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It’s not a great time to become a brand new landlord in New York City. The number of vacant apartments in the city is at a record high, forcing landlords to compete for tenants by offering more leases with concessions, like two or three months free, and paying the broker fee. Some landlords are dropping rents on new leases as well.
It’s a very different landscape from a year ago, when landlords had the upper hand and demand for rentals was high, thanks to a trend that saw would-be buyers choosing to rent high-end apartments instead of buy. Prompted by the coronavirus pandemic, many of those renters fled the city this spring in order to buy in the suburbs.
But if you are intent on taking advantage of historically low mortgage rates to buy an investment or multi-family property, becoming a landlord can provide you with income to offset your own expenses. Still, there’s a lot to wrap your head around.
Being a landlord is a big responsibility, says Arik Lifshitz, CEO of DSA Property Group, a company that owns and operates residential buildings in NYC.
“Even if you’re used to the responsibility of owning your own home and providing safe accommodations for you and your family, making that transition and providing the same for others is a whole new ballgame,” he says.
Keep in mind if you are new to being a landlord, your checklist should include getting up to speed on the impact of the 2019 changes to the rent laws, and how they impact your role, going to extra lengths to find a financially qualified and responsible tenant, and making sure your insurance is up to date.
[Editor's note: An earlier version of this article was published in October 2019. It has been updated with new information for October 2020.]
Here’s more about what you need to know if you’re becoming a landlord for the first time.
1) Know the building rules
If you are renting out a co-op or condo, you will need to familiarize yourself with the board’s rules and regulations.
Condos are typically easier to rent out than co-ops because the board is more hands-off. In a co-op, you’re subletting and the 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 sublease or lease, and even the price you can charge. You’ll need to get familiar with the co-op’s proprietary lease to find out about any restrictions.
In a rent-regulated co-op, sublets will probably be significantly more difficult.
“While many people in Mitchell-Lama and other government-regulated apartments do sublet, and there are structural things that allow some people to do that, it’s generally not allowed,” says Dean Roberts, a real estate attorney at Norris McLaughlin. “There are certain nuances about family members living there while you are away—if you are in the military, for example, but straight-forward commercial sublets are not allowed,” he says.
If you rent in a building with more than four units you have the right to sublet, but must ask permission at least 30 days in advance.
Subletting assumes you plan on returning to the apartment and will take responsibility for rent payments. In your communication with your landlord, clearly state the terms of the sublease, including details about the tenant and the length of time they’ll be in the apartment. If the landlord does not respond within 30 days, New York law considers that consent.
Keep in mind that you can’t rent out an apartment for fewer than 30 days without also being on site, and renting the place out for longer than the term of your lease may be considered an assignment, where you’d be handing off the lease to a new tenant and don’t intend to return.
If your place is rent-stabilized but no longer your primary residence, you risk eviction
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If you own a townhouse, you are free to sublet, but it’s worth making sure your paperwork is in order.
For example, check the status of your Certificate of Occupancy—the document that determines how your building can be occupied. It makes sense to find out what the C of O says before you buy, because if your purchase depends on you being able to rent out the ground-floor apartment of a brownstone, the C of O needs to identify the building as a legal two-family.
"If you're renting out a unit and the C of O doesn't cover the apartment for residential use, that's a violation, and the landlord can't collect rent," says Steve Wagner, a partner at the real estate law firm Wagner Berkow & Brandt (and Brick Underground sponsor). The more likely scenario is that your tenants would get wind of this paperwork problem, and would be well within their rights to stop paying you.
2) Understanding the fees
You’ll want to familiarize yourself with new rent laws—significant changes took place in 2019.
“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 in buildings with a single tenant,” says Jordan Barowitz, vice president of public affairs at the Durst Organization, a firm that owns and manages residential buildings in NYC.
As a landlord, you cannot charge more than $20 for an application fee. This cost covers the background and credit check which you must supply to your incoming tenant with a receipt.
Some co-op and condo boards impose additional fees calculated either as a percentage of an apartment’s monthly maintenance or a percentage of the rent. The fee might also include move-in costs for the use of the elevator for a day and can fall anywhere between $350 and $3,500. You are able to pass these fees to the tenant.
Another consideration is a cap on late fees. The new rent laws say penalties for late rent payments can only be handed out to tenants if they are more than five days late with their payments and the fine can’t be more than $50 or five percent of the monthly rent, whichever is less. Setting up an easy rent collection method online can be helpful.
3) Understanding laws that protect tenants
Tenants in market-rate apartments now have some of the same protections as those in rent-stabilized places. This might affect how you operate your rental so it’s worth reading up on the rules.
For starters, you cannot take more than one month's rent as a security deposit. And your tenant has the right to an inspection of the apartment to document its condition before they move in. When the tenant moves out they can request another walkthrough and you’ll need to give an itemized statement of any charges you intend to take out of the security within 14 days. If you don’t meet this deadline you forfeit any right to keep part of the deposit.
Some of these requirements can be intimidating for new landlords and you might want to consider teaming up with other landlords navigating the same waters. Lifshitz recommends starting or joining a networking group to learn from other landlords’ experiences. “I joined a networking group 12 years ago and we still get together, interact, and help each other on a regular basis,” he says.
4) Price it right
Be honest with yourself, and honest about your unit’s appeal to others, Lifshitz says.
If you are subletting a rent-regulated apartment, you aren’t allowed to profit by charging a higher rent than what you're already paying. If your apartment is furnished, you can charge up to 10 percent of your rent for the use of the furnishings.
If you’re renting out a market-rate apartment, you can charge whatever the market will bear. Compare asking rents on aggregated listing sites. 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.
This year has been anything but typical but generally if you're offering a rental during the slower winter months you may want to offer a more generous concessions—an additional month of free rent or paying the broker's fee, which ranges from one month's rent to 15 percent of the annual rent.
“If circumstances force you to rent in the winter, then try signing a six or 18-month lease, so the next lease cycle will put you in a summer schedule,” Lifshitz says.
5) Find the right tenant
By finding a renter who's financially qualified and responsible you are going to be saved a lot of headaches.
Elizabeth Kee, an agent with CORE, says landlords often don’t go the full mile in requiring or calling references and following through on credit and background checks. She advises following up on personal references especially now that you can no longer use information from NYC housing court to reject a tenant.
Many NYC leasing agents and landlords want to see a potential tenant earn 40 times the monthly rent. It’s worth doing the same. Screening companies can run credit checks on your preferred tenant to see if they meet your standards but remember you can only ask the tenant to reimburse you $20 for this.
Rent payment histories don’t show up on credit reports, so ask for a letter of reference from a previous landlord. Ask for references from employers or other professional contacts.
Once a steady stream of renters to NYC, college students, especially international students, have all but evaporated. International travel has been curtailed and many university students are learning remotely. Pre-pandemic, renting to students and foreign residents presented some challenges, no matter how credit-worthy or asset-rich they were. International visitors often don’t have U.S. credit. Self-employed, retired, or non-employed people with cash assets also won’t meet the traditional financial criteria for renters.
If this is the case, or if you simply want extra protection, (and bearing in mind you cannot ask for additional security) consider asking for a guarantor. Landlords typically look for 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 70 to 80 times the monthly rent.
If your renters don't have a guarantor or you don't want to go through the expensive hassle of suing a guarantor in the event that your renter defaults, consider requiring your renter to pay for an institutional guarantor like Insurent (also a Brick Underground sponsor), which guarantees the leases at no cost to the landlord.
Trust your instincts when you meet the tenant or consider enlisting a professional broker who can take over the marketing of your apartment and assist in screening tenants—at no cost to you if the tenant pays the broker fee. But agreeing to cover the broker fee can give your apartment the edge in a slower market. Brokers can also execute the terms of the lease in accordance with board approvals, supply the forms, and collect deposits.
6) Be thoughtful about the lease
You'll need a lease that carefully lays out terms such as price, length of occupancy, type of occupancy (i.e. number of people), move in/move out dates, damages, deposits, the number and kind of pets allowed (if any), and extras such as responsibility for utilities.
Most problems can be avoided by providing clarity on both sides, being open to negotiation, and paying close attention to the amount of time the managing agent states they’ll need to provide approval.
You’ll have to customize the lease with riders outlining your specific conditions, which might include an early termination clause, policies about pets, smoking, subleasing, or maintenance.
Lifshitz recommends consulting an attorney on this.
“There is an ever growing list of required riders that need to be included in the lease and an attorney will help you obtain the relevant ones and should then be consulted if any issues arise during the lease term,” he says. This is one area where it's much better to spend a little extra money on a lawyer to make sure you've got everything covered.
7) Stay on top of maintenance
Have a clear understanding of the repairs for which you are responsible. If something breaks as a matter of normal usage, you are responsible for replacement. If damage was caused by the tenant and not due to normal wear and tear, you may charge them for it. If you are prepping a unit for rental don’t over renovate, Lifshitz says. “High-end fixtures and finishes won’t always get you a higher rent.”
If you are a co-op or condo owner, you are responsible for not only ensuring that all systems within the unit work (e.g. 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 or co-op board will perform the installation. You must also ensure the door and mailbox have working locks.
Legally, if you're moving out of your co-op or condo to sublet it, you're also required to provide the tenant with a single phone number they can call for repairs, questions, emergencies, etc., Wagner says. This can be a hired managing agent, or simply your own personal number. Note: if you do take on a managing agent to deal with all these details on your behalf, expect to spend about 5 or 6 percent of the rent on their services.
8) Make sure your insurance is up to date
You’ll 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.
“The coverage for short term rentals is usually 30-90 days total per year, not for a series of short term rentals,” says Jeffrey Schneider, president of Gotham Brokerage (a Brick Underground sponsor). “You will either have to endorse your policy or take out a different kind of policy to properly cover yourself when the apartment is rented out."
Schneider also recommends providing for theft and damage in the updated insurance policy
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