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I am putting a house on the rental market soon. It's a bad time of year, but it is what it is.
For anyone with rental experience, should I be investigating starting an LLC (or something) for this? I've got zero experience, I haven't even rented a place since 2006 and have never been on the property owner side of a rental.
Renters have more rights than landlords. Get a STRONG rental contract. (many examples online)
Video the whole property, inside and out, in case there is a dispute on damages.
Get references and check them out. There is a reason they are not living there any longer.
Just a word of caution. I stopped renting to people with children. If they get in and decide not to pay rent, it can take up to a YEAR or more to evict them. Can you afford no rent for a year? Of course not many people are like that, but it has happened. Especially during Covid when the government said you could not evict tenants for non payment of rent.
As for LLC? I didn't, but that was before Covid, and when landlords still had some rights. Getting one might cover your ass somewhere down the line.
Look inside their car to see how well it's kept. Shows how they will keep the house.
Do not use an online lease.
Spend the money to have a real estate lawyer draw one up for you. Laws are always changing and you need someone that is on top of them. They also need to know various jurisdictional idiosyncrasies. For instance, Aurora, Arapahoe county may be different than Aurora Adams county.
Any errors or omissions will fall on him. It is also much easier to fight for eviction by paying him to do it.
I recommend you open two bank accounts. One for the LLC to receive the payments. Another separate account to hold the deposit in. Remember, the deposit is not your money. You could get into problems by commingling the funds. I recommend against putting their money in an interest bearing account because then you will have to issue them a yearly W-2 and pay them interest accrued.
You definitely want the place owned by a business entity. That way you are one step removed from personal liability, in theory. Once again, a good real estate lawyer will be able to take care of all of this for you. Liability is a huge problem for property owners. You wanna make sure you are as covered as possible because they will attempt to come after you personally.
Denver and Boulder both required rental properties to be licensed with their cities. So that is something else to consider depending on location.
You have to treat it as a business, because that is exactly what it is.
A great website for beginning landlords is https://www.biggerpockets.com/
There is an overwhelming amount of mostly good information on there.
Providing the county where the property is located will help us, help you.
I have a good reasonably priced attorney that handles my evictions located in the south metro area that I can refer to you.
Also, there are many reasons you can find why not to rent to someone, having kids isn?t one of them. Fair housing laws are good to know.
Also consider Lease Protection Insurance instead of a deposit. If they quit paying rent, you still get paid by the insurance. If they don?t qualify for the insurance, then don?t rent to them.
Non-interest bearing trust account for the deposit if you don?t do the lease insurance.
And then an operating account for rent payments/expenses.
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Run a credit check and a background check on a prospective tenant. If they have multiple judgements against them or criminal convictions...
I would use a property management company and leave all the legalities to them.
Ask for and check references as well as a bgc and credit report. As the references, ask to speak to their boss and that will also serve as an employment check. When we rented ours out while I finished schooling. We had one lady that on paper was perfect but would not give references or let me speak with her boss. She didn?t get the rental. The two tenants we had were okay but their bosses referrals made the difference.
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Tips: A business can complicate your taxes and a good attorney can pierce the veil. Renting lets you depreciate a property which helps tremendously on the taxes.
I am unsure what all levels and thresholds the business impact holds, that's for a tax expert, but I wouldn't jump on registering a business thinking it helps protect liability (it does only a little) without also weighing any tax implications, pros and cons.
If you want to be REALLY secure get the rental house into an irrevocable trust. Then it is actually isolated from you, and also importantly, you from it. (rental houses and LLCs are not exempt property). The irrevocable can run a business, or just directly rent the property as you would, you'd have to have a trustee though that would "do it for you".
Why this matters? Liability in debts works both ways, as does your future qualification for certain things. E.g. Want to be eligible for Medicaid someday?
Without the trust, you'll have to spend down, sell the house, and fork over truckloads of money to the US Gov to get eligibility for Medicaid or anything else down the road. With the trust, your life continues as normal.
Also without a trust, if someone ever sued you, you'd have to fight to the bitter end because your rental house would be available, which motivates people to sue you. Your home has ~500k in exempt equity if you're married, most attorney's are not motivated at ALL to sue a "regular joe" no matter what they've done because there's nothing to collect.
Unless they have juicy, second properties floating out there...
Just things to throw out there into the mix.
Good luck!
I'd also avoid renting anywhere that is pushing rent control, just my 2 cents - far better to sell the property and live on the stock market at that point.
Thanks folks. I appreciate all of the replies. I'll read through the website and come back with any other relevant data.
There's a possibility we are attractive for a lawsuit. We are deep in debt, but my wife is a DVM and the new house is in a 90's built "premier" neighborhood.
I'm tired of being busy; I had a property management company come by and take a look on Tuesday. They left me we a packet and instructions to call them when they can come take pictures.
This is in El Paso county, Colorado Springs.
Important thing to remember is for an (irrevocable) trust to be effective, it has to be in place before a suit is filed, and with no suit specifically anticipated, e.g. DUI hits someone and kills them, then transfers to a trust the next day, likely not going to work... so people are always reaching for it when it's too late.
I also have seen lots of people that want to do a trust because grandma needs to get on Medicaid in a month... That has to be done five years before a Medicaid app (just a FYI for everyone, five year lookback period, no real remaining loopholes around Medicaid besides an irrevocable 5 years in advance).
Without a trust, Medicaid seems like a gov program to ensure the gov is the primary heir to any estate...
Not sure how helpful I can be, but we rented our house our in El Paso County, Colorado Springs for 2 years from 2003-2005 while I was still Active Duty up to my retirement. As a parting shot before retirement, the USAF gave me the gift of PCS'ing me to Hanscom AFB, outside of Boston, MA.
We knew NOTHING about renting a house out but we got mostly lucky overall. We had a lady at church provide rental management services for free. We had a pretty good (needing some improvements) rental contract as well. We ran background and credit checks on all prospective renters.
In the 2 years, we had 3 renters.
The first renters were a couple. The wife was unemployed and the husband was an Active Duty (AD) Senior Airman firefighter at Peterson. We offered a discounted rental rate ($100/month off) if they signed a 2 years contract. They went with the one year. 2 months later they asked about making it a 2 year contract, which we did - from the original date of renting. He was told his AD position was converting to government civilian so he got out of his AD contract. He wasn't offered the .civ position. They stayed in the house without paying rent for 2 months. I wish I'd known about Lease Protection Insurance (see Firehaus's quoted post immediately below). While not too bad, we had to have the house professionally cleaned. We lost more than a couple of grand from that whole ordeal and the deposit was only equal to 1 months rent.
Our next renter was a single woman who was a veterinary surgeon who was moving from Aspen. Passed both checks quite well. After a few months she quit paying rent, but stayed another 2 1/2 months. She moved out of the house in the middle of the night and the house needed extra cleaning before we could re-rent it. With the lost rent and cleaning fees, we lost almost $4k from her. The lost of rental income hurt as my active duty pay wasn't a lot.
Third renter was a car salesman (who was happy to tell you he'd previously owned his own general contracting business), his wife, their pregnant unwed daughter and their large dog. My rental manager allowed him to start moving his stuff into the garage >a week before his contract started. Before moving in he identified some mold in 2 closets (both closets butted up against each other). He found the issue was a roof vent that was leaking around the edge. He offered to fix it - for $630. I called him and set a time to meet him at the home and get a ticket from Boston to Colo Spr. I also made it absolutely clear that he was NOT to do any maintenance nor go up onto the roof (imagine the liability had he claimed to have fallen off?!). I sent a registered letter to him at my home address (this was the only address I had for him) clearly stating he wasn't to go onto the roof nor effect any maintenance on the dwelling or plot (something I later realized you want to have added to your contract ahead of time!) I showed up in the morning 2 days later and waited, and waited...he didn't show. I entered MY home and evaluated the mold and got onto the roof to evaluate the vent. Yep, not black mold and easy to remove (just needed a squirt bottle and some bleach/water mix). When I got to the roof I found that *someone* had already "fixed" the leak (Even as a non-professional I knew the job was total shit. This guy had been a general contractor?) I went to Lowes and got the stuff to remove the "fix" and to fix it correctly. I had just finished the roof re-repair and was in the house preparing to leave when the renter came by. You'd have thought I was in HIS house the way he acted (remember, his contract didn't go into effect for a few more days). He was likely upset because he'd already moved 50% of his stuff into the home (he was only supposed to stage things in the garage before the contract start date).
About a month after I returned to MA I received a "Hold Harmless Letter" that the renter wanted me to sign for the work he did on the roof - and to pay him ~$500 for his services. I refused to sign the letter and to pay him and (thanks to sending him the registered letter which I maintained the receipt for and had sent a copy to the rental manager). While he moved out when he was supposed to and paid for every month he was there, when we returned to the home I found that his dog had severely damaged many of the baseboards around the house (chewed on them) as well as chewed huge holes in the moisture barrier in the basement.
What I learned is I never want to rent again - and especially if I ever plan to live in the rented home again.
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Originally Posted by Firehaus
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Originally Posted by BushMasterBoy
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Originally Posted by def90
Lost of great advice here.Quote:
Originally Posted by FoxtArt
My wife's folks put their home into a Living Trust for her when the Medicaid requirement was 3 years. At 23 months after putting it into the trust the requirement moved to 5 years and it wasn't grandfathered under the requirement from the date of going into the trust. A few years mother-in-law passed away. Two years later, my father-in-law needed to go into a nursing home. When he went into the nursing home the home had been in the trust for just over the 5 year point. Medicaid fought us tooth and nail to take the house from us. Thankfully, the county Ombudsman was a family (extended) member. We also had another family member who was a county judge. They helped us fight off the .fed because we'd exceeded the government requirements. Still, since the house was in KY and we were here in CO, we had many extra 17 hour each way trips to KY to resolve this issue. DON'T TRUST THE .gov and get homes into a trust ASAP. (There's been various talk from the government of increasing the time to 7 or even 10 years before a trust will protect the home from the .gov stealing it.)
Read and noted, thanks.