on page 24, “The landlord should take the time to check out the information and make a selection based on the first qualified applicant(s),” although there is no statute to support this. It’s recommended but not law.
- Copy of Lease: Provide a copy of the rental agreement or lease to the tenant within 15 days of its execution by the tenant. (Civ. Code §§ 1962(4))
- Utilities: Landlord must disclose if utilities that service tenant’s unit also service other areas (such as common foyers), and disclose the manner in which costs will be fairly divided up. (Civ. Code §§ 1940.9) Landlord must also provide a formula for dividing up utilities when utilities are split among multiple tenants.
- San Francisco Utilities: Landlords must provide heat that can maintain a room temperature of 68 degrees. This level of heat must be provided for at least 13 hours, specifically from 5-11 AM and 3-10 PM.
- Move-In Condition: Landlord is not required to provide a Move-In Condition Checklist for the Tenants to complete. However, it is recommended and extremely helpful should you ever go to court over physical damages to the dwelling.
- Mold: Landlord must disclose, prior to lease signing, knowledge of any mold in the dwelling that exceeds safety limits or poses a health concern. Landlord must distribute a State Department of Health Services consumer handbook once it is developed and approved. (Health & Safety Code §§ 26147 and Civ. Code §§ 1941.7)
- Demolishment: If a landlord or agent has applied for a permit to demolish a rental unit, the landlord must provide written notice to prospective tenants before accepting any money. (Civ. Code §§ 1940.6)
- Ordnances: Landlord must disclose the locations of former ordnances (weapons and artillery)in the neighborhood. (Civ. Code §§ 1940.7)
- Sexual Offenders: Landlords are required to include the following language in the lease:
“Notice: Pursuant to Section 290.46 of the Penal Code, information about specified registered sex offenders is made available to the public via an Internet Web site maintained by the Department of Justice at www.meganslaw.ca.gov. Depending on an offender’s criminal history, this information will include either the address at which the offender resides or the community of residence and zip code in which he or she resides.” (Civ. Code §§ 2079.10a)
- Pests Disclosures: At lease signing, Landlord must disclose any pests control contracts or disclosures received by pest control companies. If the premise is being treated for pests, landlord must disclose the pesticides used and their active ingredients, and any warnings associated with them. (Civ. Code §§ 1940.8, and Business and Professional Code §§ 8538)
- Smoking: If the landlord limits or prohibits smoking, landlord must include a clause that specifies the areas on or in the premise where smoking is prohibited. (Civ. Code §§ 1947.5)
- Proof of Domestic Violence Status: Landlord is entitled to proof/documentation of domestic violence status of the tenant if the tenant claims they are a victim. (Civ. Code §§ 1941.5, 1941.6, 1941.7)
- Locks: Landlords must change the locks if requested by a domestic violence victim and proof of court order is given. (Civ. Code §§ 1941.5 and 1941.6)
- Special Treatment: A victim may terminate a lease with 14 days notice and proof of victim status. (Civ. Code §§ 1946.7(d)) A landlord cannot end or refuse to renew a tenancy based upon the fact that tenant or a member of tenant’s household is a victim of a documented act of domestic violence, sexual assault, or stalking. (Civ. Procedure Code §§ 1161.3)
- Abandoned Property: The rules are lengthy and specific, please read Civ. Code §§ 1965, 1980 to 1991.
- Retaliation: Landlord must not terminate a lease, increase rent, decrease services, cause a lessee to quit involuntarily, or bring an action to recover possession to a tenant who has filed an official complaint to a Government Authority, been involved in a tenant’s organization, or exercised a legal right. Courts will assume “retaliation” by landlord if negative action is taken on the tenant within 180 days (six months) after any of the prior tenant actions. (Civ. Code §§ 1942.5) It will also be considered retaliation if the landlord acts negatively within six months after any of the following:
- Using the repair and deduct remedy, or telling the landlord that the tenant will use the repair and deduct remedy.
- Complaining about the condition of the rental unit to the landlord, or to an appropriate public agency after giving the landlord notice.
- Filing a lawsuit or beginning arbitration based on the condition of the rental unit.
- Causing an appropriate public agency to inspect the rental unit or to issue a citation to the landlord.
- Small Claims Court Limits: $10,000, however landlord may not file a suit for over $2,500 more than twice a year. (Civ. Procedure Code §§ 116.110 to 116.950)
- Eviction Cases Allowed: No (handbook)
- Small Claims Court Limits – Los Angeles: $10,000
- Small Claims Court Limits – San Diego: $10,000 (How to File a Small Claims Case booklet)
- Small Claims Court Limits – Orange County: $10,000
- California Courts – Judicial Branch – Small Claims
- The Small Claims Court – A Guide to its Practical Use (PDF)
- Business License required: No state-wide statute, but local cities and counties may have regulations and requirements. Check with your local governing authority.
Credit to Lucas Hall
Lucas is the Chief Landlordologist at Cozy. He has been a successful landlord for over 10 years, with dozens of happy tenants and a profitable income property portfolio.
Protect yourself and polish your reputation by knowing how to present information—and when refer a client to someone else for assistance.
Don’t position yourself as the primary source of information.
Your role as a real estate professional is to do what it takes to arrange and close deals—but that doesn’t mean you need to be the authoritative source for answers to every question that might come up. When a buyer asks questions such as how many finished square feet a home has, if it’s in a flood plain, what the school boundaries are, or when a new light rail line might open—in other words, anything you don’t know as a fact on your own—be sure to clearly provide the source of any information you provide in response, says Michael Baucum, a transactional real estate attorney in San Antonio, Texas.
So instead of just casting what you say as a fact, say, “According to,” or, “The appraisal document says,” or something similar, Baucum says. Those few extra words could help protect you if someone is unhappy later on with something you told them.
Be upfront about whom you’re working for.
Be sure to explain that your duty is to the seller before discussing a property with people who stop by an open house or contact you based on a sign or advertisement, advises Mike Hege, broker-in-charge at Pridemore Properties in Charlotte, N.C. Doing so could help prospective buyers avoid inadvertently breaching an agreement they may have with a buyer’s agent—and it could help prevent you from unwittingly entering a dual agency situation, too. Your best bet is to advise people who express interest in your listings to use their own agent, Hege says.
Never give tax advice.
Buyers and sellers might ply you with questions about the tax benefits and implications that relate to a home transaction, but your answer should always be the same: “Consult a tax professional,” says Jim Downing, a sales associate with Berkshire Hathaway HomeServices Florida Properties Group in Clearwater, Fla. Even basic questions with what seem like obvious answers, such as whether mortgage interest is tax-deductible, could invite trouble, because no two people’s financial situations are identical.
Don’t interpret HOA rules or budgets for clients.
Your client has just decided to buy a condo and now has to dig through a thick stack of paper relating to the rules and finances of the building they want to move into. Explaining what the documents mean and helping your client decide if they’re acceptable might seem like an obvious way to demonstrate your value—but this is work best left to an attorney, Downing advises.
Keep a record of what you say.
Just as having a log of how many miles you drive and where you go can help you at tax time, maintaining an accurate record of what you discuss with clients can prove very useful if you have to recall what you said in the future. Mindful of the fact that he might need to reconstruct the details of a conversation long after it occurs, John Shipman, director of green operations for Coldwell Banker George Realty in Arcadia, Calif., makes a habit of writing down what he says in meetings, along with the date and time. “I’ve always been told by attorneys that if I said something but it’s not written down, it never happened,” Shipman says.
As a writer-producer for the National Association of REALTORS® based in Washington, Sam Silverstein develops articles and videos for NAR’s members and others interested in its activities, statistics and research.
Is that chocolate ice cream, or something the previous tenant’s baby left behind? Ah yes, the joys of renting a unit with carpet.
While landlords are responsible for ensuring that their rental units are safe and inhabitable, it’s difficult to argue that a dirty carpet is dangerous or makes a house unlivable.
But what exactly is meant by a “unlivable“, and how do cleaning carpet stains fit in?
Aren’t carpet stains considered “normal wear and tear”?
If you, as a renter, are confused about your rights, you’re not alone. This is a common problem, and one that can cause to you live in less than ideal living conditions. Livable conditions typically refer to necessities, such as having a roof over your head, hot water, and heat during the winter.
But you might, for example, be asked to live with a drip in the bathroom or an unsightly stain in the carpet.
Although those problems are pretty minor and are unlikely to be a reason for you to leave your rental property, those irritants can make a living situation unpleasant.
Who Made it Dirty?
Did you, the renter, spill red wine, or drop your spaghetti dinner onto the carpet? If so, then you’ll likely be responsible to fix/clean it.
Even though most of America eats dinner in front of their TV, food spills are never “normal wear and tear”. That’s why we have dining rooms, and if you choose to each on the couch, you do so at your own risk.
…though common, food spills are never “normal wear”
Was the stain there when you moved-in? If so, then the landlord certainly can’t hold you responsible for it – but he also might not have to clean it.
Be sure to document the condition of the property, including the stain, when you move in so there are no issues later. And while it might be unsightly, the landlord still doesn’t have to fix it unless it’s causing a health issue.
Here’s a related podcast episode:
Know the Laws for Cleaning, Maintenance, and Repairs
A stain in the carpet, or generally dirty carpets, do not make a rental unit uninhabitable (obviously); therefore, the rules surrounding whether a landlord has to clean a carpet can seem hazy.
Cosmetic repairs are usually not legally required. But in some cases, such as issues with mold or health risks, landlords may have to make such repairs.
If the carpet stain or condition is a threat to human safety, then the landlord should intervene.
To help you determine whether your landlord is legally required to clean or repair your carpet, you could do some research to see if this is addressed in the following:
- County building codes
- State tenant-landlord laws
- Written or oral promises that your landlord has made
- Terms of your lease
If you find out that your landlord is legally required to clean the carpet every X years, or deal with the unsightly carpet stain, then the next hurdle is to actually get your landlord to do it.
Although withholding your rent or using a “repair and deduct” procedure might be allowed by law in some states, it is not advisable to do either because these methods can result in eviction.
Instead, why not try out an alternative to get your landlord to clean your carpet (or make other minor repairs)?
Here are four ideas to get your carpet clean:
1. Speak with Your Landlord
Ask your landlord about cleaning the carpet or doing another minor repair job. Your landlord might be very willing to fix the problem, especially if it prolongs the life of the carpet.
Plus, it shows that you take pride in the condition of the unit and your landlord will likely want to make things better for you.
2. Write a Repair Request
Even if you have spoken with your landlord, writing a letter or an email can be helpful.
It gives the landlord time to think over the request. Additionally, a repair request gives you the opportunity to describe the problem and to explain why it is in the landlord’s best interest to clean the stain in the carpet.
Let them know that the stain may become worse and thus more costly to clean later.
3. Propose Mediation
If you can’t get your landlord to cooperate, you can propose a formal mediation.
This is probably one of the last resorts that you should consider with regards to cleaning carpet stains. But in some cases, contacting a mediation service can be the only way forward, especially if oral and written requests are ignored.
Mediators work with both you and your landlord to come up with a solution that you both agree is fair.
With that said, if your landlord is a slumlord, they will just ignore your request and act like you are crazy.
4. Clean Carpet Stains Yourself
If the landlord is not required by law to clean the carpet stain (which is common), and they are not willing to do so, you could try to clean the carpet stain yourself.
There are many methods to clean carpet stains; one of the most effective is by using a combination of vinegar and baking soda.
- Soak the carpet stain with vinegar.
- Sprinkle a little baking soda over the vinegar.
- Pour vinegar on the pile of baking soda (expect a carpet volcano).
- Wait until it absorbs the stain (approximately 5 minutes).
- Wipe up the mixture, and vacuum.
This method should remove most carpet stains, so it is well worth a try, especially if your landlord is likely to withhold your security deposit if such stains are evident.
Credit to Jimmy Moncrief
Jimmy is a multifamily real estate investor and bank credit officer. He has written a complimentary bank negotiating guide on how to get around the 80% LTV rule.
Do-it-yourself household projects have become increasingly popular, but home inspectors are finding a host of safety problems caused by overconfident home owners seeking shortcuts. “Home owners now see these DIY TV shows, which make these household remodeling projects look easy. They can go to a big box store and easily get the materials too,” says Randy Sipe, president of the American Society of Home Inspectors in Spring Hill, Kansas. “They think: ‘How hard can it be?’” Howard Pegelow, a home inspector in Arizona and Wisconsin, says home safety is a top priority in his inspections. He looks for loose carpeting, uneven steps, and water temperature extremes, among other common risk factors. Here are additional concerns noted by Pegelow, Sipe, and others in the field:
Look for: insecurely attached railings and wobbling or improperly sized posts.
“Decks shouldn’t move,” says Scott Patterson, an inspector with Trace Inspections in the Nashville area. Wood decks can collapse if they’re not properly attached to the house or if they rely on the house too much for support. “Fasteners can corrode, which could result in failure of the deck. Many times owners are unaware all these problems exist,” Sipe adds.
Incorrectly removed walls
Look for: sagging roofs and ceilings.
Open floor plans are appealing, but not when they overlook structural issues, which can happen when home owners fail to identify load-bearing walls. Pay attention to the age of a home, Patterson says. In newer construction, homes tend to have greater side support, which can accommodate open floor plans. Older homes relied more on the center for stability, which can mean trouble for amateur wall-busters.
Look for: wrong pipes used for connections.
A common error Patterson sees in plumbing jobs comes from home owners who purchase a sink and cabinet from a big-box store and handle the installation themselves. Using the wrong pipes often results in costly water damage. Patterson says he commonly sees flexible, accordion-shaped pipe under the sink for the drain, even though they do not comply with residential plumbing codes. Pipes should be smooth and unridged to prevent clogs or waste buildup.
Missing garage door sensors
Look for: sensors missing or not facing one another.
Garage doors can pose a big safety threat if improperly installed, Sipe says. The safety sensors must be connected and aligned correctly for the garage door to go down, and if it doesn’t, the owner may just uninstall them. Additionally, a poor connection could be the culprit of the sensor malfunction. Sipe says he often sees the safety cable being threaded incorrectly, which could cause it to break and send the garage door door crashing down.
Look for: missing batteries or disconnected alarms.
Home inspectors aren’t always required to test smoke and carbon monoxide detectors, but many do. Municipalities often suggest installing them within 15 feet of the primary entrance to each sleeping room. Home owners often remove them if they start chirping or disconnect them to prevent false alarms as they cook. “Many times I’ll open it up and find the battery is gone,” Pegelow says. “That is a big safety concern.”
Watch for: exposed wiring and overloaded circuits.
Electrical problems often emerge when an addition has been made to a home, such as a basement or attic remodel. Home owners may add two wires to one circuit breaker where there should be only one. Or, Sipe says, he sees amateurs using a wire that’s too small in the breaker, which could pose a fire hazard.
Melissa Dittmann Tracey is a contributing editor for REALTOR® magazine. She can be reached at firstname.lastname@example.org.
It takes a talented and unique skill set to be a professional property manager. Not everyone is cut out for it, but this article will help you tell the amateurs from the pros.
Property management is a complicated, fast-paced business, but generally speaking, there are some of the traits I see in successful property managers
- Pleasant, but firm
- Communicative, but not aggressive
- Detailed oriented, but not in the weeds
- Organized, but not obsessive
- Calm, but not seemingly apathetic
- Truthful, but does not overshare
- Is always learning, but is not arrogant
- and lastly, is passionate about real estate investing
Obviously, there’s more to being a successful manager, but I’m going to stop there. You see, most of the managers I’ve met only possess half of these traits (at best), and as such, it causes the business to struggle.
I’m not saying that they need to be perfect (I’m sure not!), but there needs to be a pursuit for something bigger and something greater. Managers who push themselves professionally towards these traits are the ones that will be able to keep your rental property occupied, meticulously maintained, and your tenants happy.
A good property manager is worth his or her weight in gold.
Top 20 Questions to Ask a Property Manager
Recently, the folks at Active Renter put together an in-depth guide to interviewing a property manager before you hire them. While I think 74 questions is a bit much (okay, way too much), the premise is solid.
With their permission, I’ve picked my top 20 questions to ask a property manager – which would still take 30 minutes or more to ask. In my opinion, these are the most important questions to ask a property manager that you are thinking about hiring.
1) What are the various services that you offer to your clients?
You want to make sure that you find a property management company that can market, lease, manage, and sell your property. It is also important to make sure that this company can provide top-notch maintenance, conduct inspections, and administer in-depth background checks.
2) How many rental units do you manage?
This will help you understand their size. Too few rental units and they are either inexperienced or have lost clients due to poor service. Too many rental units and you will get lost in the shuffle. Look for a property manager with 200 to 600 rental units. That’s when you’ve found your Goldilocks level of “just right.”
3) What experience does your company owner have in managing rentals?
Some company owners have never even managed a property. If the company owner has never managed a rental, what is the chance that he or she runs a company that can effectively help you with your investment property?
4) How do you determine rent amount?
A property manager should be able to complete a comparable market analysis of all the other available listings near your property. They should use properties that just went off the market and properties that are currently on the market to determine the highest possible rent. They should also have the expertise and experience needed to factor in the unique aspects of your rental property, like a pool or a new kitchen.
5) Are you currently an active real estate investor in your market?
The company’s leadership should be investing in the real estate market themselves. Period. If they don’t invest in your market then they lack the understanding they need to help you excel.
6) Under what conditions can I cancel my management contract?
Never get locked into a contract you can’t escape. Some companies will try to hold you captive with a contract and others will keep your business with great service. If a company is offering you an inescapable contract, it’s time to look elsewhere.
7) What are the management fees and/or pricing options when the property is being rented?
This question will help you understand your average monthly fee, if any. Some companies will offer a flat rate and others will offer a rate based on the rent amount. Others will offer 3 levels of pricing, which includes a lease only plan, standard plan, and a premium plan.
Again, you’re best off looking for a percentage of collected rents. This motivates your property manager to fill vacancies because they don’t get paid if you don’t have a tenant. It also motivates them to fight for higher rent amounts because this helps their bottom line too. Flat rate companies will get the same pay no matter what, so why would they be motivated to get you a higher rent?
8) Are their fees when the property has no tenants?
This is a very important question to ask for two reasons. One, many companies will offer a “flat rate,” which sounds great until your property is empty…and they still continue to charge you. If a company is taking money with the property empty, how motivated do you think they are to fill the vacancy?
9) What miscellaneous fees could I be charged for the management of my property?
Again, some companies will try to get you to sign because they offer a low rate. As the saying goes, if it is too good to be true, it probably is. Once you’ve signed, a company that seemed inexpensive will now charge you lots of extra fees. Remember, a property management company has to make money, so if they aren’t making money from the low monthly fee they will find another way to do it.
10) Do I have to sell my property with you if I want to list it?
Some property managers will ask you to sign a contract that forces you to sell the property with them. Don’t fall for this. A quality brokerage would never require this- but rather they would be available if you wanted to use their brokerage services.
11) Do you offer direct deposit for your owners?
Unless you’re living in Back to the Future and you’ve traveled to the 1800’s, your property manager should be able to deposit your check in your account. This saves you time and effort, which is the whole reason you hired them.
12) How do you collect rent from tenants?
Asking tenants to bring checks to an office is a lot like wearing acid washed jeans, it might have been okay in the 80’s, but the times have changed. If your property manager isn’t having your tenants pay online that is a red flag for two reasons. One, it slows down the speed at which you can get paid. Two, it makes it easier for tenants to miss paying the rent. If payment is online, tenants can automate their payment and these two problems are avoided.
13) Do you conduct property inspections and, if you do, what charge is associated with them?
Your property is at risk if your property manager doesn’t conduct inspections. This should require a small fee and it will be one of the best investments you can make. It ensures you catch problems before they spiral out of control.
14) Do you offer eviction warranty (also called a “screening guarantee”?
Some companies, such as ourselves, will offer eviction warranty. It is only a small fee, but it will give you major coverage should you need to evict a tenant.
15) What steps do you take to market properties?
Your property manager should be advertising properties through a variety of channels. If they are still just placing newspaper ads and hoping for the best then you should steer clear.
16) How long are your properties typically vacant?
The average vacancy time after a property is ready should be about 2-4 weeks. Any longer than this suggests the property manager is struggling to find tenants, any shorter than this suggests that your asking rent amount is too low and you might be leaving money on the table. Either of these scenarios is bad for you and your rental property.
17) What are your income and screening requirements for applicants?
If they don’t set a standard then how can they be sure this tenant will make rent? It should go without saying that a tenant needs to have enough income to pay the rent.
18) What control do I have over the tenant lease agreement?
Your property manager should give you some input into the lease agreement if there are one or two issues that are important to you. However, if you are putting in lots of additions, you should have just written it yourself. Make sure your prospective property manager is confident in the leases that they have written for tenants by asking this question.
19) Do you mark-up maintenance and repairs?
You need to make sure that a prospective property management company doesn’t make a profit any time they do maintenance. If they are willing to charge you for maintenance then your profits could greatly diminish.
20) How often will I get updates on my portfolio?
Just like payment statements, you should be able to get updates on your portfolio as often as you need them. Your properties are your business and to not offer updates as often as you want would be the equivalent of telling your property manager that they can’t check their email for a week. It is a situation that would guarantee failure.
Credit to Lucas Hall
Lucas is the Chief Landlordologist at Cozy. He has been a successful landlord for over 10 years, with dozens of happy tenants and a profitable income property portfolio.
The rental market has seen a boom and decline in recent years. In the US, home prices peaked in 2007/08 and then plummeted to suffocating levels – causing foreclosures and abandonment nationwide.
In the UK, the rise of buy-to-let mortgage programs have allowed individuals to buy homes for the sole purpose of renting them out.
For better or worse, this caused a surge of new landlords in the US and the UK. According to the Wall Street Journal, the percentage of cash buyers (largely investors) make up about 32% of property sales in the US, which is higher than the average from 2000 to 2010.
If Paul Revere were alive today, he would proclaim “The landlords are coming!“
Buying a property for the purpose of renting it out can be a fantastic source of monthly income and a strong return on investment in the future. However, before you sign your financial life away, there are a few things you need to consider first:
1. Crunch the Numbers
Before you start looking at houses it’s a good idea to sit down and calculate the amount you can afford to spend on a rental property.
- Financing: If you’re not paying with cash, do some research by talking to a mortgage broker/bank to find out how much money you could borrow. You’ll also need to find out how much of a deposit you would be required to put down. It’s also a good idea to work out how much return on investment or rental yield you can realistically expect in the current market.
- Transaction Fees: Factor in additional costs such as tax, legal fees, stamp duty, etc., as they will vary between different states and even countries. If you are an international investor, the website Global Property Guide is really useful in for researching real estate data in other countries.
- Management Fees: How you would manage the property once you own it? Some landlords choose to manage the property themselves to save money, but this can cost a lot of time. Other landlords choose to pay a property management company to handle the property – everything from finding the tenants to arranging repairs once the tenants are in the property. Either way, these costs need to be considered in your budget.
2. Choose a Desirable Location
Once you have an idea of how much you are able to invest into a property, it’s time to choose the right area to invest in.
- Attractive Neighborhood: Here’s the secret: Invest in a rental property that is located in an area that people actually want to live in (it’s really that simple). It may seem like a good idea to buy a cheaper property but if it is in a run-down, neglected neighborhood then you’ll struggle to find decent tenants. I always try to buy the “worst house on the block” because I know it will give me the greatest amount of appreciation when I fix it up.
- Transportation and Local Amenities: You should consider how close the property is to quality transport routes, good schools, and amenities like shopping malls and supermarkets. If you’re planning on renting to students you’ll need to think about how accessible the property is for the college or university.
3. Choose your Target Tenant
As mentioned above, it’s important to consider who you’re likely to rent to, as different types of tenants will have different needs.
- Students: If you’re renting to students they’ll be looking for a clean, comfortable property – nothing too fancy or high maintenance. Students usually don’t have much furniture (or money) so they tend to look for fully furnished accommodations that they can move straight into. In a previous article we discuss the Top 5 Amenities When Renting to Students.
- Single Families: Renting to a family is different. They’re more likely look for an unfurnished property that is neutrally decorated; a blank canvas that they can make their own mark on. If you allow tenants to paint walls or hang pictures etc they’ll be able to make the house feel like home and are more likely to stay there for longer, which means more rent for you. We also discuss some great tips on maximizing your rental income through renovation and decoration when buying property for the purpose of renting it out.
4. Select the Property based on Return on Investment
Once you’ve chosen an area and considered the type of tenant you’d like to attract it’s time to find a house that meets your requirements.
- Make the Best “Business” Decision: Unless you plan to live in the property one day, you should look at every property from a business/investment perspective. If you make a purchase based on a “feeeeeling”, you will end up broke. Run the sales comps with an Agent, and check craigslist for similar rental properties to figure out the rental potential.
- Use an Agent: I will often use Redfin or Zillow or New Star Realty to view properties in my area, but I still prefer to use a real estate agent to close the deal, because they have insights and experience that I don’t. If real estate investing is going your full-time job, then you’ll want to get your own license to save on agent fees. In the US, the fee for a real estate agent is usually 3% of the purchase price, and paid for by the seller. The buyer will have other fees, but an agent fee is not one of them.
- Negotiate a Deal: When you find a property that you like and you’re ready to make an offer, it’s a good idea to try and haggle on the price. If the property needs any extensive cosmetic or building repairs, then you may be able to use this as a negotiating tool to nudge the price down a little.
- Using all Cash: You’ll have more leverage if you can pay with cash because your offer will appeal to a seller who is looking for a quick sale. Often, the seller will discount the price if you can close the deal within a week or two.
- Using Financing: If you’re using someone else’s money, you should shop around for the best mortgage rates. Don’t just take the first offer you get from local bank because there are hundreds of different lenders, each with their own incentives. A mortgage broker will have access to multiple programs and will help you compare your options.
5. Be Prepared for the Worst
The property market can fluctuate greatly at times so it can be difficult to know when (or if) you’ll see a good return on your investment.
- Vacancy: Even in the most popular areas, properties can sometimes sit empty for several months. For example, the town of Vail, Colorado is home to some of the best skiing in the United States, however even the most luxurious rental properties are vacant for approximately 100 days a year in Vail. As a general rule of thumb, you should plan for your property to be empty for two months of the year, therefore providing you with a good buffer of cash.
- Late Rent Payments: Renting will always come with risks. The majority of tenants pay their rent on time each month. But there is always the risk that your tenants will fall on hard times and fail to meet their rental obligations. There are multiple types of landlord insurance that can cover missing rent, if your tenant fails to fulfill the lease agreement. Alternately, if you create an “Emergency Fund” of 2-3 months worth of expenses, you’ll be able to absorb the risk of non-payment if it occurs.
- Use a Debt Collection Agency: If a tenant fails to pay rent, they abandon the property, or you have to evict them, you will probably need help from a debt collection agency to recover your losses.
Credit to Sergio Bonaducci