Homeownership can be complicated, but we also think it’s one of the most rewarding ventures out there. In our series, Ask an Edina Realty Lawyer, we are hoping to demystify some of the trickier aspects of buying, selling and owning a home.
In this edition, our lawyers provide insights on issues that arise when you become a residential landlord.
Dear Edina Realty Legal . . .
I am being temporarily relocated for my job, but I don’t want to sell my home. I’m considering renting it while I’m away. Are there any issues I should be thinking about if I want to lease out my home?
Whether you’re becoming a landlord out of necessity or simply looking to make some additional income, there are a number of issues you’ll need to navigate. The first decision you’ll need to make is determining who will deal with the rental issues.
Many individuals manage their own rental properties. But for others, the idea of finding tenants, collecting rents and maintaining the property is just too much. For those landlords, there are REALTORS® and companies that will — for a fee — manage your rental.
Be aware of local regulations
Whether you manage your rental or hire someone to do it, you’ll need to comply with local ordinances. Many cities regulate rental properties to ensure they are safe for occupancy, and one of the more common forms of regulation is through rental license requirements.
A common requirement of obtaining a license is to allow a local official into your property to determine if it satisfies local safety regulations and the local housing code.
These requirements may include:
- Working smoke detectors and carbon monoxide alarms
- Specific railing heights
- Egress window sizes
You may also learn that your home is smaller than you think, at least for rental purposes. Not all of the rooms you’ve identified as bedrooms may conform with local code, meaning your maximum tenant capacity could be smaller than you anticipated. You might need to perform some repairs and upgrades to get your home up to the appropriate standard for renting it out.
On top of making sure your property satisfies code regulations, some cities have requirements for the rental process, including requirements for tenant screening, and specific, required lease terms. Be sure to familiarize yourself with your local government’s rules early, to avoid a situation where a tenant is ready to move in, but you are still waiting to receive your rental license.
Talk to your insurance agent
Your homeowners insurance policy — that’s the insurance that protects you if there is damage from fire, storms, or other causes — is typically dependent on the property being owner-occupied. If you are renting out your home, you’ll want to contact your insurance agent about switching over to landlord’s insurance.
Landlord’s insurance provides coverage for casualty damage and also covers you for liability that might occur if your tenant or someone else is injured on the property. The last thing you want is for your property to suffer catastrophic damage and to discover that you don’t have proper insurance coverage.
Securing a tenant, legally
Once you’ve got your rental license (if needed) and landlord’s insurance set up, it’s time to find a tenant. Again, you’ll have some legal waters to navigate. Both Minnesota and Wisconsin have various regulations that apply to residential rentals — including laws about screening, fees and lease requirements.
Before becoming a landlord, be sure to carefully review these government publications that outline landlord obligations and tenant’s rights in your state:
As you consider potential tenants, keep in mind various laws that prevent against discrimination in housing, including the federal Fair Housing Act, Minnesota’s Human Rights Act and Wisconsin’s Fair Housing Act. All of these laws prohibit rental discrimination based on a variety of protected classes, including race, ethnicity, familial status, sexual orientation, and others. These laws apply to an individual renting out their own home, although there are some very limited exceptions if you are renting part of a property that you will continue to occupy yourself (like if you’re renting a room in your home or the other half of a duplex you own and live in).
When you do find a tenant, you will want to have a written lease that spells out your agreement with the tenant in full detail. Although you may be able to find lease forms online, each state has its own legal requirements. You may want to work with an attorney or a Realtor to put a lease together. Realtors in Minnesota and Wisconsin have access to lease forms created by their state Realtor associations.
Understand the risks
Lastly, you need to understand that there are risks to being a landlord. Perhaps more than any other, there is a risk that the tenant will violate your lease, whether that means damaging the property, not paying rent or some other misconduct. A security deposit can mitigate some of those risks, but it won’t protect you against other issues. If you have a tenant who is not paying rent, for example, you can’t simply change the locks on the house or turn off the utilities. Instead, you would need to go to court to evict the tenant, which can cost time and money.
Still, if you need to rent your home during your short-term move out of state or are considering buying an investment property, becoming a landlord can be a worthwhile and financially beneficial decision.
The Edina Realty Legal Department serves as in-house counsel for Edina Realty and does not represent private clients. This Insight is not intended to provide legal advice.