WHEN CARYLYNN LARSON and her husband, Ben, purchased a house in Clarendon last May, they unwittingly bought into a tricky situation. As owners of a one-bedroom condo in Rosslyn at a time when their neighbors— places were selling for much less than their original asking prices, the Larsons thought they had just two options: Put their condo back on the market, knowing that it would sell for less than it was worth, or rent it out in hopes of earning a little extra to put toward their new mortgage. They picked the latter.
“The decision was really based on the market,” says Carylynn Larson, 30, who is the president and acting executive director of the nonprofit Rock Recovery. “We would have preferred to sell the condo, but the market is so bad. I bought that condo at the top of the market, so we would have had to take a hit for it.”
Now, as landlords, the Larsons lease both their condo and the basement apartment of their new house. They’re not the only newbies braving the rental market this year. The recession has seen more homeowners renting out everything from studio apartments to guest bedrooms.
Hard data on this trend is scarce, but one stat suggests the ranks of landlords are growing: More people are converting their homeowners insurance to landlord policies. Home insurer Allstate Corp. reported a 27 percent increase in these conversions in the first quarter of 2009, compared to the same period in 2008.
When done properly, landlording can turn a profit. Even if you’re acting as the landlord of just one extra bedroom, “you can effectively have someone else paying down your mortgage for something that you own,” says Tom Zeeb, the president of the Capital Area Real Estate Investing Association (Capitalareareia.com).
Statistically speaking, however, it’s a tough time to be a landlord. Apartment vacancies have hit their highest point since 1986, the New York-based real estate research firm Reis Inc. said earlier this month. Nearly 8 percent of all apartments are vacant — and that amount might rise in the coming months.
But real estate pros and landlords in the Washington area say conditions aren’t so grim. “The local market is not as bad as some other areas around the country,” says Zeeb, who has rented out a handful of apartments and the basement of his D.C. house. “If you’re watching too much national news, it sounds like it’s all doom and gloom, but here, that’s not necessarily the case.” So, how can a novice stay afloat as a landlord? Follow some of these tips from those in the know.
READ UP ON RENTAL AND HOUSING LAWS
Before you post a Craigslist ad, learn about fair housing and tax rules. Bryan M. Chavis, author of “Buy It, Rent It, Profit!” ($17, Fireside), says new landlords often overlook the Landlord-Tenant Law (which lays out the legal obligations of both parties) and the Fair Housing Act (which prevents landlords from refusing to rent to someone based on factors such as race or gender).
BE HONEST ABOUT EXPENSES
Before you decide on an amount to charge for your property, take a hard look at your expenses, and balance your potential new income with your mortgage payments and other expenses.
“Don’t just look at it through rose-colored glasses,” Zeeb says. “You have to be honest with the numbers.” If you don’t factor in mundane costs such as dishwasher repairs or repainting the walls, you may end up spending much more than you’re making.
Mike Piantedosi, who has rented out hundreds of homes in the past 35 years and who owns Fairfax-based real estate investment company PRS Properties, says that it’s also critical to plan for fix-ups between tenants. “When one tenant leaves and the next tenant comes in, do you need to replace or repair the carpet? Do you need to paint?” says Piantedosi, of Herndon. “Treat it as a small business and make sure you cover for all of your expenses.”
SCRUTINIZE THE APPLICANTS
Due to the Fair Housing Act, “you can’t be the least bit discriminatory” when screening potential tenants, Zeeb says. He recommends rating individuals with a point system — think categories such as work history, salary range and quality of recommendations. Other useful ways to evaluate applicants include credit checks and background checks.
FIGURE OUT WHO’S RESPONSIBLE FOR WHAT
What happens when you’re out of town for the weekend and your tenant in Columbia Heights calls with a plugged toilet and a flooded bathroom? If your lease doesn’t state that the tenant should fix these problems, you (yes, you!) are in the hot seat.
First-timers need to fully envision the landlord-tenant relationship — before a crisis unfolds. More areas to consider: Who’s paying for utilities? Are pets allowed? What about smoking?
If you’re not sure you’ll always be around to put out fires (hypothetical, of course), consider hiring a property management company to help maintain your property. Outsourcing assistance cuts into your income, but it can pay off when you’re short on time or simply not around. Piantedosi thinks the third-party help provides valuable peace of mind to landlords, who should “always be prepared for a train wreck and hope for the sunny day in paradise.”
DON’T LET TENANTS FALL BEHIND ON THEIR RENT
A typical fear among first-time landlords is that tenants won’t pay their rent on time — or at all. And it happens, say a few longtime landlords. Rocco Pangallo, who has rented out investment properties in the area since the 1970s, says it’s important to take action when the rent is overdue. Sometimes, evicting a non-paying tenant is the only way to protect your assets.
“Quite often, these people have rented a unit that they cannot afford,” says Pangallo, 68, a certified public accountant who lives in Annapolis. “The best thing you can do is to get them out before they get into major trouble.”
TREAT TENANTS WITH RESPECT
Top-notch tenants can be hard to find and difficult to keep. Treating tenants with respect is essential to the success of any landlording venture.
“You would rather do a price break to get the perfect tenant” than to charge a high rate for an unreliable tenant, says Claude Labbe, a D.C.-based Realtor for the Flaherty Group (Yourbusylife.com), who has owned about 10 rental properties in the area in the past 30 years. Maintaining friendly yet professional relations is critical, he says. “I always try to remember: I’m providing their home, but they’re providing my financial stability.”
Photos by Lawrence Luk for Express