Becoming a landlord has always been a popular way to generate passive income in NYC. During the pandemic, we saw many homeowners leave the city and rent out their homes, thus opening their eyes to just how profitable it can be. But being a landlord isn’t all sunshine and roses; It takes a lot more responsibility than just being a regular homeowner. Even if you’ve managed well enough by looking after your own home, doing the same for tenants is significantly different.
For anyone new to being a landlord, you’ll want to write out a checklist of things to get sorted first. Today’s article will do just that, providing eight tips for beginner landlords in NYC. The more thorough you are with these, the easier it’ll be to become a landlord.
1. Learn the Building’s Rules about Renting and Subletting1. Learn the Building’s Rules about Renting and Subletting
Depending on whether you’ll be renting out a condo or a co-op, you’ll want to familiarize yourself with the building’s rules and regulations.
Condos are one of the most accessible housing types to rent out in the city. The same is true for townhouses, provided you own the entire building. Since you own the property in its entirety, you should have no issue with renting or subletting. For owners of condos or co-ops, it is worth getting your paperwork in order and informing the building’s board of your intentions. For instance, check the Certificate of Occupancy. This will lay out the terms by which the building can be occupied. It’s always a good idea to read this before buying a property that you plan to rent out.
For co-ops, the process is a lot more complex and may not even be an option. Since you’re a shareholder rather than an owner, you’ll be requesting to sublet the property with the board’s approval. Very few co-ops allow this, and those that do tend to come with some restrictions. For example, most co-ops only enable shareholders to sublet for two years out of every five provided they have hit the minimum residency requirement. The board will also be heavily involved in the process, setting the lease terms, the price you can charge, and may even deny your rental applicant without reason.
Generally, it’s not a worthwhile endeavor trying to sublet a co-op, and it only really works if you’re planning to be away for a short time and want a family member or friend to look after your place while you’re gone. When having to relocate, exemptions can sometimes be extended but again depending on the co-op.
2. Understand the Fees You Can Ask as a Landlord2. Understand the Fees You Can Ask as a Landlord
Ensure that you understand the current rent laws in New York City. There are strict rules on how much you can charge for background checks on potential tenants and the notification required for rent increases and lease terminations. In total, you cannot charge more than $20 for an application fee, which includes the background check and credit check. A receipt must also be provided with this.
Some co-op and condo boards impose additional fees, either as a percentage of the monthly rent or the building’s maintenance fees. The costs of this can be anywhere between $300 and $3,000 and can be passed on to the tenant.
Rent laws are clear that fees for late rental payments can only be handed out if the tenant is more than five days late. These fees also can’t be more than $50 or 5% of the monthly rent, whichever is less.
3. Understand Rental Protection Laws3. Understand Rental Protection Laws
Some recent changes came into place, providing some of the same protections for market-rate apartments as those provided by rent-stabilized ones. This has a big impact on how you can manage your rental, so it’s well worth taking some time to understand these laws.
To start with, you can’t charge more than one month’s rent and one month’s security deposit – despite whether an applicant falls short of 40x the monthly rent in annual or has a pet that could cause damage. Your tenant also has the right to a home inspection to confirm the apartment’s current state before moving in. When the lease is due to expire, and the tenant wishes not to renew, they can request a walkthrough of the property with you. You will need to check everything and provide an itemized statement of any charges you intend to take out of the deposit within 14 days. Failure to meet this deadline will mean forfeiting your right to take anything out of the deposit.
4. Price It Right4. Price It Right
The price is everything, so make sure you get it right. NYC rental laws state that for subleased rent-stabilized apartments, you can’t charge a higher rent than what you’re already paying. However, you can charge up to 10% more of your rental payments if the apartment is furnished.
For market-rate apartments, you can charge whatever the market allows you to get away with. Look at what others are charging for similar properties in your building and area to help you price your own accordingly. If you’re having trouble attracting tenants, then you may need to adjust your pricing or offer some concessions, such as a free first month or by paying the broker’s fee.
5. Find the Right Tenant5. Find the Right Tenant
Getting the right tenant is just as important as setting the right price. They should be both responsible and financially qualified, and otherwise, you’re going to run into problems. Start by designing a process for vetting and qualifying each potential tenant.
For example, request references from previous landlords or employers and verify by calling each reference. Perform a full background and credit check to see what their financial position is. You can set your standards, but most NYC landlords expect a potential tenant to earn an annual salary 40 times the monthly rent. In cases where a potential tenant can’t meet these requirements (a common issue with self-employed, retired persons, or foreign visitors), you could ask for a guarantor instead. This guarantor should be someone living in the tri-state area whose income is twice that is required for the tenant or 70 to 80 times the annual rent.
Once everything checks out, schedule an interview with the tenant so you can meet them in person or at least on Zoom. Have a list of questions you can ask them to clarify a few things about their finances or lifestyle. For instance, do they smoke or have any pets? Why are they moving, and how long do they plan to stay? Be extremely wary of asking any questions that might be perceived as discriminatory. The last thing you want is a fair housing violation that leads to a lawsuit, so avoid any questions about race, religion, marital status, or disabilities.
6. Be Thoughtful About the Lease6. Be Thoughtful About the Lease
A well-written lease can save you a lot of headaches. At a minimum, your lease should include the rental terms such as the price, length of occupancy, type of occupancy, the number and kind of pets permissible (if allowed), move-in and move-out days, deposits, and any extra fees such as utilities. You’ll want an attorney to write a rider to the lease you can include for any special conditions. For instance, an early termination clause rules on pets, subleasing, smoking, or maintenance.
A lease that’s crystal clear and avoids any ambiguities is what you want. Even for experienced landlords, it can be well worth having an attorney draft one for you. Doing so saves a lot of hassle and provides someone to consult if an issue arises during the lease term. Rental agents typically use a REBNY lease which is industry standard and provides all the protections needed.
7. Keep Up with Maintenance7. Keep Up with Maintenance
Every home requires some routine maintenance to stay in top condition. As the owner and landlord, anything that breaks due to normal wear and tear is your responsibility to repair or replace. Any damage caused by the tenant that was not due to normal wear and tear can be charged, and this should be stated clearly in the lease.
For co-ops and condos, you’re also responsible for ensuring safety measures, such as smoke detectors, window guards, carbon monoxide detectors, and chain-guard doors. The building’s board can perform the installation, but you must ensure they are maintained.
The tenant should also have a phone number by which they can contact you for questions, repair requests, and emergencies. If you are hiring a property manager, then you can leave this to them. Expect to pay about 5-6% of the monthly rent for the services of a property manager.
8. Maintain Your Insurance Policies8. Maintain Your Insurance Policies
Since your renting your property, you’ll need to ensure your tenant is covered with a renter’s insurance policy. It may also be a good idea to update your insurance to protect you against any potential loss of rent. Doing so will cover you if the tenant cannot pay their rent because a fire or water damage has forced them out.
Final ThoughtsFinal Thoughts
There’s a lot to handle for a first-time landlord. To help you navigate through all of this, it may be worth joining a networking group of other local landlords. This can be a great way to learn from more experienced landlords that have been doing this for a while. As with any property investment, make sure you have the right people to aid you along the way, such as an accountant, an attorney, a contractor if you’re planning a renovation, and a real estate broker if you’re still looking for a rental investment.