Renting Out a Second Home? Know Rules First : Real estate: Leasing is one way to hold on to property, but it involves a new set of responsibilities.
They were status symbols in the ‘80s: a pied-a-terre in the city, a house in the country, a bungalow near the beach.
Now many of those prized properties are symbols of financial frustration for families that can no longer comfortably afford a second home.
One way out, short of selling, is to lease the property.
Leasing helps offset mortgage or maintenance expenses, but it also presents a new set of problems to people unfamiliar with the legal and tax consequences of being a landlord.
“Landlords are small-business owners,” said Ralph Warner, co-author of the first volume of “The Landlord’s Law Book,” a self-help book published by Nolo Press.
“Like any other business these days, you’ve got to take it seriously and understand the rules,” he said. “If you don’t, you’re going to get creamed.”
Understanding the rules means knowing landlord responsibilities, such as taking care of repairs in a timely manner and adhering to landlord-tenant laws against discrimination, as well as knowing the marketplace.
The first decision property owners have to make, though, is whether to take care of the rental business themselves or hire professionals to do all or part of the work.
“It really boils down to the individual,” said Jonathan Pond, a Boston-based financial planner who has advised clients on the subject. “A lot of people don’t have the stomach to be a landlord, in which case they need to find a local firm that handles rental properties.”
Property management companies, which act as independent contractors, can get the ball rolling by handling the initial leasing arrangements. They’ll find and screen prospective tenants, negotiate the amount of rent, collect the deposit and get the lease signed.
They can also collect the rent and see that the property is maintained.
Owners who live far from their rented property often need this kind of help to locate good plumbers, electricians or carpenters for repairs.
There are other obvious advantages. Good property managers know the marketplace and, therefore, the going rate for rentals. (And it’s to their advantage get the maximum rent, since their fees are often a percentage of what’s collected.)
Most important, though, a property manager can screen applicants and deal with tenants in a detached way.
Michael McCreary, owner of McCreary Realty Management in Marietta, Ga., says he checks applicants’ credit and employment histories and contacts their previous landlords. Property owners can do the same, though most will be unable to gain access to credit reports, which are also useful for cross-checking information on past jobs and residences, he said.
“The past actions are the only indication of their future actions,” said McCreary, who is also a member of the Institute of Real Estate Management, a Chicago-based trade group that can provide names of certified property managers.
The big drawback to hiring a professional manager is the expense. For taking care of the leasing arrangements alone, property managers may charge as much as one month’s rent. To handle monthly maintenance and collect rents, the going rate is usually between 5% and 15% of the rent each month.
Of course, many property owners are not landlords by choice. Often they’re leasing property they couldn’t sell or maintain.
Detailed information on this market segment is hard to obtain. The most recent data from the National Assn. of Homebuilders in Washington shows that about 4% of the nation’s households owned approximately 5.2 million second homes in 1990. Increases are predicted each year through 1995.
“A lot of people backed into being landlords. The market fell and a lot of people got stuck,” Warner said.
His “Landlord’s Law Book” focuses on California law, but it’s geared to all landlords. It advises owners first to adopt a plan and stick with it. “If you don’t treat all tenants more or less equal . . . you can fairly easily be accused of discriminatory conduct.”
