10-Steps to Take after Closing on Rental Property

Congratulations on your recent property acquisition! As you prepare to manage new tenants, it’s essential to understand and fulfill your responsibilities as a landlord in New Jersey.

Be mindful of the many state and federal laws that apply to the content of leases and selection and treatment of tenants. If the New Jersey Security Deposit Act applies to you, it requires adhering to deposit requirements based on the number of rental units, providing written notice to tenants within 30 days of receipt of the deposit, and payment of interest to tenants. Under the Landlord Registration Act, most landlords must register their property with the Department of Community Affairs or the respective municipality.

It is also vital to review and understand existing leases or tenancies. Set yourself up for long term success by examining the terms and conditions of each lease, identifying expiration dates, verifying compliance with tenant rights and rental regulations, and evaluating rent levels.

With new investments come new responsibilities. You should regularly consider lease renewals, insurance coverage, business structure and operating agreements, and estate planning.

Read on for the details of the 10-Steps to Take after Closing on Rental Property!



Step 1: Security Deposits (Security Deposit Act)

If you received security deposits for tenants at the closing, the next step is to place the deposits into a bank account. The New Jersey Security Deposit Act (N.J.S.A. 46:8-19, et sq.) sets forth the obligations of landlords relating to security deposits for residential leases.

Applicable Properties. The Securit Deposit Act applies to all rental premises except owner-occupied premises with no more than two rental units (unless the tenant hasn’t expressly invoked the provisions of the Security Deposit Act). If the Security Deposit does not apply to you, you can deposit as you see fit. If it does apply to you, must follow the requirements in the Security Deposit Act.

Deposit Requirements – Landlord Deposits on Less Than 10 Units. The deposit must be invested with a state or federally chartered bank, savings bank or savings and loan association in an account bearing interest at the rate currently paid by the institution on time or savings deposits. N.J.S.A. 46:8-19(b).

Deposit Requirements – Landlord Deposits on 10 or More Units. The deposit must be invested in shares of an insured money market fund established by an investment company based in New Jersey, or deposited in a state or federally chartered bank, savings bank or savings and loan association in New Jersey similar to the average rate of interest on active interest-bearing money market transaction accounts paid by the bank or association, or equal to similar accounts of an investment company. N.J.S.A. 46:8-19(a).

30-Day Tenant Notice Requirement. Tenants must receive notice in writing within thirty days of receipt of the deposit giving the name and address of the investment company, state or federally chartered bank, savings bank or savings and loan association in which the deposit or investment of security money is made, the type of account in which the security deposit is deposited or invested, the current rate of interest for that account, and the amount of the deposit.

Interest Payments to the Tenants. Income earned on the security deposit must be paid over to the tenant either in cash or as a credit against rent due [N.J.S. 46:8-19(c)]. Interest payments must be paid on the renewal or anniversary of the tenant’s lease, or on January 31 if the landlord gives the tenant written notice that interest payments will be made on January 31 of each year [N.J.S. 46:8-19(c)].

Caution: Failure to abide by the the tenant may give written notice to that person that such security money plus an amount representing interest at the rate of seven percent per annum be applied towards rent payments, and thereafter the tenant shall be without obligation to make any further security deposit and the landlord shall not be entitled to required further security deposit.


Step 2: Register the Property (Landlord Registration Act)

Landlords are required to register their rental property for residential use with the Department of Community Affairs (DCA) or with the municipality. (See Landord Registration Act, N.J.S. 46:8-27–46:8-33). The agency will then issue the landlord a “certificate of registration” also known as a registration statement.

The registration method depends on whether the property is a 1-2 family or 3+ units:

  • Three Units or Greater. The registration statement is issued by the DCA after the required forms are filled out and filed with the DCA.
  • One or Two Family Property. The registration statement is obtained from the clerk of the city where the property is located.
  • Exception: Owner-occupied one or two family properties do not have to register.

The landlord must provide tenants a copy of the registration statement at the beginning of their tenancy. (See N.J.S.A. 46:8-27 et seq., N.J.S.A. 55:13A-12 and N.J.S.A. 2A:42-78). As such, it is prudent to attach it to the lease and have the tenant acknowledge receipt in the lease. Amended registration statements must be served on the tenants within seven days.

Judgment for possession in an eviction case cannot be entered if the landlord is not registered. N.J.S.A. 46:8-33. The eviction case can be stayed up to 90 day  to allow the landlord to register the premises.


Step 3: Review Inspection Report For Safety Hazards

Very rarely will a seller conduct all repairs that were identified during your home inspection. More likely than not, the property has defects to repair.

Revisiting the home inspection report after the closing can help put together a checklist of current and potential defects that should be addressed immediately (and also items to adress in the future when budget allows).

Prioritize items listed as “needs repairs” or “safety” defects. Although safety/needs repair are imminent, keep in mind minor items or recommendations become worse overtime. Re-visit the report in a year.

Repairs to focus on include structural concerns (like foundation, roofing, chimney), HVAC (heating, cooling ventilation), water intrusion, plumbing, and electrical systems.

Make sure you and your family stay safe, and prevent unnecesary property damage!


Step 4: Save Key Legal Documents

After a real estate closing, a buyer receives several official documents including:

  • Deed. This is legal document transferring ownership from the seller to the buyer. You receive a copy of the deed at closing. In 30 to 60-days, a recorded copy of the deed is available.
  • Mortgage. The mortgage outlines your agreement with the lender regarding the terms of your home loan. This document will be recorded publicy and represents the lender’s interest in the property.
  • Promissory Note. Legal document in which the borrower promises to repay the lender.
  • Title Insurance Policy. Title insurance policy, issued by the title company that conducted the title search, protects against legal claims from third-parties regarding the ownership of the property. The title insurance policy not only provides traditional insurance, but it also is your “stamp” of clear title at the closing.
  • Settlement Statement (also known as Closing Disclosure). Buyer receives a copy of the statement showing the financail aspects of the closing including price, loan amounts, closing costs, and tax and utility prorations.
  • Survey (If You Conducted One). Surveys are optional – some buyers do not conduct one. Surveys are a drawing that shows legal boundaries, the locations of structures, and easements or encroachments.

Securing these documents is important. In future situations such as resale, refinancing, taxes filling, or legal disputes, and tax filings, these records provide proof of ownership, terms of the purchase, and show title free of liens.

How to store the documents?

For any paper documents, storage in a secure and locked desk or safe is a good idea to protect from physical damage. For digital copies or digital documents, utilize secure password protected cloud storage services for easy access.


Step 5: Review Leases

After closing on rental property, it is crucial for a landlord to review existing leases to refresh on the terms and conditions agreed upon with each tenant, calendar lease expiration dates,  ensure continued compliance with rental regulations, and assess rent values and the tenant base.

Inadequate understanding of the leases make property management less effective and strain landlord-tenant relationships, potentially resulting in legal complications or financial setbacks. Careful review increases the chances of a successful landlord-tenant relationship, in particular during this time of transition from one landlord to the next.

Let’s dig further into the reasons for a lease review:

  1. Understanding Terms and Conditions: Landlord should have comprehensive understanding of the terms of each tenant for effecitve  property and lease compliance.
  2. Identifying Lease Expirations: Known when each lease is expiring to ensure proper planning and preparing for potential turnover or renegotiation of lease terms. You can also try to align lease expiration dates for multiple units to make operations easier.
  3. Compliance Verification: Landlords must verify compliance with tenant rights, anti-discrimination laws, and rental property management regulations. This will help prevent or resolve legal complications and potential disputes with tenants.
  4. Evaluating Rent Levels: Evaluate the current market rental rates and assess whether the existing rental amounts are in line with the market value. Determine where rent increases would be appropriate.
  5. Assessing Tenant Relations: Understanding the rental terms helps form proactive approach to building positive landlord-tenant relationships. It also allows landlords to address any concerns or issues that may arise during the transition period.
  6. Preparation For New Leases: In some cases, landlords may wish to modify or renegotiate the terms of existing leases to align with their management approach or property goals. Reviewing existing leases provides the necessary foundation for initiating discussions with tenants regarding potential modifications, lease renewals, or amendments.

Step 6: Review Landlord-Tenant Laws

New Jersey Landlord Registration Act

The New Jersey Landlord Registration Act (N.J.S.A. 46:8-28) requires all landlords of residential properties with three or more units to register with the municipality in which the property is located. The registration process typically involves providing basic information about the property and landlord, such as contact details and ownership information. This act aims to create a record of landlords and their properties, ensuring that local authorities can effectively communicate important information and enforce regulations related to rental properties in New Jersey.

New Jersey Security Deposit Act

The Security Deposit Act (N.J.S.A. 46:8-19) governs the handling of security deposits for residential leases in New Jersey. This statute outlines various provisions regarding the collection, maintenance, and return of security deposits by landlords. It includes requirements for the maximum amount of deposit that can be collected, guidelines for handling and storing the deposit, and the timeline and conditions for its return to the tenant after the lease ends. The act also addresses the obligation of landlords to provide tenants with a written record of the condition of the rental property at the beginning and end of the lease. These regulations are aimed at safeguarding the rights of tenants and ensuring fair treatment in the handling of security deposits within the state.

New Jersey Lead Safe Certification

New Jersey’s Lead Safe Certification mandates lead-paint inspections for all rental properties built before 1978 unless exempt. Property owners are required to conduct a visual lead-paint inspection and potentially lead dust wipe samples at tenant turnover or at least every three years. To affirm compliance, a Lead Safe Certification, valid for two years, must be obtained. Inspections are to be executed by municipal local agencies, NJ DCA certified Lead Evaluation contractors, or directly hired certified contractors by the property owner. If no lead hazards are detected, the property will be certified as lead-safe. However, if hazards are identified, they must be addressed through abatement or control methods, with follow-up inspections confirming hazard removal.  Documentation of Lead Safe Certification must be maintained and made available to new tenants and during periodic DCA inspections. Cliguidance from the NJ Department of Community Affairs.

New Jersey Resources: Lead-Based Paint Inspections in Rental Dwelling Units Overview; Lead-Based Paint in Rental Dwellings Guidelines.

See

Uniform Fire Safety Act

A smoke and carbon monoxide certification is also required whenever a one- and two-family residence  residence is sold or its occupancy is otherwise transferred (i.e. sales and rentals) to demonstrate compliance with the New Jersey’s Uniform Fire Safety Act. The Uniform Fire Safety Act requires that one- and two-family residences must be equipped with:

  1. Smoke detectors on each level of the structure and in the vicinity of the bedrooms (see N.J.S.A. 52.27D-198.1);
  2. At least one properly installed carbon monoxide alarm (see N.J.S.A. 52.27D-133.3);
  3. At least one portable fire extinguisher in conformance with rules and regulations promulgated by the Commissioner of Community Affairs.
Certificate of Occupancy Requirements

Some cities require a Certificate of Occupancy (CO) before a unit may be leased. A “CO” (or called CCO, certificate of habitility, etc.) is an official document issued by the local building or zoning department, indicating that a property complies with the applicable building codes and is deemed suitable for occupancy. Typical requirements for obtaining a CO include passing inspections for structural integrity, electrical and plumbing systems, fire safety measures, and adherence to zoning regulations.

Rent Control

Rent control is a regulatory measure implemented by some cities to limit the amount by which landlords can increase rents for residential properties. Typically, rent control ordinances set forth specific requirements for annual rent increases, often tying the permissible raises to a predetermined percentage or consumer price index (CPI). Landlords may also be required to report rental income, expenses, and tenancy information to the relevant housing authorities to ensure compliance with the established rent control regulations.

Steam Radiator Notice

Landlords are required by law to provide tenants with a “Steam Heat Disclosure Notice” if their rental property is equipped with a steam heating system (N.J. Stat. § 52:27D-198.20). This disclosure notice must be included in the lease or provided to the tenant separately. The notice should contain essential information regarding the operation and maintenance of steam heat radiators, including specific instructions for safe operation, adjusting the valves, and addressing issues related to the heating system. This requirement is intended to ensure that tenants are well-informed about the unique features and maintenance requirements of steam heat systems, promoting safe and efficient usage while also establishing clear communication between landlords and tenants regarding heating infrastructure in rental properties.

Lead-Based Paint Hazard Reduction Act

Landlords leasing residential housing built before 1978 must provide purchasers and renters with a federally approved lead hazard information pamphlet and to disclose known lead-based paint and/or lead-based paint hazards. See additional information.

Child Protection Window Guards

Pursuant to N.J.S.A. 55:13A-7.12 and N.J.A.C. 5:10-27.1, landlords must install and maintain window guards in an apartment and, in some instances, in the hallway, upon written request of the tenant. The landlord must provide the tenant oral and written notice of the option to have the window guards installed and verify in writing that oral notice was provided. N.J.S.A. 55:13A-7.14 specifically requires all leases offered to tenants in a multiple dwelling to contain a conspicuous notice advising tenants and prospective tenants of the availability of window guards and the need for the tenant to request their installation in writing. A sample model lease and notice provision, along with a guide for tenants for window guard safety, is found as Appendix 27a and 27b to N.J.A.C. 5:10-27.

Truth In Renting Act

The Truth in Renting Act (N.J.S.A. 46:8-43) requires landlords to distribute the Truth In Renting Statement to all tenants with a rental term of at least one month living in residences with more than two dwelling units, or more than three if the landlord occupies one of the units. The Act does not require distribution to residents of hotels, motels, or other guest houses serving transient or seasonal tenants (N.J.S.A. 46:8-44). See DCA Guidance.

Flood Zone Notification

Every landlord is required to notify a tenant, prior to assuming occupancy, if the property is located in a flood zone or area. This statute applies to commercial and residential tenants, except for buildings that have only two units; are owner occupied with not more than three dwelling units; or are hotels, motels or other guesthouses serving transient or seasonal guests. N.J.S.A. 46:8-50.

Crime Insurance Information

According to N.J.S.A. 46:8-39, every landlord must notify its tenants of the availability of crime insurance through the Federal Crime Insurance Program of Title VI of the Housing and Urban Development Act of 1970 and advise the tenants where applications for such insurance may be obtained. Tenants must receive this information no more than 30 days after they assume occupancy. However, the federal program is no longer available. As a result, owners usually include the following clause in a lease in order to satisfy this statutory obligation:

Crime insurance is available to tenants through the New Jersey Insurance Underwriting Association, Crime Insurance Indemnity Plan. To apply for crime insurance, contact the New Jersey Underwriters Association, Crime Insurance for Habitable Property, 744 Broad Street, Suite 1100, Newark, New Jersey 07102, directly for an application. The telephone number is 973-622- 3838. This insurance is applicable to theft and/or burglaries. This information is strictly for advice and the landlord is not responsible for securing insurance for the tenant. In all cases, it is the tenant’s responsibility to insure and protect the contents of the apartment.

Notice for Condominiums/Cooperatives

Pursuant to N.J.S.A. 2A:18-61.9 and N.J.A.C. 5:24-1.9 owners must provide to tenants at the time of establishing a lease a specific written statement conforming exactly to the following words in capital letters as the first clause of the lease:

THIS BUILDING (PARK) IS BEING CONVERTED TO OR IS A CONDOMINIUM OR COOPERATIVE (OR FEE SIMPLE OWNERSHIP). YOUR TENANCY CAN BE TERMINATED UPON 60 DAYS’ NOTICE IF YOUR APARTMENT (PARK SITE) IS SOLD TO A BUYER WHO SEEKS TO PERSONALLY OCCUPY IT. IF YOU MOVE OUT AS A RESULT OF RECEIVING SUCH A NOTICE AND THE LANDLORD ARBITRARILY FAILS TO COMPLETE THE SALE, THE LANDLORD SHALL BE LIABLE TO YOU FOR TREBLE DAMAGES AND COURT COSTS.

New Jersey Anti-Eviction Act

The Anti-Eviction Act (N.J.S.A. 2A:18-53) is a state law that provides robust protections to tenants, ensuring that landlords cannot evict them without just cause. The Act mandates that landlords must have a good cause, defined by specific legal grounds, to evict a tenant. The law delineates exceptions where it does not apply, such as in the case of owner-occupied premises with two or fewer rental units and places rented to transient or seasonal guests. tenants may be evicted for specific reasons, including:

  • Nonpayment of Rent: If the tenant fails to pay rent as stipulated in the lease agreement.
  • Lease Violations: Breach of lease terms, such as excessive property damage, unauthorized pets, or illegal activities on the premises.
  • Disorderly Conduct: Engaging in disruptive or disorderly behavior that significantly disturbs other tenants or the landlord.
  • End of Lease Term: Non-renewal of the lease agreement upon the expiration of its designated term.
  • Owner-Occupied Premises: Landlord’s intention to personally occupy the rental unit or allow a family member to do so.
New Jersey Law Against Discrimination

The New Jersey Law Against Discrimination (NJLAD) prohibits landlords from discriminating against individuals based on characteristics such as race, creed, color, national origin, nationality, ancestry, marital status, domestic partnership status, affectional or sexual orientation, disability, nationality, sex, gender identity or expression, and pregnancy. They are also prohibited from discriminating against families with children. Landlords should also provide reasonable accommodations for individuals with disabilities and ensure that their properties are accessible to people with disabilities when required by law. See NJ Guidance.

New Jersey Fair Chance in Housing Act

The  Fair Chance in Housing Act prohibits landlords from asking about an applicant’s criminal history on a housing application or during the initial stages of the tenant screening process. If a housing provider chooses to evaluate criminal history, it may do so only after a conditional housing offer has been made. Before considering the applicant’s criminal history, it must provide a Disclosure Statement informing the applicant that the eligibility criteria for the unit includes the applicant’s criminal history, and appraising the applicant of their right to demonstrate mitigating factors, i.e. inaccuracies in their criminal record or evidence of rehabilitation. For details – see NJ Guidance.

Federal Fair Housing Act

The Fair Housing Act prohibits discrimination in housing based on race, color, national origin, religion, sex, familial status, and disability. Refusing to rent or sell housing, refusing to negotiate for housing, making housing unavailable, setting different terms or conditions, providing different housing services or facilities, or falsely denying that housing is available for inspection, sale, or rental, based on the protected classes, is prohibited. See HUD Guidance.

Federal Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) applies to landlords when they use consumer reports, such as credit reports or background checks, to evaluate potential tenants. Under the FCRA, landlords must adhere to certain requirements in the list below. See FTC Guidance.

  1. Obtaining Permission: Landlords must obtain written permission from the tenant before obtaining a consumer report for the purpose of screening their rental application.
  2. Disclosure: Landlords are required to provide applicants with a clear and conspicuous written disclosure that a consumer report may be obtained for rental purposes.
  3. Adverse Action Notices: If a landlord takes adverse action based on information in a consumer report, such as denying a rental application, requiring a co-signer, or charging a higher security deposit, they must provide the applicant with an adverse action notice that includes specific information about the consumer reporting agency that provided the report.
  4. Disposal of Information: Landlords must properly dispose of consumer report information to prevent unauthorized access to it.

Step 7: Evaluate Insurance Coverage

Safeguarding your rental investment with insurance is an essential part of any landlord’s risk management strategy.

The following is a list of types of insurance coverages to consider obtaining:

  1. Landlord Insurance. Landlord insurance, also known as rental property insurance, is a type of policy designed to protect landlords from financial losses associated with rental properties. It typically covers property damage to the physical structures such as the building and other onsite structures caused by perils like fire, vandalism, or certain weather events. Additionally, it often includes liability coverage for legal costs and medical expenses if someone is injured on the property and loss of rental income if the property becomes uninhabitable due to a covered event.
  2. Liability Insurance. Often included in Landlord Insurance as noted above, liability coverage safeguards you against lawsuits and medical costs if a tenant or a visitor suffers an injury on your property due to negligence. This insurance can help cover legal fees and potential damages awarded, protecting your personal financial assets.
  3. Rent Guarantee Insurance. Rent guarantee insurance is a specific type of coverage designed to protect landlords from lost income due to unpaid rent or a vacant property during eviction proceedings. This policy ensures consistent revenue stream, reimbursing the landlord for the rent amount that would have otherwise been collected from the tenant under the lease terms. The coverage usually commences after a specified waiting period, lasts for a fixed duration, and may require certain tenant vetting procedures.
  4. Natural Disaster Insurance. SNatural disaster insurance is a supplemental coverage that protects a landlord’s property from damages caused by extraordinary natural events not typically covered under standard insurance policies. It can encompass a range of weather-related catastrophes such as floods, earthquakes, hurricanes, or landslides. This insurance policy can cover the cost to repair or replace the damaged property, ensuring that landlords are financially guarded against these unpredictable and potentially devastating events.
  5. Contents Insurance. Contents insurance for landlords is a coverage that caters to the financial cost of replacing a property’s contents – for instance, furniture and appliances – in the event they are damaged or stolen. It applies to items the landlord provides for tenants’ use within the property, particularly relevant for furnished rental properties. This insurance helps mitigate the expense incurred due to incidents such as theft, fire, water damage, or other perils as outlined in the policy.
  6. Loss of Income. Loss of income insurance, also known as rental income protection or business interruption coverage, is a key part of a landlord’s insurance policy that covers loss of rental income due to property unrentability caused by certain covered perils. Should an event like a fire or severe water damage render the property uninhabitable, this coverage compensates landlords for the lost rental income during the repair period. It’s a financial safety net that allows landlords to maintain their expected revenue stream whilst the damaged property is being restored.

When selecting the appropriate insurance for their rental properties, landlords should take into account:

  • Property Type: The kind of property (residential vs commercial, single-unit vs multi-unit, furnished vs unfurnished) can inform the specific coverage and policy type required.
  • Location: Areas prone to natural disasters may necessitate additional coverage for floods, earthquakes, or hurricanes that are typically not covered in basic policies.
  • Tenant Activity: If your rental property invites a high volume of people, such as if it’s used for short-term lets or is part of a multi-unit complex, there might be a higher risk of damage or injury claims.
  • Asset Value: High-value rental properties or those with valuable appliances and furniture may require additional coverage or increased limits in your policy.
  • Liability Risks: Evaluate the potential for liability claims arising from injuries or damages occurring on your premises. This will also vary based on the property type and tenant activity.
  • Legal and Mortgage Requirements: Some locations or types of rental arrangements may come with legal insurance requirements that must be followed. Check local and state laws to ensure compliance.
  • Financial Buffer: Consider your financial capability to absorb costs not covered by the insurance. This can guide your decision on the coverage amount and deductible level.
  • Policy Exclusions: Review each policy for its exclusions or situations in which you would not be covered.
  • Insurance Provider: Consider their reputation, customer service, claim process, and financial stability.

Umbrella Insurance. As a landlord, consider an umbrella insurance policy to your coverage plan. Umbrella policies add an extra layer of coverage beyond  standard landlord insurance. For example, if a tenant or visitor has a serious accident on your property, the medical costs, legal fees, and any damage awards could quickly exceed the liability limits of your standard policy. Similarly, if a natural disaster causes extensive damage to multiple properties you own, your basic policy may not cover all the repair costs. In these scenarios, an umbrella policy can cover the excess costs, protecting your personal assets from being used to cover these expenses. Umbrella policies provide peace of mind against unpredictably large and potentially devastating incidents.


Step 8: Prepare New Leases

Preparing new tenant lease for tenants is vital for a successful investment property. Leases should be comprehensive, legally compliance, and drawn up with the neighborhood and building in mind.

Here are some options available for preparing leases:Here, we explore three common avenues for drafting new leases and the pros and cons of each approach.

  • Downloading a Form Online. The main advantage here is that online lease forms are often available at low cost, offering a budget-friendly option for landlords. Downloading can also be convenient, and there could be a wide range of templates. The problem is that lease forms may not always align with local laws and regulations, potentially leaving landlords vulnerable to legal disputes, and Generic lease forms may not address specific property nuances or landlord requirements, leading to potential oversights or gaps in the lease agreement.
  1. Realtor® Standard  Form Ror Residential Lease. Real estate agents in New Jersey have access to a standard lease, as well as supplemental addendums, which is generally maintained to be legally compliance. Realtors often have experience to customize lease agreements to suit specific property attributes and landlord preferences. The main reason this approach is not always used is because usually you have to pay real estate agent commission to the agent to use the lease.
  2. Attorney Drafted Lease. Attorneys specializing in real estate law can offer comprehensive legal advice to ensure that the lease complies with local regulations and safeguards the landlord’s interests. Attorneys can tailor lease agreements to address unique property considerations and provide clauses that protect the landlord’s rights in various scenarios. Of course,  legal fees associated with hiring an attorney for lease drafting may constitute a significant investment, especially for landlords with limited resources.

The following is a list of key loan terms to make note of in your lease review:

  1. Rent: Agreed-upon monthly or annual rent.
  2. Duration: Length of time the lease will be in effect, typically ranging from 6 months to several years.
  3. Security Deposit: Upfront payment held by the landlord to cover any potential damages or unpaid rent at the end of the lease term.
  4. Late Payment Fees: Additional charges if the tenant fails to submit timely rent payments.
  5. Maintenance Responsibilities: Defines whether landlord or tenant is responsible for property maintenance and repairs.
  6. Utilities: Specifies which utilities (e.g., water, gas, electricity) are paid by landlord and paid by tenant.
  7. Subletting: Whether or not the tenant can sublet to another individual.
  8. Pet Policy: Restrictions, additional fees, or rules related to pets in the rental property.
  9. Noise Restrictions: Rules regarding excessive noise and disturbances.
  10. Renewal Options: Whether the lease can be extended, and if so, terms and conditions for renewal.
  11. Early Termination: Conditions under which the lease can be terminated before the end of the term.
  12. Property Access: Landlord’s rights to access the property for repairs, inspections, or showings, and the notice required.
  13. Insurance Requirements: Types of insurance coverage required for landlord and tenant.
  14. Property Upkeep Expectations: Describes the standard of cleanliness and maintenance the tenant is expected to uphold.
  15. Occupancy Limits: Number of occupants allowed to reside in the rental property at any given time.
  16. Alterations and Improvements: If tenant is allowed to make alterations or improvements to the property and if so, under what conditions.

Step 9: Estate Plan (Will and Power of Attorney)

Real estate is an expensive asset. It is vital to have a plan in place as to how this asset is handled in case of death, incapacity, or inability to make decisions.

Planning ahead will allow for your families best interests to be put paramount if one of these unfortunate events strike (after which it is too late to estate plan).

A will, perhaps the most common estate planning document, details how you want your assets, including your home, distributed and who is responsbile for distribution after death. A will is essential for the following reasons:

  1. Choose Your Heirs (Don’t Allow State Law to Decide): Property is distributed by general state laws without a will – the beneficiaries of your property may not align with your wishes.
  2. Maintain Harmonious Family Relationships: Clear intentions set in a will prevent disagreements as to how you desired your assets to be distributed.
  3. Choose a Trustworthy and Competent Estate Administrator: The court appoints one person to manage an estate. Courts will follow your choice of administators in a will. If you did not have a will, any persons and/or family members could petition to be the administrator (even those that would not have been your choice) resulting damaged relationships or legal disputes.
  4. Swift Property Transfer: Transfer of real estate ownership will be delayed without a will due to a longer probate process, resulting in problems if no person has authority to make decisions.
  5. Reduce Legal Costs: Estate administration without a will involves more legal work and higher legal fees.
  6. Increase Family Wealth with Tax Benefits: Estate planning allows for maximizing tax benefits to preserve family wealth.
  7. Choose a Guardian For Children: Appoint a guardian for your minor children in case of your death. Otherwise, it is for the courts to decide.

A power of attorney (“POA”) allows you to appoint someone to handle your legal and financial affairs if you become incapacitated.

Contrary to some beliefs, a power of attorney is needed even for spouses to make decisions on each other’s behalf. If one person becomes incapacitated without a power of attorney in place, the only option then for obtaining decisionmaking authority opening a litigation for legal guardianship.

A power of attorney for real estate offers several benefits in the event you are no longer able to make decisions:

  1. Property Management: POA would allow the person you trust to handle property affairs, pay property taxes, manag mortgages or loans, and accept rental income.
  2. Real Estate Transaction Decisions: A POA can act on your behalf in buying, selling, transferring and refinancing real estate.
  3. Efficiency and Convenience: Even if you are not fully incapacitated, a POA can step in and assist you if ownership becomes challenging due to health, age, distance, or other commitments.
  4. Legal Decisions: A POA can make decisions regarding tax matters, disputes, or legal issues involving the property.

Need assistance in preparing these important estate planning documents?

Our firm provides comprehensive guidance to ensure your estate planning goals and needs are thoroughly addressed and achieved. Call/text us at 201-389-8275 or e-mail contact@earlwhite.law visit the Contact Us assistance with any estate planning.


Step 10: Assess Business Structure

As a landlord seeking to invest in the real estate market, one of the crucial decisions to ponder on is the legal entity through which ownership of investment property will be held. Each legal entity type comes with its own set of advantages and considerations, impacting aspects such as liability, taxes, management, and future growth potential.

Let’s delve into several types of legal entities available to landlords and outline the pros and cons associated with each option.

Sole Proprietorship

A sole proprietorship for a landlord involves individual ownership of investment property without establishing a separate legal entity. Pros of a sole proprietorship include simplicity in setup and management, as it involves minimal formalities, and the landlord retains complete control over decision-making and property management without the need for complex organizational structures.

However, cons of this structure include personal liability, as the landlord is personally liable for any debts, obligations, or legal issues arising from property ownership, potentially putting personal assets at risk. Additionally, sole proprietorships have limited options for tax planning and are subject to personal income tax rates.

Limited Liability Company (LLC)

A limited liability ownership structure for a landlord typically involves establishing a Limited Liability Company (LLC). This legal entity provides personal liability protection, shielding the landlord’s personal assets from potential property-related liabilities. Additionally, LLCs offer tax flexibility through pass-through taxation, enabling profits and losses to flow through to individual tax returns, potentially providing tax advantages for landlords.

The downsides here are establishing and maintaining an LLC entails compliance requirements, such as filing articles of organization and periodic fees, which may lead to administrative burdens and costs. LLCs may have restrictions on the number and type of owners, potentially limiting future expansion or partnership opportunities.

Corporation

A corporation ownership structure for a landlord involves forming a separate legal entity, providing personal liability protection and potential tax planning benefits. Pros of a corporation include limited liability, shielding the landlord’s personal assets from business liabilities, and tax planning advantages such as income splitting and deductible employee benefits.

However, cons of this structure include potential double taxation for traditional C-corporations, where the corporation is taxed on its profits, and shareholders are taxed on dividends. Additionally, corporations entail more stringent formalities, such as holding regular meetings, maintaining corporate records, and adhering to specific operational procedures, which can lead to increased administrative burdens and costs for landlords.