Becoming a Successful Landlord

Posted by Marv Steier

Introduction

Ken Roth is a second-generation landlord, a real estate attorney and a former leasing agent. He's been letting properties and dealing with the headaches that inevitably result for over 20 years. Test your knowledge of landlord-tenant relations with the SLAT-- The Successful Landlord Aptitude Test, below. These Twenty questions cover such issues as discrimination, credit checks, lease law, non-payment of rent, pets, renting furnished properties, acceptable deductions from security deposits, taxes, lease termination, landlord liability laws, and incorporation. Answers are included at the end of the test. The SLAT is fast and funny -- probably the most enjoyable exam you'll ever take.

The Successful Landlord Aptitude Questions

Before being accepted in law school, each student has to take what is known as the LSAT (Law School Aptitude Test). For our purposes, I have devised what I will describe as the SLAT, the Successful Landlord Aptitude Test. There is no passing grade. It is merely designed to see if you grasped the principles discussed throughout the book. I will give you the answers at the end with explanations, but no peeking. Let's begin:

The Questions

  1. As a landlord, which laws do you need to consider in renting your property?
    1. Federal law
    2. State law
    3. Local ordinances, homeowner's association rules and regulations, or condominium documents, as applicable
    4. All of the above
  2. You demand a security deposit from the tenant. This money may be held:
    1. In a segregated bank account located within the state where the rental property is located
    2. In your personal savings account
    3. In your personal checking account, provided it is non interest bearing
    4. In accordance with state law
  3. In considering a tenant for your property, you may refuse to lease the unit to that tenant:
    1. If you don't agree with his or her religious beliefs
    2. If he or she looks dirty
    3. If he or she refuses to submit to a credit check
    4. Both b and c but not a
  4. A lease agreement may not contain the following clause:
    1. Restriction as to pets
    2. Restriction as to number of guests sleeping over
    3. Who pays for repairs to the property
    4. Restriction as to the national origin of a guest
  5. For a lease to be valid, it must contain the following information:
    1. Date of commencement, date of termination, and parties to the agreement
    2. The names of the landlord and tenant, the dates of commencement and termination, and the amount of the rent
    3. The names of the landlord and tenant, the amount of security, and the date of commencement
    4. The dates of commencement and termination, the amount of security, and the amount of the lease
  6. A lease may be best described as:
    1. A unilateral contract
    2. A bilateral contract
    3. A friendly agreement between the landlord and the tenant
    4. A personal services contract
  7. If the tenant fails to pay the rent, the best course of action for the landlord to take first is:
    1. Call the police
    2. Send the tenant a notice demanding the rent
    3. File suit in landlord-tenant court
    4. Hire a group of thugs to beat the tenant until he or she pays
  8. You have rented your property furnished and ready for the tenant to move in. As well as a good lease agreement, what additional documents should you have?
    1. An insurance policy for the appliances
    2. An inventory of all personal property, such as furniture, linens, and dishes
    3. A landlord's renter's insurance policy
    4. All of the above
  9. The tenant is demanding items that are not in the lease agreement. The landlord should:
    1. Ignore the tenant
    2. Respond in writing that the tenant's demands are outside of the lease agreement and are denied
    3. Call the tenant on the telephone and curse him or her out
    4. Hire an attorney and commence eviction proceedings
  10. Which of the following items is not tax deductible as related to the rental of property?
    1. Cost of hiring painters to repaint the apartment
    2. Buying a microwave for the kitchen
    3. Advertising costs for renting the property
    4. A vacation to the Bahamas after you rent the property as a reward for a job well done, and to rest from the effort of finding a tenant
  11. The lease is over, and the tenant elects not to renew the lease. What should the landlord do?
    1. Check the lease agreement to see when he or she can begin to advertise for a new tenant
    2. When the tenant moves out, inspect the property and determine if any security will be withheld
    3. Start showing the apartment immediately, irrespective of the tenant's wishes
    4. Answers a and b only
  12. You have elected to withhold security because of damages to the property. What steps do you take?
    1. Within the time stipulated in the lease, send the tenant a letter indicating that you intend to withhold security
    2. If you have determined that the damages are either willful or negligently caused by the tenant, you may withhold the security without any further notification to the tenant
    3. If the tenant contests your withholding of the security, you must return it to the tenant within 10 days of receipt of the tenant's demand
    4. None of the above
  13. The tenant has damaged a five-year-old carpet beyond what is considered normal wear and tear. It costs $2,000 to replace the carpet. You are holding $3,000 in security. You may withhold:
    1. $3,000
    2. $2,000
    3. The depreciated cost of the carpet
    4. The original cost of the carpet five years ago
  14. Which of the following is not considered normal wear and tear?
    1. Holes in the wall where the tenant hung pictures
    2. A high-traffic area of the carpet that is worn beyond the rest of the carpet
    3. A broken window
    4. Fingerprints and dirt on the walls that will require repainting of the guest bedroom
  15. The tenant has a party on your property. Drinks are served, and one of the guests drives home inebriated. He crashes and is killed. His estate sues you because you are the owner of the property. Which of the following statements is true?
    1. The estate will prevail because you are the owner of the property
    2. The estate will prevail, but your insurance policy will cover the damages
    3. The estate will not prevail because you did not serve the drinks
    4. The estate will prevail, but the damages will be split between you and the tenant
  16. Your tenant has a party. During the party, which takes place on the backyard patio, one of the tiles on the roof falls and hits a guest, causing the guest a concussion and memory loss. When the guest recovers, he sues you. Which of the following is the best answer?
    1. The guest will prevail because you are the owner of the property
    2. The guest will not prevail because you were not at the party
    3. The guest will prevail because you are the owner of the property, but your landlord's renter's policy should protect you
    4. The guest will not prevail because the property was leased, and so the tenant is liable
  17. You decide that you want to form a corporation and place your rental property in the corporate name. Depending on your tax situation, you may well be advised to consider which of the following types of corporations?
    1. The Chapter 7 corporation
    2. The subchapter 11 corporation
    3. The Chapter C corporation
    4. The Subchapter S corporation
  18. The best way to decorate a property that you wish to rent is to:
    1. Hire a professional decorator to create the popular look of the moment
    2. Keep it simple with beige and whites and let the tenant do the rest
    3. Use lots of colors
    4. Decorate it in your own taste. If it's good enough for you, it will be good enough for the tenant
  19. When determining what rental price you desire from the tenant, you should always:
    1. Ask the neighbors what they think
    2. Check the prices other similar properties are commanding in the neighborhood
    3. Price it at the value it is worth to you
    4. Demand enough rental income to cover expenses, plus a 10 percent profit
  20. The tenant wants to bring a pet to the apartment and is willing to pay a pet deposit. You have no objection, and a lease is signed that includes the pet. After the tenant moves in, the president of the condominium association sees the pet and informs you that pets are not allowed in the building. Which is the best answer?
    1. The lease prevails, and the tenant may have a pet in the unit
    2. The rules of the association prevail, and the tenant may not have a pet
    3. The tenant must obey the rules of the condominium association and may not have a pet, but may declare the lease null and void
    4. The landlord should report the condominium association to the Humane Society

 

Explanation of the Answers


1. d. Federal, state, and local laws as well as any rules of the condominium association or homeowners' association, as applicable, must be considered when leasing a property.

2. d. At first glance, answer "a" seems appropriate and is probably a safe way to hold the money, but it may not be necessary. As a landlord, you need to know your state's specific rules regarding the holding of security deposits, and therefore "d" is the best answer.

3. d. is the correct answer. You should never discriminate based on race, color, religion, or national origin. You should also add to that basic list sex, sexual preference, and age. The only exception is if your condominium association is organized as a senior citizen community under the laws of the state where the property is located. In such a case, you may not lease to people under the age classified as "senior citizen." Cleanliness is not a protected class of individuals, and you have every right to request that your prospective tenant submit to a credit check. Refusal to do so is grounds for not renting the unit. However, if you only demand credit checks from a certain class of people and that class is protected, you may be in violation of anti-discrimination laws. Therefore, you should be uniform in your rental policies.

4. d is the correct answer. The analysis is the same as in question 3.

5. b is the correct answer. This question is a bit tricky. To create a contract, there must be an offer, an acceptance, and a consideration. Those are the basic elements. The landlord offers the property, the tenant accepts, and the rental amount is the consideration. However, in order for the lease agreement to be valid, those elements must be communicated in the contract. Thus, the contract requires the names of the parties to the agreement and the rental amount. Security is irrelevant, because that is just a term of the agreement; it is not the primary consideration. In addition, in order for a contract to be valid, it must have a specific date of commencement and a specific date of termination. Contracts may be drawn in such a way that the contract renews automatically after a specific time unless one or both of the parties object, but those contracts are still considered as having a termination date.

6. b. A lease is a bilateral contract between the landlord and the tenant.

7. b. While beating up the tenant may be tempting, the lawful method is to first send a notice to the tenant, by certified mail, that he or she is late in the rent and a demand for the rent within a stipulated time, usually three calendar days. However, state law may lengthen that period. Most states require the proof of notice as a condition before going forward with an eviction proceeding.

8. d. As a landlord, you should carry as much insurance as possible. Appliance insurance, a renter's policy, and an inventory of the items left in the apartment or house should always be in the landlord's file.

9. b. While some of the other choices may be tempting, choice b is the best answer because it both is impersonal and creates a record of the issue involved, especially when you are going to deny the demand. Send the response by certified mail so that there will be no issue of whether the tenant received your response.

10. d. You can deduct only items directly involved in the business of renting or maintaining the property. A trip to the Bahamas to recuperate from the ordeal of leasing the unit is clever but not legitimate.

11. d. is the correct answer. Once the tenant elects not to renew the lease, you may begin showing the apartment in accordance with the terms of the lease agreement. After the tenant moves out, you should inspect the property to determine if the security deposit needs to be withheld. While the lease is in effect, the rights of the tenant must be respected, irrespective of the fact that he or she will not renew; therefore choice c is incorrect.

12. a. is the correct answer. Almost all states require a written notification to the tenant from the landlord that he or she intends to withhold the security. Each state has its own rules regarding how soon the landlord must accomplish this.

13. c. is the correct answer. The Law of Remedies is a difficult subject and creates many problems with regard to the landlord's withholding of security deposits. In most cases, the courts will not award the actual cash value or replacement cost but will depreciate the item.

14. c. is the correct answer. A broken window is not considered normal wear and tear. When tenants lease a property, they are expected to use and enjoy the property, which creates wear and tear. Thus, walking on carpets or putting pictures on a wall is part of normal use of the property. The cost of cleaning may be tax deductible as well.

15. c. is the correct answer. This is a harder question. The landlord is not responsible for every injury that occurs on his or her property, only those injuries that result from a defect in the property that the landlord knew or should have known about and failed to correct. If that defect was the immediate cause of injury to the tenant or the tenant's guests while on the property, the landlord may be held liable. But if the proximate cause of the injury to a guest was not a defect on or about the property, but some independent action of the tenant, the landlord is not liable. In this case, the tenant held a party and after serving alcohol to a guest, allowed him to drive drunk. Various states have Dram Shop (Barroom) Acts that hold the host liable if he or she allows a guest to drive drunk. These acts used to apply only to commercial establishments, including bars and restaurants; however, many states have extended the acts to private gatherings. In this case, the tenant held a party, served the drinks, and allowed his guest to drive drunk. The immediate cause of the tenant's injuries had absolutely nothing to do with any defect in the property, and thus the landlord is not liable.

16. c. is the correct answer. In this case, the defect that directly caused the injury to the guest was a roof tile, part of the landlord's property. The law charges the landlord with responsibility for the defect, whether or not the landlord had actual knowledge. If the law imposes knowledge to the landlord where the landlord was not aware of the defect, it is referred to as "constructive knowledge." However, the landlord's insurance policy should cover the loss up to the limit of the policy.

17. d. is the correct answer.

18. b. is the correct answer. Taste is subjective. In this case, beauty is truly in the eyes of the beholder. Therefore, it is best to keep the property as neutral as possible and let the imagination of the prospect take over.

19. b. is the correct answer. In order to value a property, you need to know what other comparable properties in the area are commanding. While launching your investigation, you should consider such factors as location, views, building amenities, and whether the comparable units are furnished or not.

20. c. is the correct answer. The rules of a condominium association may restrict pets in the building. In that case, the tenant may not have a pet. However, the facts presented in the question suggest that the landlord and tenant had agreed on the pet as a condition of the lease. Since it is the landlord who is the owner, he or she is presumed to know the rules of his or her condominium association. The tenant may successfully argue that the pet is part of his family and the landlord knew or should have known that pets weren't allowed. As a consequence, the agreement should be voided because the tenant was wrongfully induced to sign a lease. An alternative legal argument is simply that there was "no meeting of the minds" as to an essential element of the lease, that is, whether or not pets were to be permitted.

CONCLUSION

So, how did you do? If you got 100 percent, you understand the essential elements of becoming a successful landlord. If you made a few mistakes, don't worry. It just means you didn't quite grasp a particular concept. Reviewing the applicable chapters should solve the problem.

Ken Roth (Sunny Isles Beach, FL) has more than 20 years of experience in real estate. He is a lawyer specializing in real estate issues and holds licenses as a realtor and residential property manager in Florida.

Ken graduated Hofstra University School of Law and is admitted to practice in Florida, New York and the District of Columbia. He is also a reserve officer in the United States Air Force and serving as an Assistant Staff Judge Advocate.

From the Author: "Anybody can buy a form lease, throw an ad in the newspaper, and stick a tenant on his or her property. Those are the people who keep real estate lawyers employed and the court system busy. The purpose of this book is to help you understand and appreciate the complexity of the landlord-tenant relationship from the point of view of the landlord.

"It's not the forms that make you successful -- though you'll get plenty of forms in this book -- it's understanding the content of those forms and thinking about the transaction itself and how you progress with each step that will make you a successful landlord.

"No book can substitute for 20 years of experience as an attorney, real estate broker, and landlord, but those experiences are the core of this book and will help you on your way to a better landlord experience. The real issue is if you want to trust (and pay) others, or if you want to understand the process yourself."

About the Book

THE SUCCESSFUL LANDLORD:
How to Make Money Without Making Yourself Nuts
By Ken Roth
Published by AMACOM
ISBN 0-8144-7228-1, 284 oversized pages, softcover $19.95
Available through Total Real Estate Solutions or directly from the publisher:
http://www.amacombooks.com/books/catalog/0814472281.htm

How to stay in control and "in the black" as a landlord. Much more goes into the leasing of property than just placing an ad in the newspaper and collecting rent. The Successful Landlord presents readers with need-to-know information, from finding good tenants to managing the ongoing tenant-landlord relationship. Combining a commonsense approach with must-have information, the book gives first-time and veteran landlords smart strategies for:

  • performing background and credit checks
  • setting rent levels
  • drawing up a lease
  • maintaining the property and avoiding damage
  • establishing policies for pets, furnishings, security, and utilities
  • advertising available space
  • working with property managers
  • dealing with problem tenants and disputes and much more

The Successful Landlord offers a beautiful balance between theory (the law) and practice (the deadbeat tenant). Even though the author is an attorney, he's more focused on plain spoken, practical, common sense advice than trying to write every imaginable problem into a lease agreement. The book is loaded with vivid case histories from dozens of rental situations that will help you expect the unexpected and prepare accordingly.

Packed with forms for leases, letters, and other legal documents, The Successful Landlord gives readers the knowledge and tools to become successful, high-income landlords.

Other New Real Estate Books from AMACOM

THE REAL ESTATE AGENT'S FIELD GUIDE
By Bridget McCrea
ISBN 0-8144-0809-5, Paperback, $19.95, 2004
A how-to manual for busy real estate agents.

A SURVIVAL GUIDE FOR BUYING A HOME
By Sid Davis
ISBN 0-8144-7196-X, Paperback, $17.95, 2004
Expert advice for an exciting (but complicated) process.

Copyright ©2004 by Kenneth M. Roth. All rights reserved. Reprinted here with permission of the publisher, Amacom Books, http://www.amacombooks.org. Please feel free to duplicate or distribute this file, as long as the contents are not changed and this copyright notice is intact.

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