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Becoming a Landlord

 

Landlord 101

The first appearance of this word dates back to the 12th century. The system of Feudalism ruled the land where owners of large amounts of land would rent to tenant farmers to work it in exchange. Fortunately, the 21st century is quite different. A landlord today is anyone who owns residential or commercial property and rents it to a tenant or business for a monthly fee. The landlord is always responsible for structural repairs and property taxes. The condition of the unit is held in trust with a security deposit which is the tenant’s money to be held in an escrow account in the tenant’s name where any accrued interest belongs to the tenant. Unless there are known damages to the unit beyond normal “wear and tear,” this money is due back, in full, to a tenant 30 days from the end of the lease or when they depart, whichever comes first.
 
Since we have worked with dozens of landlords and are landlords ourselves, we wanted to share some advice on how to maximize your investment while understanding the law as well.

Cash flow and appreciation is the name of the game as landlords. Cash flow is the total net amount a landlord makes after covering all their expenses like taxes, HOA fee, insurance, and mortgage (if applicable). The difference between the rent charged minus the expenses is your cash flow. For example, if your total expenses per month are $2000 and you charge $2500 in rent, $500 per month is your cash flow.
 
As for appreciation, this is less clear cut and involves significant risks and rewards. The risks involve buying a property for a price that over time either retains the same market value or even worse, loses market value. The best advice for any landlord in this situation is either to wait and hold, if financially feasible, or let it go and try again. The rewards involve buying a unit that experiences significant year-to-year appreciation where even 100% or more is possible in the course of 10-12 years. Our Fenway neighborhood landlord experienced an appreciation of 111% in 10 years. That’s the reward. Whether to sell and buy another is a different blog on the benefits of the 1031 exchange.
 
As for landlords and the law, it is important to know what the tenant’s rights are according to MA law and what a landlord’s rights are according to MA law. Visit this link: Landlord tenant guide to take a deeper dive into the facts. Summarized here because it is definitely one of our primary FAQ’s, a landlord (not a broker) can only charge the following pre-payments: first month’s rent, last month’s rent, and security deposit. That’s it. Sometimes, there is a small key fee but it’s so small we think landlords who charge this fee are arcane. You will see fees such as pet fee and move-in fee but IT IS THE LANDLORD’S responsibility to pay these NOT the tenant. It’s the law. Question and interrogate any foolhardy agent who tries to pull this fast one on a tenant.
 
In conclusion, this overview offers a brief glimpse into the world of being a landlord. 

If you or someone you know is thinking about becoming a landlord, please reach out and we can provide experienced and intelligent guidance to help you maximize your investment while finding the best tenants. If you are currently a landlord seeking to sell or do a 1031 exchange, we are well equipped and well connected to make this happen in a timely and professional manner. We are 24/7 at themovementgroup@compass.com.



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