Introduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 2 Beyond the Book 3 Where to Go from Here 3 Part 1: Getting Started with Landlording Fundamentals 5 Chapter 1: The Legal Fundamentals of Managing Residential Rentals 7 Running Your Operation as a Corporation or LLC 8 Taking Ownership of a Rental Property 8 Avoiding the Legal Pitfalls of Managing Residential Rental Properties 10 Obeying fair-housing laws 10 Setting rents and payment policies 13 Screening applicants 13 Drafting a lease or rental agreement 15 Managing security deposits 15 Moving tenants in and out 16 Fulfilling your maintenance and safety obligations 18 Dealing with co-tenants, sublets, and assignments 21 Terminating rental contracts 22 Chapter 2: Protecting Your Legal Assets 23 Forming Your Business 23 Choosing a legal structure 24 Exploring ways to incorporate 28 Knowing the Law or Consulting Someone Who Does 30 Conducting your own legal research 30 Turning to an attorney 34 Preparing for and Paying Taxes 36 Making sense of income taxes 37 Grasping (and appealing) property taxes 46 Chapter 3: Taking Possession of a Rental Property 49 Knowing What to Get Up-Front 50 A comprehensive list of the personal property included in the sale 51 A copy of the entire file for each current tenant 52 A seller-verified rent roll and list of all security deposits 52 A copy of all required governmental licenses and permits 53 A copy of all the latest utility bills 54 A copy of every service agreement or contract 54 A copy of the seller''s current insurance policy and loss history 55 Insuring Your New Property 57 Understanding the different types of insurance coverage 58 Finding the right insurance company 61 Determining the right deductible 62 Talking with Tenants about Renter''s Insurance 63 Handling Potential Claims 63 Working with the Current Tenants During the Transition 64 Meeting the tenants in person 64 Inspecting the property 64 Inspecting the rental unit 65 Using a new lease or rental agreement 66 Evaluating the current rent 67 Chapter 4: Hiring a Property Manager 69 Your Property Management Options 69 Using a property management firm 70 Hiring an individual 71 Doing it yourself 71 Hiring a Professional Property Management Firm 72 Finding the right company for you 73 Knowing what to ask a prospective management company 75 Compensating your property manager 77 Sidestepping pitfalls 79 Being aware of the tax consequences 80 Going with an Individual to Manage Your Property 82 Screening candidates 82 Signing an employment agreement 86 Compensating your property manager 86 Complying with employment laws and accounting requirements 87 Understanding independent contractor versus employee status 88 Firing and evicting an employee 90 Notifying Tenants of a Change in Management 92 Part 2: Advertising and Taking on New Tenants Legally 93 Chapter 5: Getting Current about Fair Housing 95 Examining the Fair Housing Act 96 Recognizing the seven protected classes 96 Identifying conduct that constitutes discrimination 97 Identifying conduct that constitutes preferential treatment 98 Meeting the three conditions of a violation 100 Including principals and agents 100 Knowing what you''re allowed to do under the law 101 Noting exceptions to the law 102 Paying the price for infractions 102 Digging Deeper into the Sex, Familial, and Disability Protected Classes 103 Sex 103 Familial status 104 Disability 107 Companion or service animals 112 Exploring Additional Protected Classes at the State and Local Levels 114 Steering and chilling 115 Minors 117 Safeguarding from Claims of Housing Discrimination 118 Taking a proactive/preventive approach 118 Taking a reactive/corrective approach 122 Chapter 6: The Legal Aspects of Advertising 125 Applying the Fair Housing Act to Residential Rental Property Advertising 126 Understanding the law 126 Complying with the law 128 Adhering to Truth-in-Advertising Laws 134 Accurately describing the rental units 134 Disclosing any important policies 135 Presenting rents and amenities accurately 135 Avoiding bait-and-switch advertising 136 Advertising on the Internet 136 Chapter 7: Rent Collection and Rent Control 139 Creating a Written Rent Collection Policy 140 When rent is due 141 Where rent is paid 143 How rent is paid 146 Dealing with Rent Collection Problems 148 Collecting late rent 148 Charging late fees 150 Handling returned rent payments 152 Dealing with partial rent payments 152 Serving legal notices 153 Raising the Rent without Sending Your Tenants Running 154 Figuring out how to raise the rent 154 Recognizing restrictions on rent increases 155 Keeping your tenants (relatively) happy 155 Giving tenants advanced notice 156 Dealing with Potential Rent Regulation Issues 157 Determining whether your property is subject to rent regulation 157 Increasing rents 159 Being extra careful when evicting a tenant 161 Closing down a rent-regulated property 162 Taking Advantage of Government Programs 162 The scoop on rental subsidy programs 163 The lowdown on the Housing Choice Voucher program 164 Chapter 8: Screening Applicants 171 Preparing a Legal Screening Policy and Letter of Consent to Background Checks 172 Setting criteria for acceptance 172 Starting with a boilerplate screening policy and making adjustments 173 Getting consent for a background check 181 Developing Your Rental Application 182 Knowing Your Options When Screening 183 Taking the do-it-yourself approach 183 Outsourcing to a screening service 184 Charging a fee to cover your costs 185 Notifying Unqualified or Less-Qualified Applicants of "Adverse Action" 186 Keeping Essential Records 188 Keeping records for rejected applicants 188 Maintaining tenants'' files 189 Securing sensitive information 189 Chapter 9: Composing Your Rental Contract 191 Eyeing the Need for a Rental Contract 191 Comparing leases and rental agreements 192 Realizing the importance of putting the agreement in writing 193 Starting with a State-Specific Template 196 Customizing the Lease Template 196 Introductory language 197 Rental unit 198 Rent 199 Security deposit 200 Term 201 Utilities 202 Cash payment 203 Occupants 203 Prohibitions 203 Smoking prohibition 204 Quiet enjoyment 205 Fines and penalties 205 Repairs and alterations 206 Acceptance of premises 206 Care, cleaning, and maintenance 206 Landscaping 207 Smoke detection device 208 Carbon monoxide detection device 208 Renter''s insurance 209 Waiver of breach 209 Joint and several liability 210 Entry 211 Subletting and assignment 211 Breach of lease 212 Sale of property 213 Notice 214 Addenda 214 Entire agreement 215 Credit report 215 Attorney''s fees 216 Signatures 217 Considering Additional Provisions 218 Delay of possession 218 Delivery of notices 218 Pets 219 No illegal use 220 Notice of injuries 220 Delay in repairs 220 Notice of absence from premises 221 Abandonment 221 Materiality of application to rent 221 Remedies not exclusive 222 Destruction of premises 222 Eminent domain 223 Governing law 223 Chapter 10: Establishing a Security Deposit Policy 225 The Legal Uses of Security Deposits 226 Deciding How Much to Charge as a Security Deposit 228 Setting separate deposits for pets 229 Considering security deposit alternatives 231 Avoiding nonrefundable deposits 233 Exempting Ordinary Wear and Tear 234 Distinguishing damage from ordinary wear and tear 234 Assessing damage with move-in and move-out checklists 236 Safeguarding and Returning Security Deposits 237 Holding security deposits in a separate account 237 Using a security deposit itemization form 238 Keeping receipts for repairs and cleaning 240 Deducting from the security deposit 240 Paying interest on security deposits 242 Collecting damages and unpaid rent in excess of a security deposit 243 Handling security deposit disputes 244 Chapter 11: Moving in a New Tenant 245 Agreeing on the Move-In Date 246 Meeting with a New Tenant Prior to Move-In 247 Establishing your policies and rules 247 Reviewing and signing legal documents 249 Transferring the utilities to the tenant 252 Collecting the rent and security deposit 253 Inspecting the property with your tenant 254 Providing an informational letter 258 Taking crime prevention measures with a rental unit 260 Keeping.