Being a Detroit landlord is one of the most rewarding ways to make money that you’ll ever come across. However, there are also plenty of responsibilities that you’ll be taking on when you decide to invest in the Detroit housing market. Whether you’re renting out a single-family home or you’re investing in a multi-family property, it’s crucial that you understand the legal responsibilities associated with being a landlord. In addition to federal laws that govern multiple aspects of real estate investing, there are plenty of laws that are specific to the state of Michigan that you need to follow. Additionally, many of those laws also protect you. Today, learn more about some legal considerations for Detroit real estate investors.
The Power of a Lease
Many landlords fall into the trap of renting a property to someone, usually someone they know, without a written lease in place. After all, you probably assume that if you’re renting your Detroit rental property to a close friend or family member, you can trust them.
You should not go into any sort of rental agreement without a written document. Can you trust your best friend to pay you on time? Maybe. Can you trust your brother or sister to give you the monthly rent on the day it’s due? Probably. However, a written lease covers more than the amount the tenant pays and the day that it’s due. It covers the legal responsibilities of both parties. As a landlord, this written contract not only outlines your responsibilities, protecting your renter, but it also puts your rights in writing, protecting you.
Tenant Screening: Rights and Responsibilities
As a real estate investor, you have the right to decide who you’re going to rent your property to. You do not have to offer the property on a first-come, first-served basis. You have the right to require potential renters to fill out an application for the property, and you even have the right to verify the information that they provide. It’s sad to say, but there are people who will lie on a rental application to try to get a property that they can’t afford or have no intention of paying rent for.
However, this right comes along with some responsibilities. For instance, the state of Michigan requires you to get written consent before performing credit checks or background checks on a potential renter. You’ll find yourself subject to heavy fines if a renter finds out that you ran their credit without written consent, so you need to include a consent form with the rental application.
You also have the right to deny a person the property if you have a viable reason to believe that they cannot pay rent. For instance, if the applicant claims to have a job on their rental application but you find out they were fired when you verify, you can deny the application. However, there are a variety of reasons why you cannot deny a rental application. The Fair Housing Act is a federal law that dictates the rental process, and Michigan has laws in place, too. Spend some time working with a real estate attorney to craft a rental application that maximizes your rights without including any questions that are against the law.
Taking Care of the Property
One of the most important things to remember is that even though you’re renting the property to a tenant, you still own the property. With that in mind, you’re responsible for repairs and other maintenance tasks associated with property ownership. For instance, if there is a busted water line in the home, you’re responsible for getting it repaired. If you know how to perform some repair and maintenance tasks on your own, you can certainly do them yourself. If not, you are financially responsible for making those repairs.
It’s important to understand that there are some loopholes to this rule. First, you can allow the tenant to hire a plumber to repair a broken water line, but the tenant is allowed to deduct that they pay from that month’s rent. Additionally, you are not financially responsible if the need for repair is the result of the tenant’s abuse or negligence of the property. For instance, if your tenant breaks a window because they throw something in the house, you don’t have to pay for the window.
Inspecting the Property
Since you own the property, you may assume that you can enter it any time you want to in order to make sure that the tenant isn’t abusing or neglecting the property. That’s not exactly the case. In every state, including Michigan, the tenant has the right to “quiet enjoyment.” That term means that the tenant has the legal right to enjoy every aspect of the property without interference from the landlord. Generally, this means that the landlord must provide the tenant with notice before entering the property except in the case of an emergency.
Some states have laws that dictate how much notice the landlord must give. Michigan does not, which means that Detroit landlords and their tenants must agree on how much notice is required before entering the property. This is another piece of information that you should include in the lease.
Terminating the Lease
A lease is a legally binding contract, but both parties may find themselves needing to terminate the lease for any number of reasons. For instance, in Michigan, a landlord can sue for possession if the rent is seven days late. If the tenant violates another lease provision, you can sue for possession after 30 days. If you find valid proof of illegal drug activity in the home, you can sue for possession after 24 hours. As a landlord, you need to not only understand these provisions but also incorporate them into the lease.
Conversely, there are times when a tenant can break the lease. If you don’t perform the necessary repairs, the tenant can end the lease agreement since you didn’t uphold your end. Additionally, Michigan has a law that allows people who are victims of stalking or domestic violence to terminate a lease at any time if they fear for their safety.
What It All Means for Your Detroit Real Estate Investing
As a real estate investor in Detroit, you need to operate legally and ethically in every situation. Knowing your rights and responsibilities not only sets you up for success as a Detroit landlord but also helps you build a strong reputation. Contact Upside Investments today to find out how we can help you choose the right property, get the funding you need, and more.
