Landlords live and die by their lease agreements, so the idea of making a change to that critical contract may leave them feeling queasy. Thankfully, lease addendums are more common and easier to create than one might think.

While landlords can add addendums to both commercial lease agreements and residential lease agreements, we’re going to focus on residential agreements in this article.

So, what exactly is a lease addendum, why would you update your original lease agreement, and how does the whole process work?

Read on to find out.

What is a lease addendum?

According to ContractCounsel, “An addendum to a lease is a separate legal document added by the landlord to the original lease agreement between the landlord and tenant. Lease addendums are used to provide additional information that the original lease does not cover.”

In other words, a lease addendum allows you to add an additional document to or adjust the terms of your existing rental agreement.

Common Types of Lease Addendums

If your residential lease agreement looked great, your renter was probably happy to sign off on the terms of the contract. But in the immortal words of Ferris Bueller, life moves pretty fast — which may mean that you need to update part of your lease while keeping the rest intact.

Below, we’ve listed the most common rental lease addendums you may need to add to an existing lease:

Pet addendum: Did you renter inherit a dog from a loved one halfway through their lease agreement? You can update your provision mid-lease without impacting the rest of the document — which should have your renter and their new four-legged friend wagging their tails.

Specify which types of pets you’ll allow, how many animals can be included in the tenancy, and any related fees or deposits in this addendum. Need help determining what to include in your pet policy? Our comprehensive blog can help!

Extending tenancy addendum: You’re such a good landlord that your tenant isn’t ready to say goodbye when their lease expiration date rolls around. Why not allow them to stay longer by extending their tenancy through an addendum?

You can even adjust the lease to be month to month if that better suits the situation.

Updating rent payments or security deposit amounts: The rental market is hot, and that means it might be time to revisit how much you’re charging your renters, both in terms of their month-to-month payments and their security deposit.

It’s important to note that both the landlord and tenant have to sign off on lease addendums, so be sure to present your case for increasing either of these payments thoughtfully.

Landlord-tenant law disclosure: There are some legal disclosures that you’ll need to add to your lease if you missed them the first time around. For example, the Department of Housing and Urban Development (HUD) and the Environmental Protection Agency (EPA) require “the disclosure of known information on lead paint and lead-based paint hazards” before renting out real estate built prior to 1978.

This requirement is also called the paint disclosure, and tenants’ rights dictate that they must also receive a federally approved pamphlet on lead poisoning prevention.

While we’ve listed a few of the most common lease addendums, it’s important to note that your unique situation may require other updates to your original contract. For example, perhaps you could benefit from adding addendums related to occupancy, long-term guests, smoking, subleasing/subletting, parking, or renter’s insurance.

When in doubt, consult your local legal professional for the best ways to protect your rental property.

When can I use a lease addendum?

Now that you understand what a lease addendum is, it’s important to understand when they’re normally used. There are two typical circumstances in which you’d enact a lease addendum:

• Mid-term (for minor additions or changes)
• End of lease (to extend tenancy)

That said, as long as you and your renter sign off on the lease addendum, you can add provisions to the contract at any time.

When can’t I use a lease addendum?

While lease addendums are helpful for updating a standard lease, they can’t be used willy-nilly. Remember, lease addendums should be used for minor updates to the initial lease; you can’t use them for major changes to a lease agreement or tenant/guarantor changes.

For example, you can’t use a lease addendum to aid in the eviction process.

How do I add an addendum to a lease agreement?

You have a couple of options when it comes to updating your original lease contract. If you have the time, money, and energy to pull everything together yourself, addendum templates generally contain:

• The renter’s name
• The landlord’s name
• The rental property’s address
• The date of the addendum
• The lease start date
• The provision itself
• Signatures from the landlord and all involved tenants

If you’re looking for a streamlined process instead, we can help. TurboTenant makes mid-lease changes and extensions easy while keeping your core lease agreement intact with our online addendums.

Why use TurboTenant’s lease addendum features?

We’re glad you asked! Our lease addendums are:

• Easy to fill out: We’ll walk you through every step of the addendum creation process.
• Designed to give you legal confidence: Rest easy knowing our flexible document was built to protect you and your property.
• Fast to e-sign: Working with TurboTenant means you can choose between having your tenants e-sign the document or printing it out and having them sign in person.

Additionally, our addendums are fit for all landlords, regardless of your lease creation process. Whether you used TurboTenant’s lease agreement from start to finish or didn’t use our services at all before now, your satisfaction is our top priority.

Sign up for a free account to get started today and rest easy knowing that TurboTenant has everything you need to boost your property management business.

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

A security deposit is money the renter pays to cover any potential lease violations during their tenancy, such as damage to the apartment, unpaid rent, or breaking the lease. It’s not unusual to hear a new tenant asking, “What’s a security deposit?” as they sign their lease.

Some landlords may not require a security deposit if they feel they’ve done a thorough job screening their tenants. However, ensuring you and your tenant have a clear understanding of the term is essential to avoid any potential issues down the road. It’ll help keep your tenant happy after they’ve moved out, making them more likely to recommend your property to someone in need of a rental.

What Is a Security Deposit for Renters?

The security deposit is one of the fees a renter pays when signing their lease. Generally, most landlords require the following fees to be paid when signing the lease: the security deposit, first and last month’s rent, and, if they have a pet, a separate pet deposit.

Don’t confuse the security deposit with the apartment deposit to reserve the apartment before the move-in date. You can have the apartment deposit transition into a security deposit once the tenant has moved in, but generally they are different.

Most landlords choose to make the security deposit refundable, provided the tenant doesn’t cause any damages. Money is a powerful motivator, so tenants are more likely to abide by the lease agreement to get back the full amount, protecting your property.

Some landlords, though, may opt to have the security deposit also serve as the last month’s rent, in which case it would not be refundable at the end of the lease. While this lowers the amount of savings the potential renter needs to bring to the table, it does leave you on the line for repairs that may be needed when they move out.

The terms of the security deposit should be carefully documented in the lease, and it’s worth going over verbally when your tenant signs their lease, just to make sure everyone is on the same page.

Learn everything you need to know about security deposits in this free webinar:

How Much Is a Security Deposit?

Unfortunately, there’s no easy answer to this question. The amount you set for your tenant depends on several factors.

1. Your Location

Before setting your tenant’s security deposit amount, you need to consider your state’s laws governing how much you are allowed to charge.

Some states, like California, require security deposits to cover two months’ rent for an unfurnished apartment, and three months’ rent for a furnished one. Other states, like Florida, have no limit on what you can charge.

Once you know if your state has set security deposit parameters, you can take other factors into account.

2. Your Tenant’s Credit Score

Because a person’s credit reflects how responsibly they behave when it comes to money, it is reasonable to assume it also reflects their level of responsibility in other areas of their life.

Since you want a tenant who is responsible, and therefore someone who will take care of your rental, someone with a lower or no credit score may trigger a red flag for you. If that’s the case, and your state allows it, you can charge someone with a lower credit score a higher security deposit.

3. Your Tenant’s Rental Application

If your tenant’s rental application includes a spotty employment history or a criminal record, it’s reasonable to conclude there is more of a risk in renting to them. For that reason, you can elect to raise the security deposit to reflect the higher risk.

4. Type and Quality of Your Rental

If your state allows you to set your own security deposit amount, you can charge more if the unit is new. The same is true if it is a larger unit.

5. What Your Competition Is Charging

Finally, you can explore what your local competition is doing so you can price your security deposit competitively. Savvy renters will be looking for not only the best deal on rent but also the lowest fees, especially if they don’t have a lot of cash on hand.

When Do Tenants Pay the Security Deposit?

Most landlords prefer to collect the security deposit when the tenant signs the lease paperwork. At that time, you are already collecting other payments and fees so it naturally makes sense.

Other landlords prefer to collect it as part of the lease deposit to hold the apartment, while some states require you to collect it in stages over the first few months of a lease’s term. For example, if you charge a security deposit equivalent to two months’ rent, the tenant would pay it in two installments over the first two months of the lease in addition to their regular rent. Visit Nolo for state-specific security deposit laws.

Regardless of when you collect it, make sure that you are collecting the security deposit as a separate check or payment since you’ll need to deposit it in a separate account from the rest of your business transactions.

To protect yourself from any security deposit disputes, make sure you’re keeping record of the state of your property with a condition report. The easiest way to do this is to build a report tailored to your rental, take pictures for each room, and then store the report in a secure place that’s easy to reference (P.S. you can do that all with TurboTenant – sign up today).

What Do I Do With a Security Deposit?

While tenants can still pay their security deposit with a check when they sign the lease, they can also pay them online just as they pay rent. However they choose to pay, once your tenant has paid their security deposit, it’s your responsibility to protect it until they move out, at which point you inspect the property, deduct for any damages or missed rent, and then return it to the tenant. (More about that here.)

Check your state’s laws carefully about what type of account to use; several states require landlords to deposit security deposits in an interest-bearing account. If that’s the case, the tenant is owed the interest once the deposit is returned when the lease expires. You may also be required to share a deposit receipt or interest statements with the tenant.

Once it’s deposited, don’t touch the balance until the tenant moves out.

What Is a Security Deposit Used For?

A security deposit is a good thing because it protects your rental property and your bottom line if your tenant damages the rental or skips out on rent at the end of their lease. It also benefits future tenants, because you can repair damages without raising rent for future tenants to pay for the costs.

Once your tenant has vacated the apartment, then you can determine what (if any) deductions you need to make from the security deposit.

What Does a Security Deposit Cover?

In general, a security deposit covers any damage caused by the tenant, their pet(s), their guests, or their subletters (if permitted in your lease).

• You can deduct the cost of repairs for damage beyond normal wear and tear. Normal wear and tear is considered any damage that occurs during ordinary use. For example, the standard apartment carpet is expected to last about five years, so if it’s looking worn within that time frame, it’s normal wear and tear. In that case, you can’t deduct the cost of new carpet from the tenant’s security deposit. On the other hand, a large red wine stain from a party is not normal, so in that instance you could deduct the cost of replacing the carpet.
• You can deduct any overdue rent or unpaid fees. If your tenant is evicted for nonpayment of rent or just skips out on the rent at the end of their lease, you can keep the security deposit in lieu of that rent. This is why most landlords choose to set their security deposit amount in relation to monthly rent. If the tenant moves out without paying fees, such as a lost key fee or a parking pass fee, you can also deduct that from their security deposit before returning it.
• You can deduct the cost of a cleaning if your tenant left the apartment a mess when they moved out. While you should expect to do some light cleaning before the next tenant moves in, the rental shouldn’t require any deep cleaning. If you need to call in professionals, or if the tenant left a bunch of items in the apartment for you to dispose of, you can deduct that cost from their security deposit.

What Doesn’t a Security Deposit Cover?

Security deposits don’t cover everything, which is why you may want to require your tenants to have rental insurance as part of their lease requirements and why you should consider landlord’s insurance (which is usually required if you are paying a mortgage on the rental property).

• You can’t deduct the cost of repairs due to a natural disaster from a security deposit. If an apartment floods during an excessive rainstorm, you are responsible for paying for cleanup and repairs because the tenant didn’t cause the flood. In most cases, your insurance will cover this. If, however, their washing machine floods the apartment below them, their renter’s insurance should cover that. If they don’t have renter’s insurance, then you could deduct it from their security deposit.
• You can’t deduct the cost of repairs due to damage done during a break-in. A tenant’s renter’s insurance should cover the replacement of lost items, but you are responsible for repairing the broken window the thieves used to enter the apartment. In most cases, your insurance should cover this.
• You can’t deduct the cost of repairs due to a fire started in another apartment. If a unit is damaged in a fire, where it starts is key. You can only use a tenant’s security deposit if they are directly responsible for the damage. If the fire starts in the tenant’s apartment, their renter’s insurance should cover the cost of repairs; if they don’t have renter’s insurance, then you can deduct the cost of repairs from their security deposit. Otherwise, the repairs should be covered by your insurance policy.

When Is the Deadline to Return a Security Deposit?

Once the tenant vacates the rental, you have anywhere from 14 to 60 days to make any deductions and return the security deposit to the tenant. Check your state’s laws to determine your specific deadline.

Once you have assessed the apartment for damages, made repairs, and tallied any unpaid rent or fees, you must notify the tenant in writing of any deductions you make to their security deposit. Some states may also require you to provide receipts for any repairs that are made so the tenant knows you are making the deductions accurately.

If you are returning the security deposit in full or in part, it is generally returned via mail in the form of a check. Make sure you get the tenant’s new address when they move out to prevent any delays in delivery!

What If the Tenant Disagrees With Damage Charges?

Sometimes a former tenant may dispute a damage charge or seek to have their deposit returned in full. In this case, records are your friends. Provide receipts for the repairs to show your deductions were fair. If they argue that the damage was done before they moved in, refer back to rental inspection checklists from their tenancy.

In some cases, the tenant may ask to negotiate in order to get back their security deposit, either by making the repairs themselves (such as filling in holes from hanging pictures or repainting the apartment). Whether you are open to this type of negotiation is up to you.

If the situation is not resolved, the tenant may send you a formal demand letter before filing a lawsuit in small claims court, at which point it’s a good idea to consult a lawyer.

When you have a TurboTenant condition report, you can better protect yourself from these types of situations by having a record of the property’s state prior to the tenant’s move-in.

Are There Alternatives to a Security Deposit?

Recognizing that some people would be excellent tenants but can’t muster together all the upfront fees associated with renting, some landlords are exploring other options to reduce the upfront costs. Here are a few alternatives to try in lieu of requiring a security deposit.

Lease Insurance

Lease insurance covers the cost of typical security deposits for a small fee paid monthly by the tenant. Any costs associated with damage caused by the tenant would then be paid to you by the insurance company.

This helps bring new tenants to you without you taking on any additional financial risk. It also eliminates the need for you to manage multiple security deposit accounts for each unit you manage.

Surety Bond

A surety bond is an agreement between the tenant, you and a third party. The third party guarantees the tenant will uphold all their financial obligations to you without paying the deposits upfront.

If the apartment is damaged by the renter, the third party will pay the associated fees, and they will collect the money from the tenant themselves, saving you the hassle.

Pay-Per-Damage

You can opt to just send the tenant a bill (up to the established security deposit amount in your state) for any damages instead of collecting the money upfront. A third party is involved to protect the tenant. While helpful to the tenant, it can be difficult for you to recoup losses, especially if they owe rent or unpaid fees.

There’s a lot to consider when setting a security deposit for a tenant — or even whether to charge one. Start by carefully considering your state’s laws governing security deposits. Regardless of what you decide, ensure your security deposit policy is clearly stated in the lease to avoid any potential issues after the tenant moves out.

There’s a common misconception that you have to become a landlord and own a property to get started, but that’s untrue. One way around the heavy investment of owning a property to start a short-term rental business is rental arbitrage.

Whether you’re a landlord or tenant, we’ve laid out the basics of rental arbitrage, potential rewards, risks for each party, and how to get started so you can determine if this business is right for you.

What is Rental Arbitrage?

Rental arbitrage is the practice of renting out a long-term rental on a short-term basis. Typically, a tenant will sign a long-term lease agreement and then list that property on various vacation rental platforms such as Airbnb or VRBO.

As a tenant, rental arbitrage is a way to start a vacation rental business without the large investment of owning a property — which most tenants don’t have the income to do on their own.

Is Rental Arbitrage Legal?

Rental arbitrage is entirely legal depending on two major factors: your area’s short-term rental laws and the property owner.

First, make sure that short-term rental options like Airbnb or VRBO are allowed in your area. Short-term rental laws are evolving in major cities across the U.S. such as Dallas. If your area permits short-term rentals, then look up if you’ll be required to apply for a hospitality license.

Next, you’ll need to make sure your landlord allows rental arbitrage. Sometimes the lease will explicitly say whether or not this is permitted. Nevertheless, you must check with your landlord before doing rental arbitrage or you could potentially be evicted.

How Much Can You Make Doing Rental Arbitrage?

Depending on your market, you can turn a decent profit from rental arbitrage. To figure out how much you could potentially make on a property, you’ll need to calculate the monthly rent versus the average vacation rental rate per night in that area.

For instance, if a three-bedroom rental property has a monthly rent of $2,000 and the typical three-bedroom vacation rental in your area goes for $300 a night, you’d be able to pay the rent in just a week. Any additional days you book that month you’ll be able to pocket.

If you’re confident you can book a property enough times each month to pay the rent and earn additional income, then rental arbitrage may be a great business model for you.

The Pros and Cons of Rental Arbitrage for Landlords

As a landlord, the thought of a tenant renting your property as a vacation rental can be worrisome. Although there are a few drawbacks, there’s also a list of compelling reasons why allowing rental arbitrage on your property could be very beneficial on your end.

Nevertheless, crafting a lease agreement to protect yourself and stay compliant with your state’s landlord-tenant laws is critical in a rental arbitrage agreement. To help you determine if this is the right fit, check out these pros and cons of rental arbitrage for a landlord.

The Pros

• Fill a vacancy: You’ll fill a vacancy and be guaranteed long-term rental income.
• Could have the tenant take care of the property maintenance: Since the property is a part of your tenant’s business, you can require them to be in charge of any maintenance needed caused by their traveling guests.
• Could charge more rent or require a premium: You could potentially earn more by charging more rent or requiring a premium from each stay booked.

The Cons

• More wear and tear on your property: Since you’ll have multiple people in and out of your property, more wear and tear is guaranteed.
• Don’t get to vet everyone who stays on your property: Since your tenant is running the operation, you won’t get to screen each guest who stays on your property.
• Potential for late rent payments: Due to unforeseen events or seasonality, your tenant may not make enough money on their arbitrage business to make rent.

The Pros and Cons of Rental Arbitrage for Tenants

Before a tenant decides to start a rental arbitrage business, it’s important to consider the advantages and disadvantages:

The Pros

• No need to purchase a property: You won’t need to make the expensive investment to purchase your own property.
• Few start-up costs: All you’ll need to do is make sure the rental is furnished and has supplies such as cookware, utensils, towels, etc.
• Easy and fast to get started: As long as your landlord approves and rental laws aren’t preventing you, all you have to do is sign the lease, set up the home and start making money.
• Build your income for other investments: Your profits from arbitraging might help fund your next move as a real estate investor or start a new business.

The Cons

• Responsible for any damages: You’ll need to handle any damages caused by your vacation renters and take care of any wear and tear if your property is booked often.
• Bookings will fluctuate: Due to seasonality or other unforecasted events (such as COVID-19), you could have a hard time earning money, and thus, paying rent.
• You’ll need to cover the additional hosting costs: Things like utilities, internet, maintenance, and cleaning costs are all your responsibility which may eat into your profits and time.
• Your landlord can halt your operation anytime: Since you aren’t the owner of the property, your landlord has the right to end your arbitrage business at any time.

How to Get Started With Rental Arbitrage + Tips for Success

Before you begin a rental arbitrage operation, there’s a few things you need to take into consideration to understand if it’ll be successful or not:

Do Your Research

The first thing you’ll want to do is research your area and determine if there’s any promising opportunities. To do so, make sure you:

• Find out if short-term rentals are allowed in your market.
• Study up on local rents in your area.
• Figure out what a local short-term vacation rental goes for.
• Find out the average occupancy rate for rentals in your area.
• Determine if your property is near any tourist destinations or local activities that’d draw in travelers.

If the market shows potential, then you can start looking into prospective arbitrage opportunities.

Ask Permission From the Property Owner

After you’ve determined if your property and market has potential, you’ll need to ask your landlord or property owner for permission. Since a proposition like this can look super risky from a landlord’s perspective, you’ll need to sell your landlord on the idea. To do so, some intriguing proposals include:

• Mentioning that they are guaranteed a long-term lease and a guaranteed profit each month.
• Tell them you’re motivated to keep the home in top condition since your business depends on it.
• You’ll be responsible for and get the appropriate insurance to cover any potential damages.
• Offering a premium for each stay booked so your landlord can get in on the deal.

If your landlord agrees, then you’re set to get started with an arbitrage business.

Get Your Finances in Order

Next, you’ll need to get all your finances in order to help you have a successful vacation rental business. You may not have the hefty start-up costs of a traditional vacation rental business like a down payment, but you’ll need to cover a security deposit and overhead property expenses such as insurance and any local permit fees.

In order to be competitive, you’ll also need to invest in nice furniture and decor. The basics won’t cover it in a competitive market, so if you don’t have any eye for design, you could hire a professional to help you make the rental property look desirable.

Don’t forget other investments such as cookware, dishes, towels, soaps and anything else you’d need in a rental you were staying at on vacation.

Make the Proper Arrangements

Since you’ll be managing the property as a business, you’ll need to make the proper arrangements to take care of it. Ensure you have a cleaning system in place after each guest by either taking care of it on your own or hiring a professional.

You should also work with your landlord to install a smart lock and other security measurements. A smart lock will make it easier for your guests to check in and out and security technologies such as a video doorbell will help you manage a short-term rental better.

Meet With a Real Estate Attorney

Lastly, you should meet with a real estate attorney to ensure everything is good to go. Since laws regarding short-term rentals are constantly changing, double check with an attorney that you’re in the clear with your landlord and your vacation rental business.

Rental arbitrage is an exciting opportunity, not only for a tenant, but for a landlord as well. As a landlord, a rental arbitrage agreement poses its risks, but ultimately could be a great arrangement for you. If you opt to go through with an arbitrage arrangement, make sure you perform extensive tenant screening and work out a lease agreement with an attorney that covers the arrangement.

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

While many people seek ways to become more environmentally friendly, subject matters like sustainable practices and eco-friendly hacks have become increasingly popular. Similarly, many more people are looking into what they need in order to create a passive home. So what is a passive house?

A passive house refers to a design and construction standard that aims to reduce heating and cooling requirements in homes. This way, conventional heating systems are no longer necessary which helps reduce wasteful fossil fuels used to constantly heat and cool a building.

Despite the name, a passive house approach can be applied to any type of building, including multi-family apartments, condominiums, and townhouses. With that being said, any type of residential space you plan to rent out can be designed as a passive building.

To be certified as passive, buildings must meet certain criteria. Keep reading or jump straight to our infographic to learn all about what a passive house is, how it works, and why you should invest as a landlord.

How Does a Passive House Work?

A passive house creates a comfortable and consistent interior climate without an active heating or cooling system. It achieves this by combining key features such as high-quality insulation and ventilation.

In a standard building, heat is usually lost through small openings like cracks, inefficient windows, or overall poor insulation. Heat flows from hot to cold areas which are known as the “thermal bridge.” A thermal bridge acts as a heat highway that leads straight to the outside of the building causing inconsistent internal temperatures.

A passive home eliminates this by sealing these areas. The topnotch insulation and ventilation help prevent heat loss and regulate temperatures so that residents can live comfortably no matter where they are inside the home.

Since there is no active heating system, a passive home uses “free heat” to warm the home. Free heat is generated from electrical and gas appliances such as ovens and lightbulbs as well as body temperature. In warmer climates, where heating isn’t as necessary, a passive home uses shade to help cool the internal temperature — making for a highly efficient indoor environment no matter where you live.

Key features of a passive house include:

• Super Insulation: The entire home, including underneath the foundation and around the basement, is wrapped in a layer of efficient insulation to reduce heat transfer.

• High-Quality Ventilation: Ventilation systems keep the home consistent with fresh air by exchanging air that may be moist or full of pollutants with fresh filtered air from the outdoors. This helps keep the interior’s temperature and humidity levels consistent.

• Airtight Seals: Having airtight seals in the construction of a home prevents moist air from entering, which can cause poor air quality and possibly lead to mold.

• High-Performance Windows and Doors: Windows and doors tend to be a leading source of heat loss. To prevent this, passive homes have well-insulated frames and windows are double or triple-paned (depending on climate and building type).

• Free Heating: As cold fresh air from the outside enters the ventilation system, the air is heated in the same system using the free heat from electric or gas appliances before entering the home.

Before a house can be certified as passive, it must be built or remodeled to meet certain criteria. These requirements include limited energy needed to heat a home and run appliances, airtightness, and regulated temperatures all year round.

Benefits of a Passive House

As a landlord, deciding to invest in a passive home not only benefits the planet but your residents as well, and it can help you attract more desirable tenants.

Energy-Efficient

One of the most valuable benefits of a passive home is how energy-efficient it can be. A passive home has the potential to use 90% less energy than a typical home, which not only helps the environment but your wallet as well. Since a passive house can heat, cool, and regulate temperatures, the monthly energy bill can end up being significantly lower than a traditional home.

Increased Comfort

With higher-quality insulation and ventilation, a passive home becomes much more comfortable than a standard building. This is because it keeps energy sources inside the building, such as body heat or heat from an oven as a tool to maintain a regulated temperature throughout the home.

No matter where you are inside a passive house, the idea is that the temperature stays consistent. Even areas next to windows or doors where there can easily be drafts will become regulated. Since the windows and doors are well insulated, your tenants will be able to comfortably sit by a big window, sipping their morning coffee, in the middle of winter.

The Rebate and Tax Credits

Just like you can get a tax credit for investing in an electric car over a standard gas vehicle, you may be eligible for tax incentives for investing in a passive home. Although specific tax incentives change from year to year and can vary depending on location, there’s a high possibility that you could be eligible for several federal, state, and local tax credits for building or remodeling your home to meet passive house requirements.

Not only that but some cities, states, and companies offer grants, rebates, or low-interest loans to help you cover the cost of purchasing and installing new energy-efficient materials, appliances, and buildings.

Peace and Quiet

With a combination of heavy insulation and an airtight structure, noises from busy streets and other outside sounds are reduced. Not only that, but the absence of an active heating and cooling system takes away the additional noise the equipment makes as it runs, making a passive home much quieter than other buildings. So even if your property resides in a busy area, you won’t be compromising your available tenant pool.

Improved Indoor Air Quality

Not only is the internal temperature of a passive home very comfortable, but the air is much higher quality. The ventilation systems of these homes filter out allergens like pollen and dust more efficiently than a typical home, keeping the air fresh and free from any pollutants that could irritate those with allergies. This also means less cleaning like dusting on a Sunday to-do list.

Quality Building Standards

To meet the certification standards of a passive house, homes must be built to the best possible standards. Since the process of building a home passive is carefully planned, there is almost no room for error. High-quality and durable materials are selected to create a passive home which leads to less maintenance and more bang for your buck.

Attract Good Tenants

With all of these benefits, a passive house is bound to attract a multitude of tenants. There are many people out there who aren’t in the position to buy or build a passive home on their own but want to do their part to live sustainably and reap all of its benefits. Offering a passive home rental is extremely valuable as passive homes aren’t as widely available as other rentals on the market.

However, over 81% of industry members believe the passive house market is growing faster than the overall construction industry. This means we can expect to see passive houses and other high-performance construction continue to grow in the future — so passive buildings are predicted to be a standard in the future.

 

A passive house is the future standard of living. Although building or redesigning an existing property to passive standards can take time, it’s a worthy investment for the benefits of the earth and to its future residents. If you make any energy-saving modifications to your rental property, don’t forget to market it on the web using our free rental advertising tool and tenant screening services so you can attract potential tenants.

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

There is nothing more frustrating than having a tenant who can’t pay rent, who causes damages to your property, or who has cut off all lines of communication. The viability of your property investment relies on finding and keeping great tenants. While tenant screening and a solid rental application process should be your first step in achieving this, sometimes unpredictable and out of character events occur that may require you to evict a tenant.

Evictions are expensive, time-consuming, and can range from one month in length to as long as six months or more, depending on which state you live in. The cost and time factors may prompt landlords to want to do what is called a self-help eviction, taking the law into their own hands, and working to evict a tenant from their property without taking the proper legal action. Self-help evictions are illegal in most states, with each state also having its own statutes and consequences. It is best to never attempt a self-help eviction and to always follow local and state laws regarding proper eviction protocol.

Below, we will outline helpful ways to navigate a rocky landlord-tenant relationship, legally, what to do and not do, as well as provide resources on how to start the eviction process, if that becomes necessary.

What is a self-help eviction?

As stated above, a self-help eviction is any action that a landlord takes to evict a tenant that is outside of the allowable, legal means outlined in state and local laws regarding evictions. This can look like a wide range of things, for example:

All of the above are ways in which a landlord is illegally trying to get a tenant to vacate their property. While the frustration may be warranted if the tenant refuses to pay rent or is causing damage to the property, it is never a good idea to take the law into your own hands. As mentioned above, each state has its own statutes and consequences regarding a self-help eviction. It is always best to try and work with your tenant and find a peaceful solution. Need advice on how to communicate with your tenants? Here is a helpful article on effective communication across five generations. If those efforts fail, your only recourse may be to begin eviction proceedings, below we outline the legal way to get started.

What are the steps to perform a proper eviction?

Evictions are time-consuming, costly, and can quickly erode cash flow and investment returns. If possible, it is always best to avoid them, however, when eviction becomes the only option, here are the high-level steps to follow.

This article takes you through the step-by-step process on how to evict a tenant. One main takeaway, outside of the legal steps that need to be taken, is to always uphold your duties as a landlord, even while eviction proceedings are underway.

How to avoid an eviction and work with your tenant.

Communication is key when it comes to avoiding an eviction. Establishing open lines of communication from the beginning of the landlord-renter relationship is essential to long-term success. If a tenant who normally pays rent on time and with whom you have had little to no issues with, suddenly defaults on rent, then a conversation to understand what is going on and how to resolve it together can save you time and money.

One of your first steps in safeguarding your investment is to properly screen and vet your potential tenants. Online rental applications, criminal, background, and eviction reports, as well as past landlord references, are all standard practices every landlord should take when looking for a tenant.

Another option might be to offer the tenant cash for keys. Cash for keys is exactly what it sounds like, you offer your tenant an agreed-upon amount of cash in exchange for the keys and the vacating of your rental property. This might seem counterintuitive, but it’s often a much cheaper and quicker way to resolve issues with your tenant and reclaim your property.  It is always best to get this in writing, a standard Cash for Keys form can be found here.

Summing it up

Evictions are expensive and something you want to try and avoid at all costs. Taking matters into your own hands will not make it less expensive, and it’s also illegal. The best way to avoid eviction is to screen your tenants, using an online application, and getting previous landlord references to make sure they are a good fit for your property. Sometimes unprecedented events may occur, for example, the COVID-19 pandemic of 2020, and although you have done everything you can to find the right tenant, they may be unable to pay their rent. If they are a great tenant, working with them in a productive, honest, and kind manner will help both parties weather the storm. If an eviction is your only option, follow the laws to get through it as quickly and efficiently as possible.

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

“Normal wear and tear” is a term frequently used in the apartment rental world, but there is a lot of confusion about what it means and how it applies to landlords.

Why? Because it’s a notoriously slippery concept to pin down, and the legal definition varies from state to state. To clear things up, we’ll analyze the definition of normal wear and tear and provide specific examples to help you understand.

In addition to reading this article, be sure to check out your state-specific landlord-tenant laws and security deposit laws for more information about normal wear and tear definitions in your area.

What is Normal Wear and Tear?

According to Dictionary.com, normal wear and tear is defined as “damage or deterioration resulting from ordinary use; normal depreciation.” In simpler terms, it’s the damage that happens from everyday use over time.

Examples of this include car tires that need to be replaced every few years or shirts that wear out after years of laundry cycles.

So, why is this relevant to landlords? It’s because, by law, landlords cannot hold tenants responsible for damages from what is considered normal wear and tear. Landlords are not able to withhold part or all of a tenant’s security deposit to repair items in the unit that have worn down with time.

To be classified as normal wear and tear, the damage should be related to normal, everyday use. To be classified beyond normal wear and tear, the tenant must have caused the damage through irresponsible actions, whether intentional or otherwise.

Normal Wear and Tear Examples vs Tenant Damages

Though this may seem like a simple enough concept, actually differentiating between normal wear and tear and tenant damages in real situations can be a bit trickier. The type of damage also informs how long a landlord has to fix something; you can learn more about that in our article here.

To help you spot the difference, we’ve outlined a few common examples below.

Carpets: Carpets naturally wear out, thin out, and get dirty as many people walk over them every day. If you notice that the carpets are looking ragged enough to be replaced, that would be your responsibility as a landlord to pay for the replacement.

However, if you install brand new carpets and they’re completely stained and burnt by the end of the tenancy, then you would have a good case for taking funds from the tenant’s security deposit to clean them.

Paint: The same holds true with painted walls inside the unit. The paint will naturally chip over time and may become discolored due to steam from cooking. It’s your job to maintain the unit in good condition, and re-painting every couple of years is usually a part of doing so.

Paint could only be charged as tenant damages if there are significant scratches and chips due to deliberate damage.

Appliances: Once again, appliances have a limited lifespan, and items like the fridge, dishwasher, and stove will likely need to be replaced after several years. If the stove stops working one day and you can’t fix it, you, as the landlord, will have to provide a new one to keep the unit in fit living condition.

If the tenant moves out and all the shelves in the refrigerator are smashed, then you can safely assume this was tenant-inflicted damage and charge them to replace the appliance.

Below are several more examples of normal wear and tear vs tenant damages:

Maintaining Wear and Tear Paperwork

If landlords find themselves in the situation of needing to deduct from the security deposit to cover tenant damages, they should document each damage specifically for the tenant to review. Ultimately, you need to ensure you are following all local laws regarding a security deposit before taking any drastic measures.

If a tenant has damaged your property and you need to retain part of their deposit, it is essential to create an itemized and detailed list that demonstrates why you kept the amount.

This security deposit settlement form should start with the total amount you received from the tenant, with every deduction listed below along with the final balance owed to the tenant. Items on the list might include the following:

• Pet damages
• Major repairs
• Extra cleaning costs
• Painting
• Missing fixtures or appliances
• Damaged fixtures or appliances
• Unpaid rent

To ensure both the tenant and landlord are on the same page about damages that cannot be attributed to normal wear and tear, landlords should always conduct a move-out inspection with the tenant.

During the inspection, landlords can point out all the damages that will be deducted so the tenant is aware and has time to fix them if possible.

To really cover your bases, landlords should also conduct periodic inspections of the unit every 3-6 months.

This way, you can catch any critical repairs that the tenant may not report, as well as document the overall condition of the unit to determine whether the damages can be attributed to normal wear and tear or if the tenant caused them.

Resources to Handle Wear and Tear vs. Excessive Tenant Damage

Check out our printable rental inspection checklists for move-out, move-in, and periodic inspection forms.

In addition to properly documenting damages and repairs, landlords should also do their best to prevent any excessive damage to their rental units by screening tenants for any red flags in their renting history.

You can do so as part of the rental application process or sign up for a free TurboTenant account for more landlord tips, tricks, and advice for everyday situations.

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

Normal Wear and Tear FAQs

A home warranty is a service plan that covers the costs of repairing or replacing major appliances and systems, including HVAC, dishwashers, washers, dryers, refrigerators, and water heaters. While a home warranty plan sounds similar to landlord or homeowners insurance, there are key differences regarding what each one covers.

A home warranty plan covers normal wear and tear on covered appliances and systems; insurance policies typically protect against damage from outside forces, like a natural disaster or the ceiling falling in.

In this article, we’ll discuss the financial protections that a home warranty plan provides for landlords, explain how this service plan works, and tell you about one of the best home warranty companies in the game.

If you’re looking for more information on insurance, you can check out our TurboTenant Webinar on landlord rental insurance.

What Does a Home Warranty Cover?

Home warranty coverage varies from service provider to provider, but most cover the home appliances and systems you likely have in your rental. For example, Armadillo offers a home warranty for landlords that protects:

• Central Air Conditioning System
• Central Heating System
• Electrical
• Plumbing System
• Water Heater
• Central Humidifier
• Kitchen Appliances (Refrigerator, Dishwasher, Oven, Range, Microwave, Exhaust, etc.)
• Washer/Washing Machine
• Dryer
• Ceiling Fans
• Garage Door Opener
• Garbage Disposal
• Trash Compactor

Need additional coverage? Armadillo add-ons cover well pumps, swimming pools, and more! Their plans also have repair and replacement costs built in.

Did You Know?

The average property owner spent $6,000 on repairs and maintenance last year, so it pays to maximize your coverage!

How Does a Home Warranty Work?

You choose a home warranty similarly to choosing an insurance company – your goal is to find a plan that best aligns with your needs. Consider what various plans cover, and choose the option that fits with your rental properties.

To help make your choice, ask the following questions:

• What exclusions are outside of this home warranty plan?
• How much would my deductible be?
• What is my home warranty cost per month?
• How long is my service contract?
• How do I submit service requests, and how quickly are they answered on average?
• Is there a service fee?
• Am I limited in the number of service calls I can make?
• Can I use my own provider?
• Have I read the fine print?

After you’ve chosen your home warranty policy, you’ll likely have a brief waiting period before you can submit a claim. For example, if you purchase a home warranty policy on April 15, you may need to wait until May 15 to submit your first claim.

From there, you can sit back and relax. The main exclusion from Armadillo is pre-existing damage – so if you purchase a new home and discover the septic system is blocked up during the home inspection, that damage would not be covered under a home warranty. However, all other wear-and-tear can be taken care of by their providers.

Let’s say that the electrical system in one of your rentals has burnt out. Your first step would be to contact your home warranty provider and ask for assistance. Next, you’d pay a service fee when the handyperson comes around to your rental. If the outage was caused by typical wear-and-tear, the handyperson will fix it and charge you your deductible, which covers repair and labor costs.

Before we move on to the pros and cons of home warranty plans, it’s important to highlight how this type of service plan differs from a manufacturer’s warranty. While both protect similar covered items, the key difference between these warranties lies in the longevity. A manufacturer’s warranty typically lasts for one year or so, while a home warranty lasts as long as you’re paying for it.

Did You Know?

The cost of your home warranty service plan is tax deductible. Looking for more ways to minimize your tax bill? Upgrade your rental management process with our property management accounting software.

The Pros and Cons of a Home Warranty

Home warranties aren’t required like home insurance – so let’s weigh out the pros and cons of enrolling in a home warranty.

According to Forbes, there are four major benefits to protecting your home systems with a home warranty plan:

1. Property owners can save on the inevitable cost of repairing rental appliances and systems.
2. A home warranty makes maintenance more convenient.
3. You don’t have to handle repairs and replacements yourself.
4. Home warranties are typically very affordable.

And as with any protection plan, there are some potential downsides, including:

1. There may be service call fees and coverage limits, depending on your plan.
2. Though it’s unlikely, you may never need to use a home warranty plan – but having peace of mind is well worth the minimal cost the plan incurs.

The Best Home Warranty for Landlords

Are you ready to complete your coverage by enrolling in a home warranty plan? Look no further than Armadillo.

Armadillo aims to eliminate the headache that comes with property ownership. Their plans are designed to fit your needs, making repairs or replacements of major appliances and systems in your rentals uncomplicated and hassle-free.

According to their site, “Armadillo is a subscription-based home warranty plan for when a covered item breaks. [They] schedule and coordinate service appointments and manage the logistics to repair or replace it.”

And the best part? They know what landlords like you need, and they deliver accordingly. With an Armadillo home warranty, you’ll stress less thanks to:

• 24/7 service requests for you and your tenants
• Comprehensive troubleshooting of issues
• Active management of service providers
• Follow ups with tenants

TurboTenant landlords who sign up with Armadillo also save big. For just $29.95/unit/month, you’ll unlock up to $7,500 in coverage with a one-time $100 service fee.

The first time you use your Armadillo home warranty, you’ll be able to answer the question, “Are home warranties worth it?” Because let’s face it – being a landlord is stressful enough without worrying that a break in the ductwork or HVAC system is going to lead to expensive home repairs.

Serious real estate investors looking to protect their property management business should enroll in landlord insurance, a home warranty plan, and require tenants to carry renters insurance. That way, every part of the property is covered – just in case!

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

A rent-controlled apartment is part of a government program that limits the amount that a landlord can raise the rent.

Though these programs are executed by local municipalities and vary accordingly, most tenants who maintain occupancy in a rent-controlled apartment either inherited that unit from a family member or have lived there since the early to mid-1970s.

Unsurprisingly, most tenants love being a part of a rent control program while landlords face unique challenges to stay up to date on all related regulations to avoid breaking local and state laws.

This guide will help you understand how rent-controlled apartments work, who makes the rules, and the pros and cons of this type of investment.

How does rent control work?

Rent control works by having a government body set rules about how much rent can be raised in a given year for qualifying properties. Per Forbes, there are three types of rent control:

1. No rent increases are allowed
2. Rental rates are regulated between tenancies
3. Limits are placed on rental rate increases

Typically, rent control is regulated by the state, though sometimes individual cities lead the charge.

37 states ban rent control outright, but 182 municipalities across the U.S. have rent-regulation rules, all of which are located in six places.

The six states and cities with existing rent-regulation programs include:

• New York State
• Newark, New Jersey
• California
• Oregon
• Washington, D.C
• Takoma, Maryland

Note: The Dillon Rule only allows cities to pass rent control laws if the state grants them explicit permission.

It’s important to note that each program outlines specific exemptions. In many states, newer units aren’t required to be rent-controlled.

Additionally, if the property owner provides capital improvements to older properties, they may be exempt from the rent control program. With that in mind, let’s examine the various existing programs across the U.S.:

The New York City Rent Guidelines Board establishes a maximum base rent, just above landlord costs, that the annual rent cannot exceed. The program works similarly at the state level. However, there are specific requirements that the property (and tenants) must meet in order to qualify for this program.

For an apartment to be considered rent-controlled, it must have been built before 1943 and occupied by the same tenant (or an inheritor) before 1971. To inherit this kind of unit, the heir must have lived in the rent-controlled apartment for at least two years with the previous tenant before their demise.

With these kinds of rules in place, it’s no surprise that only 1% of NYC apartments are rent-controlled.

Newark, New Jersey, also has rent control laws limiting rent increases. Per the city of Newark’s municipal code, “no landlord may request or receive an increase greater than the percentage increase in the Consumer Price Index (CPI) from the CPI 15 months prior to the month of the proposed rent increase to the CPI three months prior to the month of the proposed rent increase.

In no case shall the allowable rent increase exceed 4%.”

Los Angeles and San Francisco have existing rent control laws, and the entire state of California enacted rent control regulation in 2020 that limited rent increases on qualifying units to no more than 5% plus the increase in the CPI or 10% of the lowest rent charged at any time during the year prior to the increase, whichever is less.

In Oregon, a recent law restricts landlords from enacting any rent increase for existing tenants over 7% plus inflation as defined by the consumer price index. While the rest of the states on this list offer some form of rent control, it‘s worth noting that Oregon provides the only statewide rent control.

In Washington, D.C., ”the most common allowable increase in rent is an annual adjustment, based on the increase in the Consumer Price Index. For most tenants, the most that their rent can increase is the CPI percentage plus 2%, but not more than 10%,” according to the D.C. Department of Housing and Community Development.

Rent control applies to rental housing built before 1975 but excludes units that were vacant when the act took place and housing owned by a person who owns more than four rental units.

Takoma, Maryland, offers a rent stabilization program, which was adopted in 1981 and continues to be one of the city’s primary affordable housing programs. Beginning July 1, 2022, through June 30, 2023, the Rent Stabilization Allowance is 7.3%.

According to the city’s website, “[Takoma]’s rent stabilization law applies to all individual condos and multi-family rental facilities. [The] rent stabilization law DOES NOT apply to single-family houses, accessory apartments, and duplexes when one of the units is occupied by the owner as their primary residence.”

What’s the difference between rent control and rent stabilization?

Per Investopedia, rent control tends to be more aggressive, while rent stabilization focuses on more modest restraints. Rent stabilization is more common than rent control, particularly in places like New York.

In fact, ”the 2021 NYC Housing and Vacancy Survey found that there were 16,400 rent-controlled apartments, compared to 1,048,860 rent-stabilized apartments in the city in that year. The authors of the Urban Institute study attribute this partly to provisions that require continuous occupancy and vacancy control in New York City.”

Who sets rent control and stabilized prices?

The market rate for rent-controlled and rent-stabilized apartments is typically determined by a rent guidelines board. NYC, New York State, and San Francisco have such a board to provide adaptive affordable housing.

In D.C., Takoma, and California, rent control is defined by state agencies as a pre-determined percentage and inflation according to the Consumer Price Index.

The same is true in Newark, NJ. Oregon, as the only location with state-wide rent control, legislated its program through Senate Bill 608.

Pros and Cons of Rent Control

Rent control is an issue that waxes and wanes in popularity as economic opinions change. The reason rent control programs existed in a few cities before 2019 is that it has primarily been implemented in places where rent can skyrocket above affordability for those who live and work in downtown areas.

At the same time, rent control is not a reflection of the free market and limits landlords’ ability to profit from their real estate investments, which in turn discourages ownership and management of rent-controlled buildings.

Let’s look at the pros and cons of rent-controlled apartments.

Advantages of Rent Control

Renters enjoy:

• Guaranteed affordable housing
• The ability to budget for housing costs years in advance
• The ability to pass affordable housing to an heir in some cases
• Having additional protections against eviction
• The ability to pay fairer rates for older properties

Landlords enjoy:

• Having a predictable budget (no need to re-calculate each year)
• Long-term tenants who typically pay on time
• Having a stabilizing asset in their portfolio
• High demand for rent-controlled and stabilized apartments in all applicable rental markets
• Low competition with other landlords to buy rent-controlled properties

Disadvantages of Rent Control

Renters may dislike:

• Being unable to move without disqualifying the unit from the rent control program
• Living in older units that are more difficult to keep well-repaired
• A lack of newer, competitive amenities

Landlords may dislike:

• Being unable to charge market rent
• Being unable to evict tenants for renovations
• Having to raise the rent at every permissible interval or risk falling behind
• Having to rustle up funds for maintenance, amenities, and emergencies

Are you considering purchasing an apartment building with rent-controlled units? If so, just remember that rent-controlled units present a unique business model and one that should be considered carefully based on your local laws and policies.

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.

Rent-Controlled Apartments FAQs

A guarantor is someone who agrees to be on a lease and guarantees to pay a tenant’s rent in the event that the tenant defaults on their rental obligation. This includes rent payments, the unit’s condition, and any other fees that may be incurred over the rental period.

Usually, a guarantor is needed when a prospective tenant doesn’t meet the qualifications of a rental application including proof of income or lack of credit history. A common example of a guarantor is a parent or guardian that signs on behalf of their college student’s first apartment as they might not have a credit score yet.

As a landlord, it’s important to ensure that you rent your properties to responsible tenants. Since guarantors are legally accountable for ensuring the rent gets paid, landlords can feel more confident in renting to a particular tenant. Keep reading to find out more on what is a guarantor and why they can be great to have on a lease.

Lease Guarantor vs Co-Signer

Like a guarantor, a co-signer is someone who jointly signs a lease to guarantee payment. However, a co-signer has more rights under the lease than a guarantor and is entitled to live in the rental as a tenant. A guarantor is financially responsible for a rental but is not authorized to live in the rental unit.

When Does a Tenant Need a Guarantor?

When you run a tenant screening report, you’ll be able to see various insights on your prospective tenant including their criminal background , credit score, bankruptcies, eviction history, and more. These are all important factors to consider as they can indicate major red flags in potential renters. Generally, landlords are hesitant to rent to a prospective tenant if they have:

• Bad credit: Bad credit can indicate a history of missing payments which is a considerable red flag to landlords.

• Little to no rental history: First-time tenants, like college students, most likely need a guarantor to sign a lease since landlords don’t have a clear indication of money management or credit history.

• Low income: If the monthly rent for a specific property is more than one-third of a renter’s monthly income, a guarantor on a lease will help ensure payments will be made on time, regardless of the tight budget.

• Bankruptcy: Bankruptcy stays on a credit report for up to 10 years, but a guarantor can help alleviate concerns associated with these credit-related issues.

• Bad rental reputation: If a tenant has a bad reputation, like a prior eviction, then a guarantor may be required to assure the tenant will be kept in check and any issues will be responsibly addressed.

• Unstable employment history: Past employment gaps or terminations could result in a required guarantor on a lease so  landlords can make sure there is a steady income to pay rent each month.

A guarantor can solve some of these problems by guaranteeing that if a renter is unable to pay rent or for repairs, it will still be taken care of.

Who Qualifies as a Guarantor?

Almost anyone can qualify to be a guarantor. Usually, it’s a family member or friend that personally knows the prospecting tenant and trusts that they’ll be able to make the payments necessary to afford rent. However, there are a few guidelines to be aware of to check that your guarantor qualifies:

• A guarantor should have good or excellent credit.
• A guarantor should have solid proof of income within the U.S.
• A guarantor must make 80 times the monthly rent annually.
• A guarantor is usually over the age of 21.
• A guarantor has a separate bank account than the borrower.

While these are all standard qualifications, every landlord or property management company is different so note the requirements on the rental application.

What if a Tenant Can’t Find a Guarantor?

The biggest benefit of having a guarantor on a lease is that there is a legal cushion in case a tenant can’t pay rent or causes issues. However, some prospecting renters who need a guarantor may not have someone to turn to for help. Whether you are assisting a prospective renter or are a tenant in this situation, here are a few options to consider.

Use a Guarantor Service

If a tenant doesn’t have someone close to them that qualifies to be a guarantor, there are guarantor services companies available. These companies offer the service of acting as a guarantor so  they can qualify for a rental, taking out the hassle of trying to find a suitable guarantor.

This option is also great for those who don’t want to bring their relationships into a lease agreement. If a tenant misses a rental payment, not only will a guarantor be asked to remit those payments, but their credit score may take a hard hit. This could cause issues within a close relationship.

Pay a Premium

Although bad credit is an understandable red flag, sometimes credit scores don’t accurately reflect a current situation. Some landlords are willing to overlook bad credit history if a tenant offers to pay more upfront, like paying two months of rent in advance or offering to invest in a larger security deposit.

This strategy shows landlords that a tenant has the money needed to make rental payments. If anything, these payments could potentially serve as a buffer in case of unexpected financial challenges that occur.

Work with Them

As mentioned above, certain red flags on a background check or credit report may not accurately reflect the tenant’s current financial situation. Extenuating circumstances can cause hesitation on approvals, but some landlords are willing to hear a prospective tenant’s case.

As a landlord, it’s important to ask good questions and fully understand the circumstances that cause any red flags that appear on rental applications or during background checks.

Pros and Cons of a Guarantor

As you debate whether to rent to a specific renter with a guarantor or to choose a different applicant, it’s important to assess the pros and cons of having a guarantor on a lease.

Pros of a Guarantor

• Protects your rental investment: Having a guarantor to guarantee the rent will be paid covers your basis with a tenant who has a bad credit score.

• Great for young renters: Guarantors are a great option for rental properties in college towns or places with younger renters as you will have an increased chance of filling your vacancies in these places.

• Safer than higher security deposits: Higher security deposits help safeguard your investment from tenants with low credit, but sometimes won’t make up for the loss of nonpayment of rent.

Cons of a Guarantor

• Doesn’t ensure good behavior: Although guarantors cover rent and other financial agreements of the lease, tenants can still cause issues like noise complaints and other lease violations.

• Potentially more work: You could be put in a situation where you are trying to track down both parties to receive rental payments which causes inconvenience, frustration, and more work for you.

• Rent could still be late: Although rare, rent can still be delayed, even with a guarantor. This means a longer time for you to receive your rent money.

Ultimately, if you have other great applicants that wouldn’t require a guarantor, it might make sense for you to rent to a different person that meets your renting criteria by themselves.

A guarantor isn’t always necessary, but they are great options for prospecting tenants who have low credit scores, low income, or no-to-poor rental history. As a landlord, guarantors help protect your rental investment as they are responsible for your tenants’ rental payments. To help you find the right tenants for you and your rental, use our free rental advertising feature to market your property on dozens of listing websites all from one place.