Tag: Landlord

Rent Subsidies Make Tenants Attractive: Rental Assistance Programs a Boon to Landlords in Hard Times

Rent Subsidies

Rent SubsidiesSome areas of the United States are seeing a glut of vacant rental properties. With increased competition for a decreasing number of tenants, many landlords are trying to entice applicants with goodies such as appliance upgrades or one or more months of free rent. Other landlords are willing to accept less rent for their units than they did in better times, when demand was up.

By some accounts, high vacancy rates and low rents will continue through the end of this year, when the jobs market is expected to begin to recover. This is bleak news for investors in residential rental properties, particularly for those who do not seize all available opportunities to fill their rental units. One such opportunity is in the form of prospective tenants who receive rental assistance through government programs. Due to biased opinions and generalizations, some landlords refuse to consider renting to such tenants. This is a costly mistake.

Section 8 Program

The largest and most well known rental assistance program is the “Section 8” housing voucher program of the U.S. Department of Housing and Urban Development (HUD). The amount of the voucher, or subsidy, that is granted is based on how much rent the tenant can pay in the private market. The program is designed to help families, the elderly, and the disabled whose incomes fall below 30 to 80% of the median income in the particular area.

HUD sets the fair market rental amounts each year in metropolitan areas and non-metropolitan counties for units depending on how many bedrooms a unit has. Usually, the fair market rent is set at an amount that is enough to pay rent and utilities at 40% of recently rented units in an area (but not including new units).

There are 28 metropolitan areas for which HUD has determined that 40% is not enough to allow voucher holders to rent housing outside a few low-cost neighborhoods; for those 28 areas, HUD sets the fair market rent on the basis of 50% of the recently rented units. Because HUD is not quick to lower the fair market rental amounts it has already set, landlords may find that the amount of rent approved by the Section 8 program in their areas exceeds the amounts that other landlords are asking.

A landlord can count on receiving a Section 8 check each month because the money comes directly from the government. Moreover, it is difficult for applicants to obtain Section 8 assistance. As a result, many tenants who receive it are highly motivated to fulfill their obligations under a lease for fear of losing their subsidy.

Other Rental Assistance Programs

State and local government housing agencies administer the Section 8 program. Some states and municipalities have rental assistance programs of their own, and the eligibility criteria track that of the Section 8 program. These are some examples:

Connecticut– The Rental Assistance Program of the Department of Social Services is the state’s principal program for assisting families with very low incomes in paying for safe and clean housing in the private market.

New Jersey– The State Rental Assistance Program, administered by the Department of Community Affairs is similar to the Section 8 program in eligibility criteria and operation. It includes set-asides for qualifying families as well as homeless, elderly, and disabled individuals.

Oregon– The HOME Tenant-Based Rental Assistance Program is administered by Community Action Agency Centers. Those who qualify receive housing assistance in renewable six-month or one-year terms; the assistance may include a refundable security deposit.

Due Diligence Prevents Tenant Problems

Landlords can overcome their hesitation about renting to low-income tenants by doing their due diligence before agreeing to rent to them. This means using the same process that they use for any other prospective tenant: proper screening,.

If a prospect with a rental subsidy passes the screening, the landlord can fill a vacant rental unit with a paying tenant and ride out the negative rental market.

Management Tips for Out of State Landlords: Effective Ways to Manage Property While Living at a Distance

Real estate investing can be a powerful tool to create wealth, but it can also be an investing nightmare. Difficulties abound for landlords, but these difficulties multiply when the landlord resides in another state.

Important Lease Provisions for Out of State Landlords

Landlords can make their job easier by adding a few key lease provisions to their standard leases if they know that they will have limited ability to access the property due to their location. First, landlords should require tenants to be responsible for all repairs. While this might require the landlord to lower the asking rent, it will prevent the late night calls and the impossible task of organizing workers in another state. Typically this provision can be written in such a way that it cover all repairs up to a certain dollar amount.

Something to the effect of “tenant shall be responsible for all repairs under $1,000 or repairs that result from their negligence” will take care of 95% of all potential home repairs. The goal of this clause is to prevent tenants from calling landlords for clogged toilets or broken door knobs. While a tenant will still call for things like a broken furnace or hot water heater, these are larger items that will require less frequent attention.

The second provision revolves around the lease termination and dispute resolution. The lease should state clearly that the tenant is solely responsible for finding a replacement tenant at their own costs if he/she chooses to vacate the property before the end of the lease term. Many times leases state a specific fee, which may be one or two months rent. This can still be problematic for an out of state landlord because that fee might not cover the cost of commuting between states to market the property and find the right tenant.

Out of state landlords should consult a real estate lawyer to craft an appropriate lease. Landlords should be sure to inform them that they will be out of state and they would like this property to function essentially as if the tenant owns the property.

Tenant Selection

Out of state landlords should be meticulous when it comes to selecting the right tenant for their property. In addition to a credit check, landlords should run a detailed check of their references and their last two landlords. Avoid tenants that appear to move often or tenants with pets or small (potentially destructive) children. While this advice might seem controversial, remember finding a self-sufficient tenant looking to stay long-term is the goal. Ideally, a tenant moving from a home or relocating for work would be good examples of what landlords should be looking for.

Property Management

Consider a property management firm instead of trying to be an absentee landlord. Property management firms will charge a fee (6% – 10% of gross rents), but will save landlords a lot of potential headaches. In addition to cutting down on phone calls, good property management firms can provide a landlord with rental data, yearly maintenance recommendations and an easy to use accounting summary around tax time. Being cheap should not be a reason to sacrifice peace of mind. If real estate is not an investor’s primary pursuit, he/she should strongly consider letting someone else manage the investment.

Tough tenants and properties challenge out of state landlords on a daily basis. Strong leases, tenant selection and potentially the help of a management company can ease these burdens significantly.