Putting house up for rent

[Little Dutch]

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.

[JoeRoss]

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.

[gnihcraes]

Look inside their car to see how well it's kept. Shows how they will keep the house.

[eddiememphis]

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.

[eddiememphis]

A great website for beginning landlords is https://www.biggerpockets.com/

There is an overwhelming amount of mostly good information on there.

[Firehaus]

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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[BushMasterBoy]

Run a credit check and a background check on a prospective tenant. If they have multiple judgements against them or criminal convictions...

[def90]

I would use a property management company and leave all the legalities to them.

[Baetis]

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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[FoxtArt]

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.