Know your State Sanitary Code, Building Code and Tenant/Landlord Laws in your local market.
I see it happen all of the time in our local Northern Worcester County Landlord Association. I call them Lone Rangers. Some would-be-hopefully-landlord reads a book or attends a weekend seminar. They have stars in their eyes with visions of grandeur. The see the big picture as a full-color dream laid out before them of riches and fortune because they are going to buy their first property and strike it rich as Real Estate Investors. They put down their down payment, get the financing, get the keys, then sit back and wait for those rental checks to roll in.
They haven’t got a clue to what they have just done. Then, they are shocked to find out that there are problems. Tenants are calling during Thanksgiving dinner, emergency maintenance repairs need to be done at midnight, evictions and vacancies happen. Now these fledgling entrepreneurs are stuck with out a plan, and have no idea what just happened to their “Real Estate Investment”.
Well, let me be the first to prick the bubble and pop the illusion. It never was a “Real Estate Investment”. An “investment” is a passive position in where you place your money in an investment in the anticipation of a return on your money into the deal. If you have purchased a building without a plan to have it managed professionally you have not made an investment. You have purchased a business. Even more, you have purchased a customer service relationship business where you will be interacting with the general public – your renters. You will be responsible for keeping that company open and running 365 days a year, 7 days a week, 24 hours a day.
But make no mistake about it. You “are” in business. Like it or not, however you slice it, if you are an investment property owner, you are a business owner. You may be in a “hands-on” management roll working with the residents, vendors, and local officials, or, you may be in a more “passive role” as an LLC where you have invested your cash into the deal. Both are businesses and both require different sets of rules to be in business. The federal Laws are universal in acquiring and operating real estate investment property in this country. Where the devil is in the details is at the state level for where you are purchasing your investment property.
The state laws concerning rental property are different from state to state so there is no “one-size-fits-all” for being a property owner. There are a few agencies at your local city hall to consider when contemplating your property purchase. At the municipal level, you should really take a walk through the halls of the local city hall in your target market. Get to know the building, plumbing, and wiring inspectors, get to know the neighborhoods both good and bad, get in touch with the revitalization committee to learn about targeted zones, meet with the Board of Health, the assessors office. You need to know this market inside and out at the local level.
Talk to the office staff. Ask them questions as to which laws affect you as a rental property owner? What state publications or web sites can they recommend to stay abreast of current or even changing legislation? What are the specific laws governing housing and rental properties in your local market. You really need to know this.
A Lone Ranger who does not know the state sanitary code, housing regulations or local building code laws is running their business like a vigilante with no regard for the laws serving justice as they see fit in their own eyes. Vigilantes get hung in housing court all day long. Ignorance of the law is no excuse for not obeying the law. I’ve seen it happen so many times. Landlords in housing court with their hands tied for missing some detail in the grand scheme of things, which turns the judgment against them in favor of the tenant.
So what can you do about it? Get smart! Get prepared, and do it fast. If you are even looking at an apartment building right now, or any other type of rental property, get the information you need to legally run your business. Get started at the state web site of your target market and find the link to the legislative branch concerning landlords. Talk to your local landlord attorneys and they will tell you the local and state laws that you need to know to correctly manage your real estate rental business.
Get in touch with your local chapter of Section 8 Housing Authorities. “Woah there! Now hold on Brian! But I don’t want Section 8 Tenants in my building”. Well, first off, it is illegal to refuse someone on assistance, you will find that this is a myth that these are sub-standard residents, and that is not the purpose of my recommendation of this engagement with the local housing authority. I want you to form a relationship with the caseworkers and develop rapport with them. You want to know what the local housing authority requirements are in their housing developments. Many of these agencies will have hand out pamphlets and brochures they will share with their best landlords to give them the guidelines and checklists that they use to inspect and qualify residential units for occupancy. So now you have a good idea what to expect to get your rental units up to the expectations of the local housing authority.
Next stop, the Board of Health. I know most new landlords will avoid stepping foot into the Board of Health offices like the plague. They think that they are asking for trouble and it will cost them thousands of dollars once the inspectors even gets a whiff of the address of the property. On the contrary, I always make the Board of Health one of my FIRST stops when considering an address for purchase. Again, because I have developed a great working relationship in my rental market I can walk into the office, trade the pleasantries with the staff, and request the actual property folder on record with their office. This is a gold mine to the investor. You will get the entire history of the property from the beginning of the history of records. Inspectors will be happy to share with you stories of the property and recommendations to correct any outstanding issues with the property.
You also want to ask the Board of Health for the rules, regulations, and laws that govern State Sanitary Code. So now you have Local Housing Code Regulations, State Sanitary Code and we are off to our next stop in keeping it legal.
The Building Inspector Office of any town or city is governed by the IBC, International Building Code. What you need to know is what type of property are you talking about. In financial terms, anything over four (4) units is considered commercial so you would need to take out a commercial loan to purchase the property. But in building code jargon, any number of units over a duplex is considered commercial so instead of using the IBC for Residential, that sweet deal on a three-family property now has just crossed over the line into the IBC for Commercial building code. Different book. Different set of rules. You need to know this. Now I am not suggesting you go out and get your CSL Construction Supervisor License, but it would be a great idea to get some one on your team who has one.
Next step, you need to take a lawyer to lunch. But which lawyer do you choose? Well, I would suggest taking a field trip to your local housing court and quietly taking a seat in the back of the room during the session to get a feel for the process and see which lawyer seems to know his stuff, gets along with the judge and the staff, and wins the case. This attorney might be a good candidate for your Real Estate team as your new local landlord attorney.
You want to ask this attorney what are the governing statutes concerning state landlord/tenant laws. Which laws and regulations affect you? Also ask a local state lawyer that specializes in entity formation which laws you need to abide by to open and run a business in the state. With this path of legal due diligence and a changed mindset to run your property as a business, you are on your way to greener pastures. Get educated, take action, and build your posse.
Even the Lone Ranger had Tonto.
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Belaire Property Management
Regional Property Manager
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