Should You Care About Your Tenant’s Source of Income?

Most of us tend to do it without even noticing.  When either making conversation, reviewing a resume, or meeting someone for the first time, when we learn what a person does for a living, we immediately start developing thoughts and perceptions about the person.  We live in a society that places a great deal of value on what one does for a living.  The question is, when evaluating applicant’s for your rental property, should you care what your tenant does for a living or where he or she receives their source of income?  While the Fair Housing Act, the law that sets the framework for housing discrimination, does not offer protection to tenants based on their source of income, more and more states and local governments are adding that protection to their own fair housing rules.  As a landlord or property manager, you need to be aware of these discrimination laws and regulations to make sure that your own unconscious biases do not put you in a bind.

For instance, a city in New York recently passed a law that requires landlords to consider rental applicants on government assistance and other forms of income.  In Pennsylvania, another city is debating a similar measure. More than a dozen states and several dozen county or municipal governments already have enacted laws prohibiting source of income discrimination.

Some of these laws specifically define types of income that cannot be the bases for denial, such as child support, alimony, Social Security benefits, disability, worker’s compensation, unemployment insurance, and law suit settlements.  Section 8 vouchers, however, are an area of deep divide.  Section 8 is the federal housing subsidy program that helps families living around the poverty line to afford monthly rent.  In some cases, federal Section 8 voucher holders cannot be discriminated against. Others, however, such as the statewide rules in California, do not include the Section 8 program.

These rules and regulations regarding income discrimination, however, are not limited only to state laws.  On the federal level, the Office on Housing and Urban Development (HUD) recently issued a blanket ban on rental applicants with any criminal history unfairly targets minority tenants. It is possible that the preponderance of tenants who receive government assistance are minorities, women and tenants with disabilities. Therefore, it is not inconceivable that HUD will take a similar position that rejecting tenants due to source of income may be discrimination based on race, national origin, gender, family status, or disability — all protected classes under the FHA.

Property managers and landlords that currently rely on tenant screening reports, and specifically the sections that identify the applicant’s source of income, need to pay close attention to these rules and regulations.  Obviously, there are countless reasons to reject an applicant due to the source of their income.  Perhaps the most common is the increased regulation that comes with accepting a government program such as Section 8. Inspections are rumored to be onerous, the lease agreement may need alteration, and eviction of these tenants can take longer.  Consequently, you may find it just easier in the long-run to avoid renting to Section 8 voucher holders.

But it’s important for both landlords and property managers to be aware that when source of income statutes have been challenged, most courts have ruled that mere “inconvenience” on the part of the landlord or the property manager is in itself insufficient to warrant a rejection of tenants who receive some form of state, local or federal housing assistance.

On the other hand, housing assistance is itself a booming industry.  Property management companies that specialize in affordable housing tout the benefits — a steady stream of prospects to fill vacancies, stable income that is not affected by business closures, and high tenant retention. However, voucher programs remain controversial because some landlords experience delays in payments or other bureaucratic headaches.

Another controversy stems from frequent tenant complaints over the condition of the property. Tenants on vouchers often feel that landlords tend to neglect these properties, while landlords say tenants do the damage, or that they can’t afford to make the litany of upgrades required by HUD.

Because this appears to be an emerging trend, landlords may want to consider how to screen tenants who are on government assistance in order to avoid costly penalties for discrimination.

The best way to avoid discrimination in tenant screening is to treat all rental applicants the same:

The rental ad should not identify any “ideal” tenant but rather describe the property so that individual applicants can decide for themselves. There should be no prohibitions against any particular group, including those on government assistance.

The rental application should not be framed so as to benefit some but not all applicants. Do not create the impression that income must be from employment.

When offering tours and managing the rental property, it’s important not to treat tenants differently or to intimidate any individual tenant.

Regardless of the source of tenants’ income, a rental property must be kept in good condition to avoid injury, loss of property value, and tenant complaints.

Tenants on assistance tend to stay long-term. It’s important to contemplate that in the lease agreement. For instance, work out how routine repairs and updates are to be made, and provide for regular property inspections. Long-term tenants build a strong emotional connection to the property and other tenants, so it’s not a good practice to ignore tenant concerns. A disgruntled tenant quickly can draw in others. This phenomenon can work to the landlord’s benefit — tenant retention improves where tenants are allowed opportunities to build a sense of community.

How To Interpret Credit Reports

Realtor.com recently published an article outlining a number of missteps that people often take that causes their credit reports to be negatively impacted.  Although the article itself was aimed at potential homeowners, the same lessons apply to potential renters as well as landlords/property who need to properly understand credit reports if they are to have any chance of knowing what to look for in a qualified tenant.

creditscore

When evaluating a potential tenant’s credit report, a landlord or property manager needs to know what can be the causes of a lower-than-expected credit score.  Not all low credit scores mean necessarily mean that the holder has a terrible credit history.  In fact, the low score could be the result of fairly simple mistakes that can be addressed.  When ordering a tenant screening report, it is critical to fully understand all the ways that an applicant’s credit report could be impacted.

Mistake 1: Closing old credit card accounts

There is a general tendency to believe that closing out credit card accounts is a surefire way to improve your credit.  Unfortunately, it’s not always that simple.  While your applicant’s intentions may be well intentioned and actually aimed at improving their tenant score, closing old credit card accounts can hurt the applicant’s debt-to-credit utilization ratio—a fancy term for how much debt you’ve accumulated on your credit card accounts, divided by the credit limit on the sum of your accounts. 

Mistake 2: Opening a new credit card

On the flip side, people often mistakingly believe that opening a new credit card will help them quickly establish credit history and improve their credit score.  Just like it can be a negative to close out an old credit card account, a credit score can also be negatively affected by opening a new credit card.

Actually, applying for a new credit card can ding your score by up to 5 points, says Beverly Harzog, a consumer credit expert and author of “The Debt Escape Plan,” because it results in a “hard inquiry” on your credit report.

Mistake 3: Not using your credit cards

Just having credit cards is not in itself enough to improve your credit score.  In fact, by not using your credit cards, your score is going to be negatively impacted because there will be less credit history for the score to be based upon.  Additionally,

if you don’t use your credit card for an extended period of time—typically six months—your card issuer might decide to close the account (given you’re not generating revenue for the company). And as you might have guessed by now, this would lower the average length of your credit history, thus damaging your credit score.

“If you’re not an active credit card shopper, you still need to dust off your card from time to time,” says Harzog. To keep your credit cards active, Harzog recommends charging a purchase at least once every four months—and, of course, paying it off in full.

Mistake 4: Failing to pay your medical bills

Ok, now finally moving away from credit cards, your applicant may have a lower than expected credit score for an entirely different, but still not nefarious, reason: they suffered a medical situation and have not yet been able to pay off their medical bills.  Medicine is expensive, particularly in the United States, and those bills alone can have huge impacts on an applicant’s credit score.

hen you default on medical debt, your doctor’s office or hospital will likely outsource it to a debt collection agency. The debt collector may then decide to notify the credit bureaus that you’re overdue on your medical payments—placing a deep black mark on your credit report.

Your best move? Be proactive. If you know that you’re going to miss a payment, notify your medical provider ahead of time.

Mistake 5: Co-signing a loan

Being on the hook for someone else’s loan is always dangerous.  Your applicant again may have had the best intentions, but being a co-signer on a loan is substantial liability.  Co-signing for a loan is essentially no different than you applying for the loan yourself, in the sense that your credit score is at risk. 

Mistake 6: Missing payments on a business credit card

Now this may finally be the most surprising negative credit action.  If your applicant owns a business and runs up debt on his/her business credit card, that debt can have very severe negative effects on the applicant’s personal credit score.  As the business owner, the applicant is personally liable for the business’ credit card debt.  If the applicant then default on the card, the creditor can report it to the credit bureaus, which can hurt your applicant’s credit score.

Important Things to Consider Before Evicting a Problem Tenant

Not all tenants are the same. Some pay rents on time, others don’t. Some follow the rules specified in the lease, while others don’t. If you are managing a property as a landlord, you have to patiently deal with all kinds of tenants. But what if a tenant has become too intolerable to keep? Obviously, you will have to evict him or her.

Eviction is considered the last resort for a landlord because it’s a very time consuming and expensive process.  If you too have a problem tenant, here are three steps you can take to avoid the stress that the process of evicting a tenant can otherwise cause:

Find out if you have reasonable grounds to evict a tenant

Keep in mind that tenants have certain legal rights. You should have a just cause before you can evict a tenant. You can’t evict a tenant just because you dislike him or her. There must a reason strong enough to support you legally. If your tenant is in violation of any of the lease’s clauses, then you possibly have the ground to evict him or her. Besides, if the tenant is not paying rent or has caused a serious damage to the property voluntarily, you probably have a just cause to evict that tenant. If a tenant is involved in any illegal activity on your premises, then you should not even think twice before initiating the eviction proceedings against him or her. In most states, a landlord can evict a tenant even when he or she has committed none of the above-mentioned violations, but the landlord has to give a 30 to 60 days eviction notice.

What it means is that before taking any step, you should carefully evaluate if you have reasonable grounds to initiate the legal process of eviction against a tenant.

Find out if there is an amicable solution

Before initiating a legal action like issuing an eviction notice to the tenant, you should try to figure out if you can avoid the legal hassle and find a solution that is mutually acceptable. If the tenant has agreed to pay the outstanding rent or is willing to amend the situation, then you can consider giving him or her a second chance. You can arrange a meeting and give a final warning that you will be forced to take a legal step if the tenant doesn’t correct the situation.

Familiarize yourself with the law

While the US Landlord and Tenant Act applies universally to all landlords and tenants, you have to take into account the state-specific laws also. The tenancy laws vary from state to state, so you need to study the laws that apply particularly in your state. Ignorance about state-specific laws can prove a big mistake, because your tenant can claim that you violated them while initiating an eviction procedure against him or her. You can also consult with an attorney specializing in tenancy laws.

Renting Vs Buying? Buying may be a dream, but renting may be the right choice for you

Homeownership is considered one of the criteria one needs to fulfill to live the American Dream. A survey recently suggested that the majority of prospective first time buyers want to purchase a home because they consider it necessary to lead a good life and improve their social status. Despite that, ‘whether to buy or rent’ has been a chicken-and-egg question in the real estate world for centuries.

It may be confusing to determine which way to go, but frankly speaking, what is right for you depends on your individual circumstances. Homeownership may be a dream for you, but may not a right choice in some cases. If you are a renter and finding it difficult to fulfill your homeownership dream, don’t get disheartened. We hear benefits of homeownership every now and then; here are some great advantages of renting:

You will be spoilt for choice

There is no doubt about the fact that as a renter, you will have more choices as to where you want to live. You can set your budget and then start looking for a rental that suits your lifestyle. If you want to live near a beach, buying a home may be unaffordable, but renting one may be not. So as a renter, you have the freedom of enjoying your life without getting stuck in a place that you don’t like.

You can move easily

You may think that you will live in a place forever, but the reality is life plans can change anytime. Marriage, kids, change in job are some of the circumstances which can throw you off guard and force you to move to a new place. As a renter, you will find moving extremely easy.  Contrary to that, if you own a home, you will have to worry about a lot of things liking finding a buyer for your existing home, buying a new one or whether you’ll lose money on the sale.

Renting is cheaper in most cases

When buying a home, you will ideally need to put 20% of the sales price down. It’s a huge amount. Besides, you will have to look after the property’s upkeep and bear other costs related to homeownership like property taxes, assessments. As a renter, you don’t have to worry about any of them. All you do is pay the monthly rent and utility bills. Even large repairs are handled by the landlord.

You enjoy the amenities without worrying about maintenance

In order to make their rentals appealing, landlords offer a wide range of amenities including pool, playgrounds, private parking, free gym, free Wi-Fi etc. As a renter, you enjoy these amenities free of cost, and that too without worrying about their maintenance. If you try to have the same amenities after buying a home, it can prove to be very expensive.

Lots of opportunities to socialize

Living in an apartment complex comes with a great advantage: you get to meet new people at the pool, the on-site gym or around the grounds. Many property management companies also encourage tenants to socialize by organizing get-together parties occasionally.

Converting Your Home into a Rental? Four Important Tips to Follow

If you are planning to move out of your primary residence – be it a single family home or an apartment – and convert it into a rental, you are likely to assume it’s going to be an easy job. You’ve been living in the property for many years and everything that a prospective renter will want is already in place. Right?

Yes, it’s true. If you’ll buy a new rental property and stage and prepare it for tenants, it’s possibly going to take more efforts and time compared to converting your existing home into a rental. However, there are still several important considerations for you to make before you take the plunge:

Change your insurance coverage

Your first step should be to discuss the implications of your decision of converting your home into a rental with your insurance agent. Rental property insurance is different from homeownership insurance. While homeownership insurance generally covers personal belonging, rental property insurance will cover only structure. You will need additional coverage for large items that you plan to leave at the property. You can also consider increase your personal liability coverage due to higher risks involved with managing a rental property.

Do you need any permits?

Check with the local authorities if you need a permit before you can convert your home into a rental property. Generally, a government inspector will examine the property for security clearances. Make sure that you have secured the permit in order to avoid any potential legal problems in the future.

Know your tax liabilities

Rental income is taxable, but you can deduct the expenses from the income to lower the tax bill. The money spent on maintenance, repairs, property management, insurance, mortgage interest and even travel expenses are deductible. You can also deduct depreciation. You should consult with a tax adviser to know your liabilities and entitlements.

Stage and prepare the property for tenants

Even if you think that you are aware of all possible problems with the property because you have been living in it for years, you should get it inspected by professional home inspector before renting it out. If you come across any problem like roof leaks, clogged gutters, leaky faucets or pipes, or burnt-out light bulbs, get them repaired.

You should also make sure that all safety equipments like fire extinguishers and smoke detectors are in place and in working condition. You should also clean the floors, windows, blinds, and carpets because a dirty place can easily turn potential renters off.

After taking care of the above-mentioned tasks, you will then determine your monthly costs and evaluate comparable rental properties in the area to figure out the list price. You will need to determine if you would need to hire a property management agency to look after various tasks like tenant screening, maintenance, repairs, rent collection etc.

Important Things to Consider When Your Lease is Running Out

If you are living in a rented apartment, your lease will run out eventually. When it expires, you will either have to get the lease renewed or vacate the place. If you are looking to keep your apartment and the landlord agrees to it, you will need to discuss the new lease’s terms and conditions with him.

Though a lot depends on what landlords decide with regard to the lease, smart tenants will try to find out the important aspects of the lease renewal process so that they are able to protect their interests when the time comes to negotiate the new lease’s clauses.

Will you want to continue living in the apartment?

Obviously, this is the first question you should ask yourself. The landlord will have the say whether you can keep the apartment or not, but you should also try to figure out if you are satisfied with the place. Are the amenities good enough? Is the apartment too far from your office? Does the neighborhood suit your lifestyle? Answers to these questions will help you determine if you should get the lease renewed in the first place.

Dust off your existing lease

You may have never had a look at your existing lease once your signed it and moved into the apartment, but at least a couple of months prior to its expiration date, you should evaluate its various clauses. Try to find out the terms and conditions which you think your landlord will try to negotiate. For example, your existing lease may have allowed keeping a pet, but if your pet has caused a dispute with other tenants or neighbors, the landlord may want to put some restrictions in this regard in the new lease. So looking at your existing lease will give you an idea of the changes that your landlord may likely want in the new one.

Research the market

The biggest concern of a tenant is whether the landlord will increase the rent when he will sign a new lease. Though it’s up to the landlord how much rent he will demand, you can strengthen your negotiation power by researching your neighborhood’s rental market. Try to find out at what rate rents are increasing in your area, if at all. The research will help you decide if the increase in rent is too much or unreasonable. If there are lots of vacancies in your area, you can even raise your voice against a rent increase.

Are you on good terms with your landlord?

If you haven’t been on good terms with your landlord, it’s a good time to sort out the differences. Invite the landlord to your place and discuss with him any issues that you might have had in the past.

Have bad credit? Don’t Worry Because You Can Still Rent an Apartment

Bad credit can be detrimental to your chances of renting a decent apartment. Reason: the majority of landlords check a rental applicant’s credit report to ensure if he or she will be able to pay the rent on time, if at all. If you have an eviction or any other serious issues appearing on your credit report, it becomes even more difficult to convince a landlord that you’ve turned over a new leaf.

At Accurental, we come across many applicants who feel helpless when they try to find an apartment just because they have bad credit. It’s true that they are likely to face difficulty getting a rental, but bad credit is not an insurmountable problem.

Below are a few steps you need to take while looking for an apartment with bad credit:

Referrals and co-singer may play an important role

Many landlords will allow your friend or relative to co-sign the rental application with you.  However, you would need to find a very reliable and trusted friend with a good credit score because co-signing a rental application means that if you are in default on your monthly rent payments, it will be responsibility of the co-singer to cover them.

Besides, you should be able to provide a couple of referrals who can vouch for you. They should be able to convince the landlord that you went through a bad phase in life, but now you have your finances in order.

Be upfront about your past

Trying to cover up a bad credit history can be very damaging. You should not wait for the landlord to find out about your bad credit history through a credit check. Instead, be upfront and tell the landlord everything while submitting your rental application. However, you should clearly explain what circumstances caused bad credit. Some landlords may be impressed by your honesty.

Demonstrate your ability to pay rents on time

You might have had a shaky credit history in the past, but you should be prepared to show to the landlord that your financial condition has changed. In order to demonstrate that you would be able to afford the rent, you can increase the amount of security deposit. Besides, you should be able to establish that you now have a steady job and strong income.

Be prepared to compromise

You won’t be in a position to negotiate over various terms and conditions laid down by the landlord due to your bad credit history. The landlord is already giving you leeway by accepting your rental application. So be prepared to compromise a little.

A roommate can solve all your problems

Last, but not the least: you should consider finding a roommate who has a good credit history. Try to find out if the landlord would allow him or her to sign the lease solo. Another advantage of having a roommate is that your expenses related to the rental come down substantially because you share them with your roommate.

Whether to be a DIY Landlord or Hire a Property Manager? Here is How You Can Decide What is Right for You

If you are planning to buy a rental, you need to determine whether you would be a DIY landlord or you would hire an agency to manage the property. Your friend who owns a rental may have hired a property manager, but it may not necessarily be the right choice for you. Actually, which one of the two options you should choose depends on your individual circumstances. Here are a few important considerations for you to make before taking a decision in this regard:

Distance and time

If your primary residence is too far from the location of your rental, then you would definitely find it difficult to respond quickly to possible emergencies and carry out various other tasks like collecting rents and sorting out any issue that the tenants may have from time to time. Commuting to the property from your primary residence will also be time consuming. Needless to say, you can save time and money by hiring a property management agency in such a situation.

Another thing to consider is if you have enough time to manage the property on your own. If you’ve a full time job, it may be difficult for you to deal with various responsibilities related to property management.

Number of units

It’s easier to manage a couple of units. But, if your rental property has multiple units, then it may be difficult for you to cope with day-to-day maintenance and other issues. Moreover, if you have two or more rental properties in different locations, your responsibilities will increase considerably.

Cost of property management

Depending on the number of units in your property, you may need to pay anywhere between 4% and 10% of the monthly rental income to the property manager. For a single family home, the fee may be almost 10%. You would need to determine if you can afford a property manager.

Location

If your property is situated in a place that is not very popular among renters, then you may probably have a high vacancy rate. Hiring a property management agency can be a right choice for you in such a case because the agency can help you market your property on the right platforms and find tenants.

Management skills

If you decided to manage the property on your own, you would need to hire services of professionals like contractors, electricians and plumbers to take care of the maintenance issues. These people should be trustworthy and be able to respond quickly whenever you need their assistance. If you find it hard to deal with these people, then hiring a property management agency may be the right choice for you.

Just because you are new to property investing, you don’t need to panic. Remember, you need to evaluate your individual circumstances. If you’ve a strong desire to learn and like to accept challenges, the chances are you would be able to manage a rental on your own.

 

 

 

Looking For a Rental? Here is How You Can Beat Competition and Get a Better Deal

Shortage of rental properties in America has been one of the primary reasons for the steep rise in rents recently. Furthermore, renters are in a difficult situation because their income is growing at a slower pace. So, finding a rental that is decent and affordable may prove a challenge.

Though it’s almost impossible not to get affected by these market trends, prospective renters can still beat the competition to some extent. If you are looking for a rental, here are some tips which can help you stay ahead of the competition and get a good rental deal:

Act early to beat competition

If you wait till the last moment for sending a rental application, you are likely to end up last in the queue of several other applicants. The best way to beat the competition is to be proactive. It means that you should have your credit and background checked before you start shopping for rentals. You can get credit and background reports from www.accurental.com. These reports will enable landlords to process your rental application quickly.

You can contact good property management agencies working in the neighborhoods where you are looking for a rental. Get yourself pre-approved from them. So whenever they come up with a rental listing, you will be among the first few applicants.

Know when the competition is most severe

You should know when the competition for rentals is the most severe. For example, lots of college students shop for rentals from spring to summer. You can obviously avoid this period. If you are shopping for a rental, try to find out when you are likely to compete with the least number of rental applicants.

Make your first contact impressive

How you respond to a rental ad can have a great deal of impact on the chances of your rental application’s approval. Many applicants make their first contact with the landlords via email or phone. You should incorporate as much information as possible when you respond to a rental listing. For example, you can include your credit and background check reports. However, you should be careful not to submit personal information more than what is required. Also, if the landlord has any queries, you should answer them promptly and in detail.

Know how to deal with a landlord

If you assume that there is no scope for negotiations due to competition, you are wrong. If you are dealing with a property management agency, then there could little room for negotiations , but if you are in contact with the landlord directly, you may get a chance to negotiate on the amount of rent. Depending on the competition, you may need to make your offer attractive to the landlord. Paying a higher amount of rent in advance can establish you as a serious applicant who is ready to make a long-term commitment.

Why It’s a Good Time to Buy an Owner-occupied Rental Property  

If you are looking to buy a home, but at the same time don’t want to miss out on the benefits of owning a rental property, there is a way you can kill two birds with one stone. An owner-occupied rental property where the owner lives in one of the units, while other units are rented out is probably the best option for you.

In fact, it’s a good time to purchase a rental property in America given the phenomenal increase in rents recently. U.S. renters paid $441 billion in rent in 2014 compared to $420 billion in the previous year, an increase of nearly 5 percent. Some metropolitan areas witnessed even a 30 percent increase in rents.

Apart from earning some passive income from rents which you can use to pay towards your mortgage installment, there are many advantages of buying an owner-occupied rental property.

Lower interest rate

If you’re buying just a rental property, you will need to take out a mortgage for an investment property. These mortgages typically have higher rates and higher credit score requirements than traditional, owner-occupied mortgages. Down payments can also be higher unless you are taking out a Federal Housing Administration (FHA) loan. However if you are going to live on the property, then you can get better rates.

Tenant screening becomes easier

If you are going to live on the property, then only disciplined and well-behaved tenants will prefer to rent it. Undisciplined tenants usually don’t want to live next to their landlord. It will make tenant screening a lot easier for you. However, it doesn’t mean that you should not do your due diligence while screening tenants. You should still conduct credit and background checks.

Cost effectiveness

When you own a rental property, you have many responsibilities as a landlord. They include tenant screening, repairs, maintenance and rent collection. Since these tasks are time consuming, many landlords hire a property management agency. It can reduce the monthly rental income by almost 10%. But as you will be living on the property, you may not find it difficult to manage the property on your own.

Help you reduce ownership expenses

If you own a small owner occupied rental property, then you can surely reduce your homeownership expenses. Landlords can deduct maintenance and repair costs on their rental property from their income when they file tax return. In an owner-occupied rental property, any expense that applies to the tenant occupied units, can be deducted from the rental income. You can also write off depreciation on the tenant-occupied parts of your building.

Needless to say, the benefits of owning an owner-occupied rental property are numerous. However, keep in mind that you would need to buy a multifamily home for enjoying these benefits. It may require a huge investment, undoubtedly much higher than what you need to buy a single family home. Before making the move, you should have your finances in order and take all necessary precautions to minimize the risks factors inherent in such big investments.

 

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