Buy, Sell & Rent

Managing investment property takes a keen understanding ofhousing laws and regulations. Here's what you need to know before you take the plunge.

on the types of services a property manager is asked to perform.”

Across the country, property management fees normally run from 7% to 10% of income, according to Jeffrey Dennison, government relations manager of Tri-County Apartment Association in San Jose, California. “They might go as high as 25%,” he says, “for a vacation home that requires a considerable effort in finding short-term tenants. You need to look at the numbers carefully because paying a manager will reduce your income and may make it difficult for you to carry the property.”

You should look carefully at property managers, too, in order to find a reliable firm that won’t bring in tenants who’ll trash your place. “I got some recommendations and met with a few management firms,” says Jordan. “Eventually, I chose people who made me feel comfortable working with them.”

Know the rules. Landlords have to cope with a bewildering array of laws and regulations, according to Janet Portman, an attorney who is also an editor with Nolo Press, a publisher in Berkeley, California. “Federal laws cover areas such as fair housing and lead paint disclosure,” she says. “State and local laws vary widely, covering everything from interest on security deposits to inspections to compliance with building codes to rent controls. In some areas, you may need a license to do business as a landlord. If a tenant wants to run a business out of the home you’re renting, you’ll have to check on local zoning laws.”

Dennison suggests that landlords have their property inspected before renting to tenants. “Besides lead paint, you should know if there are any risks relating to asbestos or mold, for example. Envir
onmental issues are increasingly important, in many areas, so you should be sure you’re complying with all the regulations.”

You also need to be sure your tenant leases are drafted properly, in case there’s a challenge. “A lot of landlords just draw up their own lease agreements,” says Gibson, “and those contracts may have provisions that are not acceptable in their local area.”

Know your tenants. Another key document is the application that prospective tenants fill out. The biggest mistake landlords make, according to Portman, is failing to properly screen renters. That can be a minefield, though, because of antidiscrimination laws. “You can’t refuse to rent to people just because they’re Catholics, say, or Asian Americans,” she says. “Even if you have good intentions, you can’t refuse to rent to a single mother with a young child, for example, because the house you’re renting is in a neighborhood that might not be safe.”

That said, there are things that you can do — should do — to avoid living through a Pacific Heights-type of nightmare. “You should run a credit check,” says Portman. “You don’t even need the applicant’s permission, as long as you have a valid purpose. All you need is the applicant’s Social Security number and perhaps a date of birth. Check with former landlords and verify current employment. You’ll find that people tend to be pretty consistent: those who

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