Buying an investment unit in New York City is a great financial move, especially these days: price negotiability is higher to offset the rising interest rates, and some potential buyers are choosing to rent due to these same high rates, driving rental prices – and your profit – higher. This income can help you pay off your maintenance and mortgage if you have one, but now that you’re a New York City Landlord, there’s a lot that goes into your role.
Understand New York’s Rental Laws
Familiarizing yourself with the local rental laws is very important! Tenant protection laws are quite comprehensive in the city, as well as anti-discrimination laws. There are strict rules on how much you can charge for background checks for potential tenants and the notification required for rent increases and termination of leases; your building might impose fees for move-in and move-out, and you may be able to pass them to the tenant. There’s a cap on late fees – you can’t charge whatever you want, and you can’t require more than one month's rent as a security deposit. Your tenant is entitled to inspect the unit’s condition before they move in, and when they move out, they can request another walkthrough, and if you intend to keep any of their security deposit you’ll have to do so in writing, within 14 days. Some of these requirements can be intimidating so make sure you educate yourself thoroughly and ask a real estate law professional for help if you need it.
Know Your Co-op or Condo Sublet Rules
When you rent out a co-op or a condo, the board’s rules and regulations will determine what’s allowed. Condos are typically easier to rent out than co-ops because the board is more hands-off. As a shareholder in a co-op, you’re actually subletting your place so a board will likely be very involved in the approval process and can deny your rental applicant without giving a reason. The board can also dictate the length of the lease, and even the price you can charge. You’ll need to read the co-op’s proprietary lease to find out about any restrictions. If you’re buying an investment unit, you should focus your search on condos for this reason.
Avoid Illegal Short-Term Rentals
NYC has very restrictive short-term rental rules to make sure as many apartments as possible are available for people who want to rent in the city long-term. As a result, you can’t rent out an entire apartment for fewer than 30 days without also being there.
Be Realistic About How Much Rent You Are Asking For
If you’re renting out a market-rate apartment, you can charge whatever the market will bear, but be realistic about what the apartment is worth, so you don't end up with a rental sitting on the market as you keep lowering the asking price. Generally, if you're offering a rental during the slower winter months you may want to offer some concessions—an additional month or two of free rent, or pay the broker's fee, which ranges from one month's rent to 15 percent of the annual rent.
Find Good Tenants Who Will Pay the Rent on Time
Finding a renter who's financially qualified and responsible is going to save you a lot of headaches. Usually, your condo will run a credit and background check on the prospective tenant and verify their references as part of the board application process, but nothing is stopping you from calling personal recommenders too. As far as financial ability goes, a potential tenant should earn an annual salary of 40 times the monthly rent or more. Don’t stop at personal references – ask for an employment verification letter, a landlord reference, and professional references as well. All of these will help demonstrate that the applicant is in good standing.
Renting to students and foreign residents presents some challenges, no matter how credit-worthy or asset-rich they are; without U.S. credit or steady income, they may not qualify. In NYC it is now illegal to charge more than one month’s rent in advance, so if you’re considering such an applicant, ask them to get a guarantor. This will typically be someone in the tri-state area who can provide proof of income that is twice the income requirement for the prospective tenant, or an annual income of 80 times the monthly rent. Your broker is instrumental in vetting your prospective tenant and their qualifications.
Make Sure the Lease Terms and Riders Are Clear
So you’ve selected a prospective tenant and it’s time to present them with the lease. Make sure terms such as price, length of occupancy, how many people will be occupying the unit, move in and move out dates, damages, deposits, the number and kind of pets allowed (if any), and extras such as responsibility for utilities, are all clearly defined in the lease. In NYC we like using the REBNY standard lease for the simple reason that it lists all of these items so you’re well-protected. You may need to customize the lease with riders outlining your specific conditions. If such are required, an attorney will help you obtain them.
Know What Repairs Landlords Are Responsible For
If something breaks as a matter of normal usage, you—the landlord—are responsible for repairs. If damage was caused by the tenant and not due to normal wear and tear, you may charge them for it. As a condo owner, you are responsible for not only ensuring that all systems within the unit work—like plumbing, appliances, and heat—but you must also ensure safety measures are in place such as smoke detectors, carbon monoxide alarms, chain-door guards, and window guards. Your condo board can perform the installation. You must also ensure the door and mailbox have working locks. Legally, you're also required to provide the tenant with a single phone number they can call for repairs, questions, and emergencies, and this can be your number of course.
Update Your Apartment Insurance
You need to adjust your apartment insurance to reflect that the residence is now rented out and ask your tenant to take out a renter’s insurance policy too. Your tenant’s contents and liability will not be covered under your policy. Landlord insurance gives you overage for the inside of the apartment and also for the loss of rent if your tenant is unable to pay because a fire or extensive water damage forces them out.
That's it! I hope you feel more ready to lease out your investment unit!
Source: Brick Underground