This weekly column is written and sponsored by D.C. real estate agent and Kalorama resident Jeffrey Tanck. He can be reached at [email protected].
You bought the perfect apartment when you were single. Close to work, near great places to eat, drink and get kicked out of. It was your first place and it was your palace.
Then you met your partner and now you’re consolidating households and don’t know what to do with that same great apartment that no longer works for your current sitch. You’re not ready to let it go, not yet.
You’re going to rent it! Great idea.
Personally, I think everyone should have a studio or one bedroom apartment in their investment portfolio. Rental real estate can be a wonderful investment. That said, it is not without risks. Below is part one of a two part series on practical strategies to reduce the stress of being a landlord.
Get the proper licenses. THIS IS IMPORTANT. DC has specific legal requirements for renting property and it is vitally important that you’re in compliance. Not having the proper licenses is a liability you do not want and can limit your rights.
Have a home inspection. A home inspection is like a physical for your property: it can establish a baseline for overall condition, as well as identify current and potential issues. Take care of any problems that are identified in the inspection before you begin marketing your property.
The City will also perform an inspection of your property as part of the licensing process to ensure certain property and safety standards are met. If you make sure your property meets these standards ahead of time the process will be much more efficient.
Cancel your Homestead Deduction. If the property that you are going to rent was owner occupied and you were receiving DC’s Homestead Deduction on your property taxes, you’ll need to notify the office of tax and revenue that you are no longer living in the property and are ineligible for the deduction.
Yes, this means that your property taxes will go up, but it also means that you won’t be penalized at some future point for taking the exemption when you were not eligible.
Get great insurance. Make sure that your insurance carrier knows that you’re using your property as a rental. Ask your insurer a lot of “what if” questions, plan for worst case scenarios and select a policy that can protect you in a bad situation. Also consider an umbrella liability policy.
Maintain a reserve fund. Things can and will go wrong. Appliances stop working. Roofs leak. When you’re charging rent and something breaks it needs to get fixed as soon as possible. Period. Not fixing something would be a violation of the lease and would leave you liable.
Tenants won’t care that you’re not getting paid for two weeks and can’t afford it right now — just like you won’t care when your tenant says that they can’t pay you this month because they lost their job. Be prepared for expenses and loss of income.
Have a lawyer. Like insurance, you don’t want to need this but the reality is that you should have a relationship with a lawyer that is experienced with landlord representation.
As a novice, you don’t know what you don’t know. Establishing a relationship with a lawyer before entering into a lease can help you identify potential issues that you might not have considered. In the event that things go sideways with your tenant, you’ll already have an advocate in your corner.
Next time: Management, Marketing, TOPA and more!