Section 8 is a rental housing assistance program, funded by the U.S. Department of Housing (HUD), and administered by local public housing agencies. Sometimes referred to as the housing choice voucher program because it grants vouchers to eligible low-income families, people with disabilities, and seniors in order to help them obtain affordable housing.
Section 8 properties are owned by cooperating private landlords that agree to rent Section 8 approved properties to qualified voucher holders at fair market rents. The gap between fair market value and what the voucher holders pay is subsidized by the U.S. Department of Housing HUD and managed by a local public housing authority or local PHA.
It is important to mention that the responsibility for finding the rental property is up to the voucher holder, not the housing agency. There are States that are implementing regulations that mandate rental properties accept Section 8 voucher holders whether the private landlord wants to or not.
First, a little background: the creation of Section 8 housing dates back to the Great Depression. It was first introduced as part of Franklin Delano Roosevelt's "New Deal" program back in the 1930s, In fact, the term "Section 8" comes from Section 8 of the Housing Act of 1937. As you might expect, it's evolved a lot between then and now.
The most important development came with the Housing and Community Development Act of 1974, which introduced the Housing Choice Voucher Program.
The Housing Choice Voucher Program is what most people mean when they refer to Section 8. It was established in response to criticism of government-owned public housing - people felt the government public housing program at that time, while well-intentioned, was just creating poverty-ridden areas that made the problems faced by low-income individuals and families worse, not better.
You've probably encountered the term "the projects" before. This phrase is shorthand for "public housing projects," i.e., housing that is owned by the public sector (that is, the government). This used to be the only kind of this type of housing available up until the introduction of the Housing Choice Voucher Program.
Nowadays, Section 8 housing can be in any apartment or house which passes inspection - the tenant has a choice when it comes to the type of housing. Section 8 is a private market solution to a public housing problem, and we know it works because section 8 is currently responsible for helping more than two times the number of eligible tenants as public projects.
There are two types of vouchers: project-based vouchers and tenant-based vouchers.
Project-based vouchers, as their name implies, can only be used for specifically approved projects.
These are buildings, or areas that are designated to house eligible low-income families, and accept Housing Choice Vouchers. These tend to be larger multi-family buildings, more like apartment buildings than detached single-family homes.
Tenant-based vouchers, on the other hand, follow the tenant, not the project. These choice vouchers are used to pay property owners who have made their properties available to Section 8 tenants and have passed inspections. These are issued under the Housing Choice Voucher Program.
Let's first take a look at this housing voucher program as it applies to tenants. If you find yourself facing financial difficulties, is applying for Section 8 housing a good idea for you? You may have become discouraged as people tell you it's too difficult to get, or that all the accommodations will be dirty and undesirable.
While the process of qualifying for the housing choice voucher program is certainly not easy, it's not impossible. there are specific steps you will need to take and plenty of paperwork you will need to fill out but at the end of the day, it's certainly worth the work.
As far as living conditions are concerned, the local housing agency inspects each unit and there is a minimum condition requirement the landlord needs to meet in order to be a part of the program. So, while the properties are certainly not brand new or luxury homes, they are clean and safe.
Section 8 won’t cover all of a voucher holder's rent. The housing choice voucher program uses something called payment standards to determine how much housing assistance payment money the public housing agency will pay the owner on behalf of the voucher holder.
A payment standard between 90% and 110% of the Fair Market Rents for a particular area is calculated by the local public housing agency. This represents the cost of leasing a moderately-priced dwelling unit in a particular area. These Fair market Rents are published regularly by HUD
The voucher holder will be required to pay 30% of their monthly adjusted gross income towards rent and utilities. If the rent exceeds the payment standard allocated for this house, the tenant would be required to pay the difference.
The most obvious advantage of Section 8 is that it can help you pay your bills. A lot of people can get to the point where paying for rent is their primary concern - this rental subsidy helps alleviate this rent burden so you can pay for other necessities such as food.
Section 8 affords low-income families the opportunity to improve their situation
One major drawback is that you will most likely be placed on a waiting list - it may take as long as a year or two for Housing and Urban Development to determine if you or your family qualify. However, during this time you will likely be able to use project-based vouchers.
Although you will most likely be placed on a waiting list - the demand for vouchers is greater than the number of accommodations available - Section 8 is not a first-come, first-serve system.
There are certain qualifications that can give you preference when it comes to getting housing. Some of these include:
If any of these conditions apply to your situation, be sure to let the PHA (Public Housing Authority) know as you may be able to get housing faster.
Qualification for housing choice vouchers is based mainly on your income, and the amount of the payment standard HUD is willing to fund varies based on your family size. It also depends on the area you live in: there are income limits, as a rule of thumb, you can not earn more than 50% of the median income of the area in which you live in order to qualify.
The tenant will also need to go through the private landlord’s standard screening process. This usually involves a credit check, a background check including a look at any criminal history, or eviction history.
The tenant will in most cases also be responsible for the security or damage deposit.
Section 8 voucher holders are responsible to report any changes in income or family composition or familial status to your local public housing authorities.
In general, you must be a US citizen in order to qualify for Section 8, though there are certain exceptions.
To start the application process, you will visit a Public Housing Agency office. HUD maintains a list of participating agencies, you can find the list here.
Applications are free and can be filled out in person, sent through the mail, or even submitted online.
You will most likely be placed on a waiting list for 1 to 2 years, during this waiting period, you can choose to accept project-based vouchers.
Once the tenant applicant is approved they can start to search for rental properties that accept Section 8 vouchers. Once they find a property, the local housing agency will need to inspect the housing unit and make sure it meets the section 8 criteria, this also includes a physical inspection to make sure the property is in good condition.
Each local housing authority will have a different process, and different requirements for this rental assistance program, it’s best to start with the local housing agency.
If you are considering becoming a Section 8 landlord, you probably have a lot of questions. First and foremost, you'll be wondering: "should I become a Section 8 landlord?" Well, there are benefits and drawbacks to accepting Section 8 tenants. We'll start with some of the benefits.
If you've been a landlord for any length of time, you'll know that one of the most frustrating things about being a landlord is overdue rent; you've probably heard that rent is guaranteed with a Section 8 tenant, and what could be more appealing than this? Well, it's at least partially true, and one of the biggest advantages of renting out to a Section 8 tenant.
Basically, the government will only pay a certain percentage of the rent - this you can expect to receive every month (although when first starting out with a tenant, it might take a few months to get rent; more on this below)
Given that the whole point of public housing is for the government to guarantee accommodations to those who can't afford it, it might seem strange that they're only paying a portion of the rent, but that's the way it works unless the tenant is making no income in which case they'll probably cover it completely.
As you can see, saying Section 8 means "guaranteed monthly rent" is a bit of a misnomer. As with any tenant, it's your duty to evaluate the Section 8 tenant, looking at things like their credit history.
Since the government will be paying most of the rent, market-based increases on rental units are less traumatic for tenants.
Another benefit of agreeing to accept Section 8 tenants is that you'll be able to fill up vacancies more quickly. Since there is a shortage of landlords who are willing to work with housing voucher clients, these apartments and houses are continuously in short supply and high demand: we don't want to say it's guaranteed that a vacancy will fill up in a few days, but there's a good chance that, in a lot of cases, it will be filled more quickly than if it were being rented out the normal way.
Since a lot of landlords will not accept Section 8 vouchers, this also means tenants are less likely to leave this type of housing (ideally, yours) once they've found it. Section 8 leases are usually for a minimum term of one year.
Above, we mentioned that apartments or houses that wish to become Section 8 housing must pass inspection. As with any federal government program, there can be a lot of red tape!
Once a year, an inspector will visit the property to ensure it meets standards and habitability requirements. You may be required to make changes at your own expense, though there are preventative measures you can take to make sure this doesn't happen.
Of course, although the government pays around 70% of the rent, the other 30% is not guaranteed. If you are an experienced landlord, you should use your standard systems for qualifying section 8 tenants. This should involve a credit check, background check, and a follow up call with any references.
It’s important to be consistent with your qualification standards from tenant to tenant. The fastest way to end up with a fair housing violation is to use different standards for approving or rejecting different tenants.
Another business practice landlords should maintain is the security or damage deposit. When leasing to a Section 8 voucher holder, it’s important to maintain your normal business standards, if you normally charge a security or damage deposit, you should use the same standards with a section 8 applicant.
So, overall, there are advantages and disadvantages to becoming a Section 8 landlord.
Determining whether or not it's right for you can seem like a balancing act of weighing the benefits against the drawbacks and vice versa.
In spite of all the myths you have heard, this is not necessarily a disaster, nor is it a magical, higher-than-average guaranteed rent situation.
We recommend really doing your research, taking your time and especially researching the experiences other landlords have had with Section 8 tenants so you can learn more about the perks but also be on the lookout for any potential problems.
Section 8 is a valuable program that benefits both tenants and landlords. It can help tenants get back on their feet, saving them from homelessness if they can't otherwise afford rent, and it helps landlords have steady access to a large supply of potential tenants.
Whether you are a person who needs cheaper housing, or a landlord who needs more tenants, Section 8 is certainly something worth looking into. If you have any questions regarding this topic, feel free to contact us.
Your rental property is a valuable investment. Perhaps your most valuable (other than the home that you live in), which makes choosing the best property management company an important decision. If you don't know how to find a good property management company, read on...
Many real estate investors opt to work with a property manager to save themselves time and stress— late-night emergency maintenance calls aren’t anyone’s idea of a good time. For others, however, managing a rental is simply impossible, either because their primary residence is out-of-state or because they don’t have the time and expertise.
Property managers can step in and take care of the day-to-day concerns of maintaining the property and finding tenants. The problem is that property management is not a well-regulated industry. If you aren’t careful, you could end up with an incompetent or even dishonest property manager.
You probably spent a lot of time researching and visiting potential rental properties before making a purchase. Taking some time to research and vet prospective property managers is one of the best ways to protect your investment.
It is relatively easy to become a property manager in Colorado. By law, you are only required to have a real estate broker’s license to manage rental properties.
The problem is that not all real estate agents have the expertise to successfully manage properties. Or they may be too busy with other aspects of their business to give property management the time and attention it deserves.
Going through a real estate company that has property management expertise and a dedicated property management team, however, offers distinct benefits. A realtor knows how to effectively advertise properties and will be able to assist if you decide to sell your rental property in the future.
Property management services offered by industry professionals usually include finding the right tenants and in many cases avoiding the dangerous ones, negotiating rental contracts, performing routine maintenance, handling evictions, collecting rent, and everything in between.
Property management fee structures can vary widely between companies. Here at Springs Homes, for example, we charge a small annual administration fee, a monthly fee, a lease fee to cover marketing the property and screening prospective tenants, and a maintenance retainer that is used to keep the property up to snuff. Some companies may also charge fees for things like early termination of a property management contract, handling an eviction, or taking on a property without an existing tenant.
Though services may vary slightly, property management is designed to allow you to enjoy the benefits of an investment property without sacrificing your free time. In addition to saving time, a good property manager will be familiar with relevant laws, such as habitability and eviction laws, and deal with any legal issues that may arise.
A property manager’s job includes vetting potential tenants, running background checks, and marketing the property, so it won’t sit empty for long. The manager is also the main point of contact for tenant issues and is responsible for security deposits and documentation for the property.
Since property managers have such a wide range of responsibilities, it is easy for a bad property manager to take advantage of either rental property owners or tenants through dishonesty and negligence.
So how can you as an investor be sure that you are choosing the right property manager who will work in the best interest of you and your tenants? With a bit of background research and a well-planned interview process, you can enter into a property management relationship with confidence.
A Google search is a good place to start researching a prospective property manager. Online reviews can give you an idea of overall customer satisfaction. Some negative reviews (such as a review by an evicted tenant) may have no bearing on the quality of a company’s work, but you can look for themes, such as multiple people complaining about a manager’s poor communication.
Once you’ve given Google a quick skim, check out the company’s listing on the Better Business Bureau. Have they had any complaints filed against them? A solid online reputation is the first sign that this might be a good company to work with. Here's a great article that digs deeper into the importance of online reviews.
If you are ready to sit down in an interview, ask the manager to provide references from previous property owners and tenants. When you call the property owner, ask about things like communication, timely payments, and transparent policies.
Ask the tenant if they are satisfied with responses to their repair requests and if they would renew their lease.
Before interviewing a candidate, you will want to verify that they are appropriately licensed through the state’s real estate commission. The Colorado Department of Regulatory Agencies offers a license lookup tool. You can search by either the individual’s name or the business name to see the type and status of their license.
You can also ask the company or individual if they have any certifications related to property management. Several trade organizations, such as The National Association of Realtors and The National Association of Residential Property Managers, offer certification programs.
Make sure that any companies that you are considering have the appropriate insurance coverage for their business. As a baseline, property managers should have general liability insurance, errors and omissions (E&O), and commercial insurance that helps cover the properties they manage.
Property managers usually require that both the tenants and landlords be properly insured as well. They may ask you to add them onto your landlord insurance as an additional insured to make sure that they are protected from all angles
If possible, meet your potential property manager in person for an interview. Note your first impressions of the manager. Would you feel comfortable renting from them? Are they personable, polite, and responsive? Was it relatively easy to schedule a meeting with them?
Though property managers have a lot on their plate, their ability to make time to meet with you will likely translate over to how they communicate with you and your tenants in a business relationship. Slow responses or multiple reschedules are red flags that indicate they might be difficult to communicate with when you are actually working together.
You will want to prepare a list of questions to ask in the interview so that you can learn more about the company’s qualifications and policies. We have put together a list of suggested interview questions that you can print out and take with you to the meeting, or you can write your own.
Make sure that the property manager has expertise with the type of property that you own. You probably don’t want to hire a commercial property manager to manage your single-family home. Likewise, a property manager that works primarily with single-family homes may not be ideally positioned to market your commercial space.
Ask about the types of property that they have previously managed and how many years of experience they have. You can also ask about continuing education and what they do to keep up on current industry laws.
In the property manager interview, ask about vacancy rates and size of client base. If they have a decent number of vacant properties, ask about the property types and how long each property has been vacant. Maybe they have filled all of their single-family homes but don’t have the expertise to find tenants for a condo.
The size of the client base can give you an idea of the company’s experience. If they already have a sizable number of satisfied customers, they are probably a good company to work with. At the same time, you will want to make sure that they have the capacity to take on a new property and aren’t stretched too thin.
If everything else checks out, you are ready to examine the company’s property management contract and tenant lease agreement.
You will primarily want to look for transparency and strong policies in their contracts. Are their services clearly outlined? What are you responsible for as a landlord? How long is the contract, and can you terminate early if you aren’t satisfied with the company?
This is also a good time to look at their fee structure. Are their management fees straight-forward, or are there hidden fees? You can also do some comparison research to make sure that their services aren’t under or over-priced. An under-priced property manager may be inexperienced or too good to be true.
When looking at the lease agreement, look for late rent policies, penalties for breaking the lease, tenant responsibilities (such as who is responsible for yard maintenance), and who the tenant should contact with issues or maintenance requests. The more clearly these processes are outlined in the contract, the less likely you are to run into issues down the road.
At this point, you have done your due diligence and have a few potential candidates that are qualified, competent, and well-reviewed. How do you make your final decision?
Great communication will result in a great working relationship, so the right fit may be the manager who is the most responsive or the easiest for you to talk to. You want a qualified professional managing your rental property, but great customer service for you and your tenant is equally important.
Taking some time to compare and contrast your short-listed candidates may offer some additional insight. All of your candidates probably have strengths and weaknesses in some aspect of property management, so create a pros and cons list. Which pros do you value the most highly as an investment property owner, and which cons are you willing to live with?
Though finding the best property manager might seem like a daunting task, there are many qualified real estate professionals in the Colorado Springs area, and if you work your way through this checklist, you can rest easy, knowing that your investment is in good hands.
If you are interested in discussing your investment property with the Springs Homes Property Management team, contact us. We’d love to meet with you and answer your questions.
If you’ve been renting or looking to rent for a while, you’ve probably come across the “3x rent rule.” The 3x rule is a common way landlords and property managers vet potential tenants. It states that a tenant’s adjusted
gross income, or take-home pay, should be 3x the proposed rent on a property.
Adjusted gross income is your total monthly income minus any deductions, like taxes, alimony, interest from student loans, contributions to an IRA or 401k, or a car payment.
If we look at a property with a monthly rent of $2,000, for example, the 3x rent rule states that a tenant must have a gross monthly income of $6,000 or $72,000 annual salary to qualify for that rental. The income itself can come from wages, dividends, capital gains, or retirement accounts.
The rule generally applies to household income, so a couple’s combined annual gross income must be 3x the monthly rent amount. But in many roommate situations, the landlord will require each roommate to meet the 3x rule separately to ensure that they still have a viable tenant if someone decides to move out.
While this can be a headache for prospective tenants, especially in areas where rental rates outpace average income, the 3x rule protects landlords from missed payments and helps prevent evictions.
The 3x rule originated in the Housing Act of 1937, which was part of FDR’s New Deal. The Housing Act offered housing assistance to low and moderate-income families.
The Act was originally proposed in 1934, but wasn’t passed until FDR’s second term. In his second inaugural address, President Roosevelt promised to make adequate housing a priority and signed the act into law in September of 1937.
Section 8 of the Housing Act offers federally-subsidized rent assistance to families in the private market. Section 8 requires families to pay 30% of their adjusted income toward rent. The program then covers the gap between 30% of their income and the actual rent cost.
This eventually became the standard rent-to-income ratio for the housing market.
Section 8 explains where the 3x rule came from, but why do we still use it? What if an individual can afford to spend 40% of their income on housing? Shouldn’t they be able to qualify for a more expensive rental?
Though it can have drawbacks, the 3x rule is an important part of the prequalification process. It is not one-size-fits-all, but if your income is 3x larger than the rent, you are less likely to miss a rent payment or regularly struggle to afford rent.
Evictions are horrible for everyone involved. Tenants are thrown into temporary turmoil at best, and homelessness at worst. The property owner loses money from missed rent and spends time, energy, and resources pursuing an eviction and back rent.
Pre-qualifying tenants can help minimize the likelihood of an eviction, protecting the tenant and landlord from pain and heartache. The 3x rule benefits both parties by ensuring the tenant doesn’t get locked into a lease agreement that they can’t afford, and that the landlord receives their payments on time.
Ideally, landlords and property managers will use the 3x rule as one part of the prequalification process, but also run a credit check, talk to references and previous landlords, and verify employment.
Meeting the income requirement is only one piece of the puzzle.
Gathering proof of income can be a lot of work for an independent landlord. Tracking down income verification documents, bank statements, and making phone calls eats up a lot of time, but again, the goal is to
prevent evictions. Finding the right tenant upfront will save you time and money down the road.
We have compiled a list of items to check with different types of tenants—employed, self-employed, and retired—to simplify the verification process for you.
Verifying income for employed applicants is the simplest, but you can also find excellent self-employed and retired tenants. Just be prepared to do a bit more legwork
For employed applicants, ask for pay stubs from the past 3 months. This will give you an accurate picture of their current earnings and cover a long enough period to reveal any fluctuation in income.
W2s show total income from the previous year. W2s can indicate how financially stable an applicant is and if their earnings are consistent. If the applicant has changed jobs, however, this may not be particularly useful.
Lastly, a simple phone call to the applicant’s employer will offer insight into their employment status and character. Consider asking what the applicant is like as an employee. Do they show up on time, work hard, and get along with their coworkers?
Self-employed ApplicantsThis group of applicants includes freelancers, gig workers, and entrepreneurs. We value and admire our freelancers and small business owners, until they want to buy or rent a home.
We often perceive small businesses as more susceptible to market changes—they may not have the financial stability to weather dips in the economy. This perception can make it difficult for self-employed individuals to get approved for a rental or home loan. But it doesn’t have to!
Plenty of industries that provide consistent and stable work to freelancers and gig workers. Just because a business is small, doesn’t necessarily mean it’s vulnerable. Even large companies can go through periods of financial struggle and layoffs.
If you are willing to do a bit of initial research, you may find yourself with an amazing, reliable self-employed tenant.
Bank statements from the applicant’s business account will give you the most comprehensive information about their earnings. Look for consistent deposits, and make sure that expenditures don’t exceed their deposits—this could indicate a lack of profit.
Talk to the applicant. Ask them how long they have been in business and what services they offer. You can also ask about industry stability, or research the industry yourself once you have a bit more information.
Research the business. Are they registered with the state government? Do they have a business license (if one is required)? Colorado Springs, for example, only requires licenses for specific industries, like food and liquor. Also, see if they have a professional website.
Checking the applicant’s credit report will reveal any red flags, such as a history of late payments, or any bankruptcies or foreclosures. You’ll also want to pay attention to balances on loans and credit cards.
Previous landlords are a great resource for any potential tenant, not just self-employed ones, since they can answer questions about payment history. Most importantly, ask if they would rent to the tenant again!
Unemployed or Retired Applicants
It can be difficult for retirees and the unemployed to qualify for rentals, since the same pre-qualification standards are used for all applicants. They may not have a consistent income, or may not have the necessary verification documents. Here are a few examples of documents to ask for in this situation.
Social Security statements are a great place to start, as Social Security provides a steady source of income for retirees that can be easily verified.
Ask for annuity statements. Many retirees rely on annuities to replace their paychecks, and this income can also be used during the verification process.
IRA, 401k, or pension distribution statements can also help verify income.
Bank statements will reveal any consistent deposits that are not listed on the previous types of statements. They may have another way to supplement their income that does not fall into any of the previous categories.
If you have an unemployed applicant, ask them to provide unemployment statements. These statements act as proof of income from the government.
We mentioned at the beginning of the article that the 3x rent rule can make finding a place difficult. In many markets, wages do not keep pace with housing costs. Unfortunately, our own lovely Colorado falls into this category.
In 2019, the Denver Business Journal published an article, saying that the average wage earner in Denver cannot afford to buy a median-priced home. For workers making $65,000-$75,000 a year, over 40% of their income would go toward their mortgage.
Home and rental prices are continuing to climb, leaving prospective tenants without many options. Some will seek out roommates, hoping to pool their incomes to meet the 3x rule. This doesn’t always work. Many landlords and good property managers will expect each tenant to meet the rule separately.
This is an understandable precaution since roommates can move out without notice, but where does that leave you? If you are hoping to rent with roommates, a private landlord may be more flexible with income requirements than a property manager or institutional one.
You can also work to strengthen your rental application in other ways to compensate for your financial situation. Having a good credit score is especially important in these situations since it demonstrates that you pay your bills on time and take your financial commitments seriously. Adding a cosigner or making a larger security deposit can convince a landlord that you are less of a financial risk.
Some rentals don’t require an income check. If you know you can afford a house or apartment, but don’t meet the 3x rule, this may be an ideal situation for you. Just be careful not to overextend yourself financially.
Rely on word of mouth to locate a private landlord that will consider your application. Think about the Kevin Bacon effect. If every actor can be linked to Kevin Bacon in 3 steps or less, someone in your network can put you in touch with a suitable landlord or point you toward an apartment in your price range.
Find a roommate already in a lease, which will eliminate the need for you to pre-qualify. Make sure that you have a written rental agreement with your roommate, laying out terms and financial responsibilities.
Also, if you can’t afford rent in your home city, Section 8 was made for you! In general, your household income cannot exceed 50% of the median income in your area to be eligible. You can check out our blog post, “What is Section 8?” for more information.
The 3x rule is a good general rule of thumb for landlords to protect themselves from missed rent and the messy process of evicting a tenant, but it is not a perfect solution. A tenant may miss payments for reasons other than an inadequate income, or a tenant that wouldn’t normally qualify, may be perfect for your situation.
If you are a private landlord, think about rental costs in your area vs average wages. If it is not a favorable ratio, consider how you might compromise with potential tenants without putting yourself at risk. Maybe you’re okay with roommates pooling their incomes, or would accept someone with a lower income level if they paid a higher deposit?
If you are a prospective tenant with a lower income, focus on strengthening other key parts of your application, such as your credit score. You can also brainstorm people who might be willing to cosign for you, such as a trusted family member.
And, of course, ask around! There are private landlords that are willing to work with a good tenant, even if they don’t meet the 3x rule.
There are a lot of misconceptions and misunderstandings about the Colorado Eviction Process. Because the process is very specific, failure to understand the appropriate steps can add significant time to the eviction.
The pandemic of 2020 and subsequent eviction moratorium has also made the colorado eviction process even more confusing.
If you are involved in residential leasing as a Property Manager, Landlord, Property Owner, or Tenant, you should understand your rights and responsibilities in the State of Colorado.
We will provide a comprehensive overview of what the eviction process within Colorado entails. As an aside, you'll often see eviction referred to as "forcible entry and detainer" (FED) when it comes to Colorado statutes, so keep that in mind.
The statewide moratorium on eviction cases is set to end on June 30th. 2021. The formal legal process should return to normal after this moratorium is lifted.
First of all, if you're going to go through with evicting a tenant via termination of their lease before the end of their lease term, you'll need to have a sound legal reason.
The most obvious and most common reasons for eviction will be for non-payment of rent. Colorado law also allows for the violation of a condition of the lease or rental agreement as a reason for eviction.
Eviction filings based on a lease violation happen when a tenant refuses to follow the guidelines of the lease. For example, they are failing to adhere to the covenants in a community with an HOA. Other situations that can result in eviction are violations related to issues like an unauthorized pet violation or undisclosed roommates. Colorado landlords and property managers do see a lot of lease violations around growing marijuana in a rental property.
In Colorado, the tenant can also be evicted in the case of a public trustee sale. If the tenant commits a violent criminal act or is involved in a drug-related activity (referred to as a substantial violation), this also provides a legal basis for eviction.
Of course, there are also protections for the tenant against unfair eviction.
For example, a landlord or property management company cannot attempt an eviction in response to the tenant filing a complaint about a violation of what's called the implied warranty of habitability. This is laid out in the Colorado Revised Statutes in Section 38-12-509.
What is the implied warranty of habitability? It's simply a fancy term for how livable or unlivable the apartment is. If a tenant complains living conditions are poor, they can't be evicted for this reason, though in this case, the burden of proof is on them.
A federal law, the Federal Fair Housing Act prevents eviction of a tenant on the basis of race or color, religion, national origin, familial status, or sex. When you get into issues involving the Federal Fair Housing Act, it’s a good idea to seek legal advice.
It also covers disabilities: if the person requires a service dog, this need overrides any pet restrictions present in the lease. Colorado state law also provides protection against discrimination on the basis of ancestry or belief systems, marital status, and sexual orientation.
Depending on what city in Colorado the property is in, there may be additional protection.
Colorado eviction laws mandate that you must provide your tenant with 10 days' notice. Previously, the requirement a 3-day notice, but this was changed in May of 2019. Obviously, it's important to take note of this recent change, especially if you have been a landlord for years and are used to the notice requirement being only 3 days.
In the case of a failure to pay rent, you must provide a 10-day notice - a period of 10 days in which the tenant is permitted to pay rent - before you can go forward with the formal eviction procedure.
If the eviction is due to unpaid rent, the first step in the eviction process is to post a 10 Day Notice, usually on the front door of the property. While most leases have language that talks about when rent is due and when it’s late, the notice can be posted as soon as the rent is late. You will deliver or post in a visible location, usually on the entry door, either a Demand of Compliance or Possession Notice (JDF 101) or the Notice to Quit (JDF 97).
These notices should also provide the reason for eviction to the tenant. Both forms can be downloaded at this link: https://www.courts.state.co.us.
Once notice has been served, the ten-day period must elapse. However, if the last day of this ten-day period is either a Saturday or Sunday or a legal holiday, the period will be extended an additional day. This means ten full days are required, not including weekends or holidays, after issuance of either a Demand of Compliance or a Notice to Quit before pursuing an eviction.
If the 10-day period elapses without a resolution, you'll continue the eviction process by filling out the Complaint in Forcible Entry and Detainer (JDF-99) form.
You'll also have to fill out the Summons in Forcible Entry and Unlawful Detainer form (CRCCP Form 1A) and the Answer Under Simplified Civil Procedure form (CRCCP Form 3). Of course, you'll have to pay filing fees of around $97, plus the cost of producing copies for the defendant or defendants along with the court.
Delivering these forms to the court requires some precise timing: make sure the Summons Complaint and Answer to the Defendant(s) are both submitted within one day of when the JDF-99 has been filed. These need to be sent with first-class mail and prepaid postage. Finally, a court date can be scheduled by a court clerk within 1 to 2 weeks.
A summons will be issued to the tenant by a sheriff or private process server or any qualified adult who has no ties to the eviction process. You will have to pay a service fee in the case of a sheriff or private process server, though the amount can vary.
Finally, we get to the actual court hearing. If the tenant fails to respond to the summons, a summary judgment, default judgment, or court order may be issued to the landlord. Expect a bit of a legal battle as the tenant might file a counterclaim (a response to the landlords’ allegations) or even request a trial by jury. Colorado also may require meditation with the tenant and landlord before the hearing.
Should the landlords' case win in court, they must then file for possession of property with a Motion for Entry of Judgement (JDF 104). You'll receive the Order for Entry of Judgement (JDF 107). The tenant must vacate the rental within 48 hours - if they don't, the landlord will need to fill out the caption on the Writ of Restitution (JDF 103) and deliver it to the court. Upon approval, the sheriff's office will forcibly remove the former tenant from the premises.
Should the eviction proceedings go in the landlord’s favor, they'll need to remove all of the belongings with a crew while being supervised by the sheriff’s department. If you don't expect your tenant to comply with an eviction order, it's best to make preparations to have a team ready to move everything out with boxes, tarps, trash bags, etc.
Colorado is unique when it comes to removing a former tenant's belongings when they have to be removed by force: you are not required to store the items. The former tenant has 15 days to retrieve the items and, if they don't, you are legally free to sell or discard them.
The Demand for Compliance is to be issued in cases where you want to give the tenant a chance to rectify the issue. They'll have 10 days in which to, for example, pay outstanding rent or reverse any violation of the lease agreement. Should they fail to make amends, you are then able to proceed with filing the forms necessary for eviction.
The Notice to Quit, on the other hand, can be used if you want the tenant removed as early as possible and don't want to give them the opportunity to rectify. The Notice to Quit is best used, for example, in the case of a tenant violating the law and can get them out in as little as 3 days.
You can expect to wait no longer than 2 weeks for a hearing after the filing process is completed. Of course, the length of it takes for the hearing to occur can be drawn out by appeals or continuances. Usually around one month is enough time for a completed eviction to occur, though it depends on so many factors.
The state of Colorado is a loser pays state: this means that, should you have a solid case and valid reason for evicting your tenant you can expect to pay reasonable court and attorney fees. However. you have to specify this in your lease in order to qualify for recovery.
The Colorado Eviction Process (or in any state for that matter) can be difficult, but they aren't always. We hope we've shed some light on how it all works and what you need to know if you're considering evicting a tenant. If you file forms correctly and have a valid complaint against the tenant, the law should be on your side and the rental vacated as expediently as possible.
Peyton, Colorado is located in the eastern portion of El Paso County just northeast of the Falcon area and west of Calhan, Colorado. Peyton property management is a unique challenge because of the way the eastern plains have developed. While Peyton is for the most part a rural community, there are newer subdivisions in the Falcon area that have a Peyton address. This is because the U.S. Post Office in Peyton provides mail service to homes located in the Falcon area for the entire 80831 zip code. This includes newer suburban neighborhoods like Woodmen Hills, Meridian Ranch, and Paint Brush Hills.
Managing this diverse range of rental property types requires both skill and experience. Since Peyton has everything from custom golf course homes to horse properties on large acreage property managers in this area need an extensive skill set. An effective property management company will need to have years of experience and knowledge of everything from working with an HOA to understanding how to maintain a well and septic system.
Finding great tenants is the key to effectively managing properties, and the first step in finding them is to sell the area. At first glance, Peyton doesn't appear to have a lot to offer prospective tenants, but if you are familiar with the area, this couldn’t be further from the truth. Peyton is home to some great amenities and activities like Homestead Ranch Regional Park, The Rock Island Trail, and a wide range of shopping and restaurants
Schools are another important consideration for many tenants and while the Peyton School District 23jt is a small school district it consistently scores above the state averages on standardized testing scores. The class size and quality of education in the Peyton school district is another advantage when seeking great tenants.
Our area's military bases also provide a great source of quality tenants. While the Peyton area is not close to Fort Carson, it is close to both Peterson Air Force Base as well as Schriever Air Force Base. When it comes to finding great tenants for the rental properties we manage, we have an aggressive marketing campaign for each property we manage. We start with professional photography in order to capture the most desirable qualities of the property and showcase the home in the best possible light. These photos become the basis for our marketing efforts. In our experience, great photos in the right places, generate interest in a property faster than any other marketing tool.
The internet has replaced print media as the best way to find rental properties. We send our rental listings to a wide range of property rental websites in order to generate as much interest as possible. We feel like the deeper the pool of applicants, the more success we have in finding a great tenant.
Once we have our applicants, we begin the screening process. Proper tenant screening is one of the basic aspects of our Peyton property management services. Screening involves processing the application, pulling a credit report, credit reports show us if the applicants have a strong enough positive credit history. We also perform criminal background checks as well as contact employers and former landlords in order to check the applicant's work and rental references
We can’t overstate the importance of great tenants, and screening is the most effective way to stack the odds in our favor when it comes to finding them. This process requires a lot of work but we do this to provide our clients with the highest level of service, it also makes our job easier throughout the term of the lease.
The lease agreement is the next level of protection a good property manager should provide for the property owners. A well-written lease eliminates questions and clearly outlines what is expected from everyone involved with the property. The lease should explain expectations around rent payments when they are due and what the penalties are for late or missing rent.
The signed lease should be accompanied by the security deposit and explain how maintenance requests are handled and which if any maintenance items are the tenant’s responsibility. This becomes especially important when leasing rural Peyton properties with valuable livestock equipment and facilities.
When it comes to maintaining your property, professional property managers should use professional contractors. These vendors also require screening and management but at the end of the day, they reduce the potential of problems due to incompetence.
The lease will also outline the expectations as far as living within an HOA community. This is important in those newer neighborhoods in the nearby unincorporated area of Falcon. These newer subdivisions have homeowners associations as well as restrictive covenants. Failure to adhere to these covenants can cost the homeowners in fines and levies. The lease should make clear that abiding by the neighborhood covenants is the responsibility of the tenant and failure to do so will result in penalties and in some rare cases eviction.
The lease should also outline what the eviction process will look like in the event we need to remove the tenant. The eviction process is difficult and can be messy, the eviction process alone can be worth the price of a good property manager's management fee.
Beyond finding qualified tenants, screening them, executing the lease, and collecting rents there are a number of other services a good management company should provide.
Pricing the property is an essential skill in professional property management. Price the rental rate too low and the owner leaves money on the table every month for the term of the lease. Price the rent too high and the rental could take months to lease, also costing the owner thousands of dollars. We provide a rental market analysis at the end of every lease term. This ensures that we remain relevant with our rental rates.
Financial reporting is an important part of property management. The property owner should receive monthly statements showing where the money is going. The statements should show any fees or expenses associated with the day-to-day management of the property. The manager should also provide year end statements, these are essential when it’s time to prepare your taxes.
Property inspections are another important aspect of good property management. The property manager should perform regular inspections of the property to make sure the tenants are taking care of the property. The manager should also be checking for the appropriate number of tenants, we don’t want anyone living in the property that hasn’t been screened. They should also be on the lookout for any pets that are not supposed to be on the property.
Deposit disputes are a major part of dealing with rental property. A good Peyton property management company will do thorough documentation of the property before and after each occupancy. Our property management company takes hundreds of before and after photos of the property. We also do a 360-degree inspection of the property using a Matterport camera. This allows us to view the entire property on a very detailed level. As an added bonus we can share this tour with the property owner as well as the tenant. Having this level of documentation helps us eliminate a good deal of the drama around deposit disputes. These are also great tools for marketing the property.
Here is an example of our 360 scans of a rental property.
Property Management service should extend to the tenant side of the lease as well. We make every effort to keep our tenants happy. This involves offering flexible payment options like online payment options through our online tenant portal or with a credit card. This is also where the tenants can make us aware of any repairs or maintenance requests they have.
We also provide an online owner portal, this allows you to get any important information you might need regarding the property or your account 24/7.
Residential property management is a serious business with a constantly changing landscape. This is why we are also members of NARPM, the national association of residential property managers. This organization is the gold standard in the real estate industry for property managers. NARPM provides up-to-date information and education for real estate professionals that manage single-family homes and small residential properties.
If you are considering a Peyton property management company to manage your home or investment property, you should look for a professional that offers a wide range of services that will protect your property as well as your investment in your property. If you want to talk to this type of company, please give us a call, we would love to talk to you about your rental property.
The end of a lease is an important event for landlords and tenants alike. It can also be a time of conflicting
expectations. Both tenant and landlord need to understand the difference between normal wear and tear versus damage.
The landlord will usually expect their property to be returned to them in the exact condition that it was in when the tenants moved in –and if this doesn’t happen, are often happy to use the tenant’s security deposit to make it this way. Tenants, on the other hand, more often than not will expect their full security deposit back, even if there has been some damage to the rental.
In order to help manage expectations, and make the move-out process as simple and straightforward as possible, it’s important for both landlords and tenants to be on the same page. This includes having a good understanding of security deposits, and what they can and cannot be used for.
At the time of move-out, the landlord or property manager is responsible for repairing any damages to the property, as well as assessing and documenting normal wear and tear. A good Property Manager will have a move-out routine that includes items like:
They’re also responsible for deciding who will pay for any repairs, maintenance, and cleaning that’s required to bring the property back into rentable condition.
This is the part of the process that’s often full of contention. When it comes to assessing damages, the landlord’s job is to assess the property and determine what falls under the category of damages, and what should be considered simply normal wear and tear. While damages are the tenant’s responsibility, things that fall under the category of normal wear, should not be taken out of the security deposit.
It's important that landlords not use the security deposit to pay for things that go above and beyond the scope of normal wear. They may attempt to use it for things like worn carpeting or faded paint on the walls, things that aren’t damages, but instead are just the result of normal usage. In most cases, landlords know to use the security deposit as intended, to repair damages to the property, only for the tenant to contest this, and seek to get it back. One important exception to this rule pertains to items spelled out in the lease. Examples might be cleaning or carpet cleaning. If these items are stipulated as tenant responsibility in the lease, the landlord is within their rights to use security deposit funds to pay for them, if the tenant left these items undone.
When it comes to repairs, though, the law stipulates that the security deposit should only be used for repairs to damage that goes beyond what’s considered to be ordinary wear and tear.
Colorado Law (C.R.S. 38-12-102) defines “normal wear and tear as “Deterioration which occurs, based upon the use for which the rental unit is intended, without negligence, carelessness, accident, or abuse of the premises or equipment or chattels by the tenant or members of his household, or their invitees or guests.”
That’s a bit confusing for landlords and tenants alike. To help clear things up, here’s a list of examples of both normal wear and tear and damage.
| Normal Wear and Tear | Damage |
|---|---|
| Worn out Carpet | Torn, Stained or Burned Carpet |
| Faded Window Coverings | Torn, Mutilated or Missing Window Coverings |
| Worn out Keys | Lost or Missing Keys |
| Dirty Walls | Holes in Walls |
| Dirty Windows | Broken Windows |
When determining costs, the landlord will also make decisions about repairing versus actual replacement. In some cases, repair is the best choice. A good example of this would be a recent experience we had. A tenant had backed a car into the side of a home damaging a section of masonite siding. The siding was already in rough shape and the product was failing and the particular pattern was no longer available. The owner was planning to reclad the home in stucco in a couple of years anyway, so we just applied a patch using every the favorite body putty of every motorhead, "Bondo".
This repair worked out well because the owner already had a plan in place for new exterior stucco and was willing to kick the can down the road. Had this not been the case, the repair could have cost the tenant a lot more money. It’s important to note that in some cases, a landlord may charge replacement cost for an item that could be repaired with a short-term fix. So, for example, suppose a tenant punches a large hole in a wall. The landlord may choose to repair it in the short-term by simply patching it. While this temporary fix is fine for the short-term, the underlying fact is the wallboard is not the same, and the owner may choose to go back at some point and replace the entire wallboard so they are within their rights to charge for replacement.
If the item can be repaired, though, in most cases the landlord will choose to go that route. In this case, the landlord will deduct for labor, materials, and travel.
For example: if a five-year-old carpet is destroyed and that particular type of carpeting had a 10-year life expectancy, the landlord may only charge the tenant 50% of the replacement cost. This is a good practice, and extremely important as it helps to prevent landlords from using deposit funds in order to upgrade their properties.
| Water Heater | 10 Years |
| Carpeting (builder grade) | 5 Years |
| Air Conditioning Units | 7 Years |
| Ranges | 20 Years |
| Refrigerators | 10 Years |
| Interior Paint-Enamel | 5 Years |
| Interior Paint-Flat | 3 Years |
| Linoleum Tile | 5 Years |
| Window Coverings (shades, screens & blinds) | 3 Years |
These are estimates are produced by HUD. Manufacturer estimates will vary.
Assessing the condition of the property is the responsibility of the landlord or property manager.
This will allow the landlord to determine whether there are any damages that are the tenant’s responsibility, and therefore should be paid for out of the security deposit. It also allows them to set the condition baseline before a new tenant moves in.
The challenge is determining and documenting the condition of the property before the damage occurred. This is important in the event that the tenant disputes the damages, or if the case goes to court, as having proof that the affected or damaged area was in good condition before will generally resolve the issue.
Of course, there’s a lot that tenants can do to help ensure that they’ll get their deposit back at the end of their lease.
First, of course, tenants should ensure that they keep the property in good condition while they live there, and avoid anything that might cause damage to it.
Secondly, if a tenant would like to contest the landlord’s decision to apply the security deposit to damage, they can do so. The best way to do this is by being able to furnish proof of the condition of the property. In most cases, tenants should consider taking their own photos. Generally speaking, the more documentation, the better. Photos that are taken at the time of move-in could provide proof of the condition of the property, and images that are obtained, say; a month into the lease could be used as proof of damage caused by movers. It’s also a good idea to use a camera with a time and date stamp feature and to show any pictures of post-move-in damage to the landlord.
It’s also worth noting that if a landlord fails to follow Colorado security deposit laws, the tenant could be awarded up to three times the amount that was wrongfully withheld, plus attorney’s fees and court costs, so it’s important for landlords to ensure that they remain in compliance with the law, and handle the security deposit properly.
For tenants, it’s important to remember that normal wear and tear versus damage are broad definitions, and much of the detail about the condition that you’re required to leave the property in at move-out will be specified out in your lease.
It’s important to read the lease before signing it and to make sure you ask questions to ensure that you’re clear on what’s expected of you. For instance, in some cases a landlord may state that the carpets are to be professionally cleaned at the time of move-out, others will require you to perform regular, outdoor grounds keeping maintenance, so make sure you fully understand your responsibilities and requirements before you move in.
Successful and straightforward move-outs are always the result of good documentation and communication, from both parties. It’s important for landlords to spell out their expectations in the lease document, and for tenants to ensure that they’ve read the lease –and are clear on their responsibilities both in terms of maintenance, and the condition that they’re expected to leave the property in at the time of move-out.
Rental Security Deposit disputes usually occur because of a misunderstanding between a landlord and a tenant. At the end of a lease term, the tenant is usually required to leave the property in “move-in ready” condition. This means the same condition in which they received the property, minus any normal wear and tear.
Since normal wear and tear are well defined, most landlords or property managers should have a strong grasp on what constitutes damage vs normal wear and tear.
At the end of the lease term, usually, after one to three years, the landlord inspects the property. This move-out inspection determines if the property is "Move-in ready" for the next tenant.
If the property needs cleaning or repairs to be move-in ready, those costs are paid from the previous tenant's security deposit.
Each individual state regulates its own landlord, tenant laws. In spite of this, most state laws are very similar. Most states allow deductions from security deposit funds for the following:
When using security deposit funds, the landlord is responsible for:
Inappropriate use of security deposit funds can cause problems for the landlord. When security deposit disputes go to small claims court the guidelines are clear. The landlord can incur penalties for failing to adhere to the appropriate guidelines.
Because of the dollar amounts involved, security deposit disputes that cannot be resolved without the help of a judge end up in small claims court.
The small claims process is very straight forward, the Judge looks at the following:
The rules about security deposits are clear so disputes are usually about what "move-in" condition is. The responsibility falls to the landlord to document the condition of the property prior to any new tenant moving in.
Problems occur for the landlord if they fail to adequately document the condition of the property. In these cases, it becomes about the landlord's word against the tenant's word and the courts can be more sympathetic to the public.
When a landlord fails to appropriately document the condition of a property, it speaks volumes about how they do business. There are instances when the damage to a property occurs someplace so obscure the landlord could not have been expected to document that area. This is, of course, the exception, not the rule.
Proper documentation of the property and open communication with the tenant are the best way to avoid small claims court.
There are a number of methods available to facilitate the effective documentation of a property. Digital imaging and cloud storage have made it very simple to record and share any media or reports.
Photos are a great way to document property condition. Digital storage is cheap and photo-documenting a property is easy. Sharing photos with the tenants enables them to check out the original property condition. Just being able to see move-in photos goes a long way to heading off any potential condition disputes.
Another advantage to photographs is that in the event you end up in court, you can print before and after pictures. This saves time in court and shows that you've done the proper documentation.
Video has become another popular method of documenting the condition of a rental property. Lightweight high-quality cameras make this an attractive option for landlords and property managers. One advantage of video is that the person shooting the video can also comment about what they are seeing. This avoids having to make notes or guess about what the photo is about.
Like photographs, videos are easy to store and share. Videos can be more difficult to deal with in a courtroom setting. Patience can run thin while fast-forwarding or rewinding as you look for something specific. Higher quality cameras allow you to take good quality still photos from video clips. We recommend this if you need to go to court.
Virtual tours have become very sophisticated over the last five years. Matterport is a 360-degree camera that produces so pretty awesome virtual walkthroughs. This is a great way to share the current condition with the owner as well as creating a record for the tenant time of move out.
In the event we need to go to court, these virtual tours allow us to zoom into an area and take a very high-quality still photo. Our Colorado Springs Property Management company uses this method and it's working great.
Reports are another effective way of documenting the condition of a property. Popular property management software usually comes with some type of reporting module. These modules usually come in the form of an app for a mobile device. The landlord walks through the property and takes photos of any issues. These apps have a place to write comments as well.
We have used these apps in the past and they produce a really attractive report. The only problem we have found is that they only capture current problems. We have found that it's best to have a comprehensive snapshot of the entire property. This way if a problem arises, we have documentation of how the area looked.
A little transparency, communication, and participation can also go a long way in reducing security deposit disputes. Move outs are easier when both tenant and landlord are on the same page. One way to accomplish this is to get participation from the tenants right at the beginning of the lease period.
It's a good idea to get the tenants involved in documenting the condition of the property right from the beginning. We like to give out tenants the opportunity to take pictures of any damage or dirt they find prior to any big furniture or appliances being moved in. If you have set up a file for move-in documentation, these tenant photos can be incorporated.
Obviously, there needs to be a reasonable deadline for these types of discoveries. But, we have found that this one simple action has really helped reduce our security deposit disputes.
Another effective action is to perform a pre move out inspection walkthrough. This is an informal walkthrough where the landlord can point out or make a list of any items that might be an issue.
This gives the tenant heads up and allows them the opportunity to make the item right before they move out. If they choose not to repair or clean something found on this walkthrough we always interpret that it's something they're willing to have taken out of their deposit. This pre-inspection walkthrough gives them a clear picture of what's going to happen so they don't feel blindsided.
Another good way to avoid any misunderstanding about expectations at move out time is to provide the tenant with a cleaning checklist. In most cases, a general checklist works well. If the property is really unique the landlord may need to provide more detailed instructions for the tenants.
Unexpected surprises are the primary cause of disputes over security deposits. Transparency and communication help eliminate surprises. While the tenant may not appreciate the deduction, knowing that it’s coming and why it’s coming goes a long in avoiding a trip to small claims court.
Landlords who have a rule banning applicants who were convicted of a crime-may want to rethink that policy. Recent guidelines issued by the US Department of Housing and Urban Development (HUD) on April 4, 2016 call for landlords to do away with blanket bans, that disqualify applicants based on prior convictions or arrests. Having a general ban on renting to tenants with a criminal record, precludes applicants from housing solely on the basis a criminal record, could be considered a violation the Fair Housing Act.
The Fair Housing Act signed in 1968, prohibits landlords from discriminating on the basis of race, color, religion, sex, or national origin. While criminal history is not a protected class, under the new HUD guidelines, turning down applicants on the basis of a criminal record, without considering the nature of the crime or facts surrounding the conviction, can’t be legally justified –and could, indirectly, be a violation of the Act.
As many as 100 million U.S. adults, or nearly one-third of the population, have a criminal record of some sort. Additionally, the United States prison population, with 2.2 million adults, is the largest in the world. Since 2004, an average of over 650,000 people have been released every year from both federal and state prisons –and 95 percent of those currently incarcerated, will be released at some point in the future.
For individuals who are released, the ability to secure safe and affordable housing is a crucial part of their successful reentry into society. Yet many individuals who were formerly incarcerated are finding it extremely difficult to secure housing –because of their criminal history.
Michael Bowers, a single father, has had his share of trouble finding housing in Austin, Texas.
This is due to the fact that Bowers has a criminal record. As a teenager, he was arrested for stealing a debit card and going on a $340 shopping spree.
“I was young,” says Bowers, speaking of his crime. “We were drinking. There was a card. I was like, ‘I’m going to use that to buy stuff that I want.’ It was a dumb mistake.”
This crime led to Bowers spending a few days in jail and being put on probation. Today, however, nearly ten years later –one consequence of this mistake continues to plague him –most landlords still refuse to rent to him.
“The most frustrating thing is I’m just a single dad,” says Bowers, who lives in Austin with his daughter. “I work hard, and I just want to give my child a place to live.”
The fact remains that many landlords are rejecting tenants on the basis of their criminal history –or even an arrest that never even led to a conviction, without taking into account the nature of the crime, how long ago it occurred, or rehabilitation.
For people like Bowers who are trying to get their life back together, finding housing remains one of the most difficult hurdles.
While many landlords refuse to rent to tenants with a criminal record, doing so may be a violation of the Fair Housing Act.
A landlord violates the Fair Housing Act when their policy or practice has an unjustified discriminatory effect, even if the landlord had no intent to discriminate. This is known as “disparate impact” –which occurs when policies or practices that appear on the surface to be neutral, result in a disproportionate impact on a protected group.
“Criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers,” the guidelines note. Black and Latino Americans are disproportionately affected, the memo notes since they are incarcerated at rates disproportionate to their share of the general population. Black and Latino individuals comprise an estimated 58 percent of the U.S. prison population, despite accounting for only 29 percent of the total U.S. population.
Under this standard, even a policy that may seem neutral on the surface –could have a discriminatory effect against protected classes, and thus could be a violation of the Act, if it’s not supported by a legally sufficient justification.
It’s important to note that while HUD doesn’t recognize having a criminal record as a protected characteristic under the Fair Housing Act; proponents argue that criminal history-based restrictions on housing opportunities could, indirectly, violate the Act.
Additionally, proponents state, that by making it easier for people with an arrest record or criminal history to find a home, housing providers will help to increase the chance of an individual’s successful reentry to society.
“The fact that you were arrested shouldn’t keep you from getting a job and it shouldn’t keep you from renting a home,” says HUD Secretary Julian Castro. “The ability to find housing is an indispensable second chance in life.”
JoAnne Page, President, and CEO of the Fortune Society, which works with formerly incarcerated individuals, also highlight the importance of housing for individuals with a criminal background. “We know that if a person does not have a stable, affordable place to live, being a contributing member of society is extremely difficult,” she says.
While the HUD guidelines outline what landlords should not do when weighing up a potential tenant’s application, they’re less clear on what type of criminal convictions can be used when assessing an applicant.
As there are no guidelines on which crimes should be considered acceptable, and which are not, aside from certain drug-related charges. In most cases, landlords are advised to use their discretion, with the HUD guidelines stating that they should consider circumstances on a case-by-case basis.
Case-by-case, means that imposing a blanket ban on individuals with a criminal history, is no longer an option. Instead, landlords and property managers will have to put a bit more care into evaluating applications on an individual basis.
Industry groups, such as the National Apartment Association, are weighing in on the new guidelines. The NAA released a white paper on best practices to members, which advised taking measures such as adjusting screening policies to include only certain types of offenses –rather than a blanket ban, outlining clear justifications for those policies, and giving applicants a chance to explain mitigating circumstances.
While the HUD guidelines are just that, guidelines –and landlords are not bound by law to follow them, the best practice is for landlords to take the HUD guidance seriously, and change any current policies that automatically exclude applicants with a prior conviction; as well as any policies that have not been thoughtfully developed and justified.
While these guidelines may sound daunting –the good news is that for most landlords, they may not be as formidable as they sound.
“Employers have been taking most of these steps for years,” explains attorney Denny Dobbins, “It will not be difficult for good Landlords to comply.”
In order uphold these guidelines, though, landlords will need to need to be a bit more thorough when it comes to documenting their reasons for denying an applicant. They’ll also want to ensure that their policy’s approval criteria, as it pertains to a person’s criminal history, are supported by a legally sufficient justification. For example –if a landlord has an apartment complex, they must also take the safety of the other residents into consideration; therefore they may be able to prove that banning individuals who have committed violent crimes is a justifiable decision. Additionally, landlords who house families with children may not be able to rent to anyone on the Sex Offender Registry. Thus, denying a registered sex offender would not constitute a violation of the Fair Housing Act.
But under these guidelines, landlords cannot institute a sweeping ban on all applicants with a criminal history, and cannot reject applicants for arrests that did not lead to a conviction. Additionally, landlords must take care to ensure that all potential applicants are treated the same; and that comparable criminal histories are assessed similarly; without considering race, national origin, or any protected class.
HUD states that a housing provider must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety or the property and criminal conduct that does not.
Landlords are advised to take into consideration the nature of an individual’s conviction as well as time elapsed since the conviction. The only clear exception that the guidelines make is for convictions for manufacturing or distributing drugs.
Landlords that oversee multi-unit residences must balance out their nondiscriminatory screening policies, with their duty to ensure resident and property safety. This means assessing the nature of the crime to see if there is legally sufficient justification to ban an applicant from the housing. Unfortunately, this is a gray area –and one where landlords and property managers alike much exercise diligence and discretion.
While the HUD guidelines aren’t clear, HUD indicates on their website that for public housing authorities, a criminal background investigation must be performed to determine lifetime registered sex offenders –which then may be precluded from housing. It would seem to follow, that if public housing authorities can draw the line at registered sex offenders that non-public housing landlords could do so as well. But when it comes to offenders who are not on the registry, the guidelines are less clear.
“The nature and gravity of a sex crime may be so serious that even the slightest amount of risk may be too much when contemplating the protection of your substantial and legitimate interest(s),” says Denny Dobbins, attorney. “A case-by-case evaluation based on the facts is necessary for how long to prohibit residency for those with a sex crime who do not have a lifetime sex offender registration status.”
Landlords who are uncertain should consult with an attorney.
Landlords are advised to assess the circumstances surrounding the criminal conduct. This means that they should consider the age of the applicant at the time of the crime, as well as any other mitigating details. Landlords should also take care not to exclude applicants based on arrests alone since an arrest doesn’t always lead to a conviction.
The amount of time that’s passed since the conviction occurred should also be taken into account. Although the HUD hasn’t given a specific timeline that’s reasonable for felonies or misdemeanors, some have suggested a period of six or seven years for some felonies or high-risk crimes.
If an applicant presents evidence of rehabilitation, this should be taken into consideration as well.
There are practical ways that landlords can maintain compliance with the HUD guidelines regarding renting to tenants with a criminal background. Here’s a look at a few things landlords should consider doing:
When it comes to the application process, landlords and property managers may want to consider running criminal background checks last; until after an applicant has already passed employment and income verification, credit checks, and previous rental history. Not only will this help to keep housing providers from having to make many potentially difficult decisions, it will also save time when processing applications.
One key area where landlords should tread especially carefully is when screening tenants. Asking potentially problem questions such as, “Have you ever been convicted of a crime?” and instead, looking to ask more relevant questions, such as “Have you been convicted of a crime in the last seven years?” is a better option; one that shows that the landlord isn’t imposing an outright ban on applicants with a criminal history; and instead is asking relevant questions and assessing applicants on a case-by-case basis.
Landlords and property managers should consider informing applicants that, if they have a criminal background, they are welcome to submit proof of mitigating circumstances at the time of the crime as well as proof of any rehabilitation efforts. Requesting this information is a step in the right direction, and also shows that the landlord isn’t implementing a sweeping ban on applicants who have a criminal background.
Finally, landlords and property managers should review their existing rental policies and tenant screening procedures. Landlords should pay special attention to ensure that there are no qualifying questions that could be considered discriminatory against potential tenants. Doing away with sweeping statements, such as disqualifying all applicants who have a criminal background; and instead implementing policies that allow for a case-by-case analysis is an important step that housing providers should take to protect themselves.
Landlords should inquire with the current and previous landlord to assess an applicant’s qualification. Questions to ask include:
Landlords should also obtain a consumer credit report and carefully check the information therein. Landlords should:
Every landlord should have a written list of rental criteria, and ensure that they uphold it consistently with each rental application. Examples of rental criteria include:
If an applicant fails to meet the above criterion, the fact that they may have a criminal record becomes irrelevant. In the end, the best way for a housing provider to avoid claims of discrimination and ensure equality for all applicants –is to ensure that decisions are not based on one single factor; a criminal record, and instead seek to use other qualifying questions when making a decision.
In addition to helping to prevent claims of discrimination, this method will also help to alleviate fears of landlords, who may be concerned about safety implications that come from not having a blanket ban in place. As Chris with Tenant Verification Services writes, “In most instances…individuals who have a criminal record and continue to lead that type of lifestyle, will not meet your criteria anyways.”
Finally, landlords should make sure they have a look at the HUD Guidelines for themselves, as well as this helpful white paper from the NAA. They should also consider consulting with an attorney, to ensure that they are screening applicants, qualifying questions, and applications –before refusing to rent to a tenant with a criminal record.
Tenants: do the HUD guidelines affect your home search?
Disclaimer: The information provided is for and advisory purposes only. Springs Homes for Rent accepts no responsibility for its accuracy. We recommend that you consult with an attorney familiar with current federal, state, and local laws.
So you’re thinking of renting to relatives and want to know the tax implications After all, it’s something that seems to make perfect sense. Your child; or maybe it’s your mother or a cousin needs a place to stay and you have a rental property.
If you were to let them live there rent-free, or maybe for reduced rent, you’d be doing them a tremendous favor, and they’ll be able to look after your property for you; helping to keep it in great condition. It’s the best of both worlds.
But while your plan does make sense, there’s just one problem: if you’re not careful, renting your home out to family could mean that you’re no longer eligible for certain tax deductions.
While tax law allows generous tax deductions that many landlords are eligible for, it also has strict criteria that it insists landlords meet in order to remain eligible for those deductions. There are a number of things that a landlord could do, even unwittingly, that could push the property outside the definition of a rental, and into the criteria of a personal residence; eliminating many of these tax deductions.
Let’s take a look at renting to relatives and the tax implications to ensure that you’re eligible for those valuable deductions.
First up, let’s take a look at what, exactly, the IRS considers to be a rental property.
A property is considered to be a rental if it is rented during the year in question, and used by the owner less than the greater of 14 days – or 10% of the number of days that the unit was rented to others; as long as it was rented at fair rental value.
If, however, you occupy the property yourself for a portion of the year – or rent it out for a reduced rent, then limitations may apply to a number of expenses that you’re able to deduct.
Additionally, if the property is mixed use, then it may be rented and used by yourself for more than 14 days of the year, however, it’s important to note that expenses like insurance, mortgage insurance, taxes, and more will be allocated between rental and personal use.
It’s also important to note that if the property’s rented out for fewer than 14 days during the year, then it’s considered a personal residence, and as such you won’t be able to claim as many tax deductions; only mortgage interest and property taxes. You also won’t be required to report any rental income.
However, complications arise when you are renting to relatives.
These issues usually surround the question of “fair-market-value rent,” and how the IRS classifies rental properties that are rented for less than this amount. Normally people decide to rent out to relatives because they’re looking to give that family member a good deal. But it’s important to realize that for each day that you rent the property for less than its fair market value is considered a personal use day.
Too many personal use days, can quickly push the property into the category of personal use. This could mean that you’d end up having to claim the rent as income, but not being able to claim many of those value tax deductions.
Part of the appeal of rental properties is the myriad of valuable tax breaks that landlords are eligible for. Some available deductions that many landlords are able to take include:
These deductions can add up quickly and make a real impact on the amount of tax that a landlord owes at the end of the year. However, if your rental loses its status as a rental, then most of these deductions will disappear. The exceptions are mortgage interest and property taxes, which you’d be able to claim anyway.
If you’re looking to ensure that your property keeps its rental status –and your rental expense deductions intact, the good news is that you can rent to a family member; there are just certain rules that you should follow.
First of all, in order for the property to be considered a rental, you cannot use the property yourself for more than 14 days –or more than 10% of the total days that you rent it to others at a fair rental price.
If you’re not residing in the property yourself, then you’ll want to ensure that you abide by the following:
For more information on renting to relatives and the tax implications, be sure to see IRS Publication 527, Residential Rental Property. Remember, neglecting to categorize your property properly, and taking deductions that you may not be entitled to could land you in serious trouble should the IRS decide to do an audit. Your best option is to be informed, and talk to a tax professional if you’d like to learn more about the tax implications of renting to family members or using the property yourself.
At the end of the day, renting to relatives and tax implications is something that appeals to many. Just make sure you’re going into the decision fully informed about the implications of renting out your property to a relative –particularly how it will impact which deductions you may no longer be eligible for.
Resources:
Note: This article is intended to inform and to guide; it is not meant to serve in place of tax advice from an attorney or licensed tax professional. Please consult a CPA for help implementing tax strategies, or for more information on how renting out your home to a family member may impact you from a tax perspective.
Capitalization Rate or “Cap Rate” is a ratio used by real estate investors to determine the desirability or profitability of a specific property. This ratio compares the relationship between the property value and the potential income that property may produce as if you had paid cash for the property.
While there are certainly more sophisticated analytical tools we can use when evaluating rental properties, cap rate is a good quick reference tool used to assess whether or not a property is even worth considering.
We use this formula when we are working with our investor clients. Knowing property values and rental rates along with a good sense of average repair and maintenance costs and potential vacancy rates allow us to calculate a rough cap rate on the fly.
As we narrow down the properties our client is interested in, we can do a more precise calculation prior to making an offer on any properties.
Cap Rate is established by dividing the Net Operating Income (NOI) of a property by the value of that property. The cap rate essentially shows the relationship between the property value and the potential income that particular property could produce. The higher the cap rate the more attractive the property is.
Let’s look at the Net Operating Income half of the cap rate equation. NOI consists of all revenue from the property, minus any reasonable operating expenses. NOI is a pre-tax figure, appearing on a property’s income and cash flow statement, that excludes principal and interest payments on loans, any capital expenditures, depreciation, and amortization.
In order to establish Net Operating Income, you total the annual rents collected for a property, this is the Gross Income. Once this figure is established you would subtract the following expenses.
The other half of the equation is “value”, this is the price you paid for the property or the current value of the property. If you are looking at properties and have questions about value, your agent should be able to give you a reasonably good idea of what the property’s true value is.
Cap Rate can also be a helpful tool to use in order to determine your bottom line when evaluating a property you are interested in purchasing.
Let’s say you are interested in a property that is listed for $300,000. Your goal is a 10% cap rate on any property you purchase. Let’s say the NOI for this property is $27,000, which gives us a 9% cap rate, not bad but you want 10%. This means you would need to acquire this property for $270,000 in order to get your 10% cap rate.
Each situation and market are different but knowing that $270,000 is your bottom line helps you decide if you want to even pursue this property or if the price is too high for the return you’d see. In some markets, an offer that is 10% below asking price is a common practice while in other markets it would be a slap in the seller’s face. Each market is different and these are decisions investors need to make.
It’s important to note that cap rate looks at potential financial performance, not actual returns. In order to get a better idea of how a given property will perform, there are other methods of evaluating a property that will give you better results. Methods like cash flow analysis and cash-on-cash returns are potentially better metrics to use, assuming you know your numbers.
The vacancy rate, maintenance, and repairs all affect an investor’s bottom line and all three are fairly unpredictable. Controlling these costs without compromising the health and safety of your tenants is the key to long term profitability from rental properties.
There are a number of methods investors can use to analyze an investment or rental property. Cap Rate should be just one tool in an investor's arsenal but it is an important one. Remember to use cap rate in the early stages of new property acquisition.
The key to successful investing in the residential real estate rental market is buying the property at a great price. This one key detail makes all of the other factors easier to work with and cap rate does a great job when you are looking for deals.
