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VOLUME IXNavigating Out-of-State Rental Properties By Juliana Torres-Mason Today’s housing market is a bit of a seesaw. In December 2022, the Federal Reserve raised its benchmark interest rate (between 4.25% and 4.5%) to the highest level in 15 years and may not decrease that rate until 2024.
Higher interest rates mean loans are more expensive for consumers. But no matter what happens with inflation, people need a place to live. This is leading property owners to look for a means of disposable income. And sometimes the real estate investor may choose a property from another state.
Keeping track of varying state laws and taxes will add an extra layer of recordkeeping to home ownership, which may mean there will be a need for an accountant. And depending on how far the landlord is from the rental unit, repairs, walk-throughs and even time zones can make communication tricky.
However, as with any long-distance relationship, these challenges can be navigated.
Insuring a Sound Investment Out-of-state investors should consider places where they used to live, locations they like to visit or areas they know well, according to Investopedia. This helps for several reasons.
First, familiarity with the location means that landlords have a better understanding of their tenant’s perspective. They may understand how the local government operates, and have a better idea of how local real estate laws and ordinances are enforced.
Second, purchasing in a familiar location gives buyers a jump start to find property managers who can provide more frequent in-person oversight and assistance to their tenants. Alternatively, investors may hire a trusted friend or associate to check in on the property or provide a local point of contact for their tenants.
Landlords should also identify a maintenance worker, local handyman and licensed specialty repair workers. Investors should keep in mind that it’s not a matter of if their investment will require costly upkeep but when. Even newer properties may encounter wear-and-tear damage that requires a professional.
In the event that out-of-state landlords choose to hire a property manager or a maintenance team to handle day-to-day concerns, the landlord should notify the tenant of the best way to contact this third party. A property management team is an option, especially if the landlord owns multiple units. It is difficult enough for a landlord to travel to one property, never mind multiple ones all at once.
Finally, distance should not be an excuse for landlords to avoid in-person visits to the property. Just as investors shouldn’t buy a property without seeing it with their own eyes, savvy landlords shouldn’t rely on their hired team to always relay the condition of the property.
Being present for a walk-through on the property at the beginning of the tenancy can help avoid unwarranted claims of previous damage. Landlords should also plan to visit with current tenants periodically—with sufficient notice to the tenant ahead of time.
Clarifying the Best Form of Communication The first step to establishing a good relationship with an out-of-state tenant is to clarify the best methods of communication. Also, establish policies for paying the rent, requesting repairs, and sending queries about past and future property needs in the lease.
Out-of-state landlords should consider an online property management portal to collect rent. Snail mail is not always reliable, and mailing checks can cause friction over late fees if the landlord overlooks the postmarked date on the envelope.
Landlords should clarify their preferred method of communication, one that allows them to respond promptly and thoroughly. They should avoid toggling between multiple methods—a text here, an email there and a phone call another day. Multiple platforms can make it difficult to keep a paper trail of landlord-tenant conversations. In the event multiple platforms must be used, landlords should make sure to repeat the time, date, form of communication and what was said (in writing) before adding to the communication.
Depending on how far away their property is, landlords should consider time zones as well. Calls or messages sent too late at night or too early in the morning may go unnoticed and can be perceived as annoying or disruptive to the tenants’ personal life. Unless the tenants have indicated otherwise, it’s best to keep communication during normal business hours to guarantee the best response.
Photo credit: Marissa Grootes/UnsplashBe Aware of Condo Bylaws and Communication PoliciesLandlords’ relationship with their out-of-state tenants may be further complicated should the home be managed by a condo association. While property managers are often the liaison for everyone (tenants, landlords, condo boards and owners), if tenants live in a self-managed condominium, the communication may differ.
Condominium owner associations (COAs) will vote for a board of members who are responsible for maintaining the common areas and managing quality of life standards for a housing community. Renters are expected to adhere to condominium bylaws (registered with the city) and Rules and Regulations (created and updated per board team) that govern their community. However, it’s the landlord’s responsibility to ensure the renters are following both sets of rules, as any fines or penalties will be levied against the landlord rather than the renters directly.
The COA board communicates directly with the property owner. In fact, depending on the condominium board, Rules and Regulations will often state that tenant communication be solely between the landlord and the tenant. Landlords are directly responsible for repair requests or building queries from the tenants. Condo boards are in charge of association members, but they are not landlords.
For this reason, landlords should include COA rules that are relevant to the renter in the language of the lease agreement or in additional documentation they provide. However, there may be rules that the landlord chooses to implement that the condo board does not. For example, the condo board may OK tenants to have a pet. The landlord, however, has the ability to opt out of the pet policy and have a no-pet policy regardless of what the Rules and Regulations state.
The property owner is responsible for paying COA fees, though those costs are likely calculated within the rental price of the home. It is possible for out-of-state landlords to pass responsibility of making the COA fee payments to their tenants.
In many states, including Florida, COAs have the right to screen prospective tenants applying to live in a unit under their purview. According to Williams Law P.A., because some associations take advantage of this right, Florida tenants have likely interacted with the COA (or a homeowners association, HOA) through the application process, even before they move in. Once the tenant is approved, the responsibility once again falls back on the landlord—unless told otherwise.
On the other hand, according to Texas state law (Sec. 209.016), “a property owners’ association may not adopt or enforce a provision [that] requires a lease or rental applicant or a tenant to be submitted to and approved for tenancy by the property owners’ association.” In addition to COAs or HOAs not being able to screen potential tenants, they also cannot require property owners to provide them with the tenant’s application, credit report or lease, meaning that they may be cut out of any communication with or knowledge of the tenants entirely.
Know Local Laws One disadvantage that out-of-state landlords are likely to encounter is an unfamiliarity with the local and state laws that govern their rental properties. Housing laws may not only vary from state to state but can change based on county or city ordinances as well.
For example, Texas law allows tenants to deduct the cost of repairs from their rent, as long as they’ve given their landlords required written notice and appropriate time to respond. In Florida, as long as state-outlined steps are properly followed, tenants can withhold rental payments until the repairs are made.
Clarifying lease renewals and property repairs in written form avoids complicated state laws coming into play. However, a real estate attorney who practices within that state will become beneficial to the property owner for drafting the lease and answering state-specific legal queries.
Is An Out-of-State Property the Way to Go? Smart landlords know that tenant turnover comes with a cost and will do their best to maintain a good experience for their tenants, even if they are residing out of state. If done correctly, a tenant-landlord relationship should be solid regardless of which state either party is in.