Rent home income: A business opportunity

January 6, 2017

Residential real estate is an easy business to get into when you have or acquire rental properties. There are a variety of reasons people make the decision to rent a home instead of selling. When home prices fall in a buyer’s market it can make sense to keep your property and rent it out instead of selling at what you may perceive as a loss. So long as you have quality tenants and the home remains in a good state of repair, you can profit on the net income you receive from rent. With an entrepreneurial spirit and good planning, you may save the income from the rental home to acquire a second rental home. To the extent, the rental properties are financed, owners appreciate the added income they should receive when the mortgage is paid in full. As properties increase in value, the rental home owner will have opportunities to elect to keep the rental properties and income received, or sell at a market peak and cash in on their investment.

Appreciating the risks of renting to tenants and investing in a good landlord-tenant relationship

While you may consider your property to be your greatest asset as a landlord, the quality of your tenant is what produces income. Tenants renting properties come from all walks of life and are unique. In an ideal situation, you know someone looking to rent your home and elects not to otherwise purchase a home, but to rent yours for many years. Depending on your agreement with your tenant you may offer minimal, if any, increases in the base rent so long as your ideal tenant stays. The security a good tenant may provide, can outweigh the forgone opportunity to re-rent the property more frequently and increase the rent price to match market values. On the other hand, the high tenant turnover can mean months of vacancy with no rental income, and if a tenant leaves damage, additional costs affect your bottom line. When tenants don’t pay, you may have to take legal action to evict and obtain a judgment for past-due rent and any damages. Overall, the best renters make landlords the most money.

Through your chosen vetting process, you believe you found a perfect tenant to move into your rental home and want to make sure the tenant is happy and remains so. Assume you decided the terms of a rental agreement and know your rental rate and additional details regarding the rights and duties among you and the tenant(s). As the landlord, you have options in preparing the written lease for your tenant to sign. The Texas Association of Realtors offers a standard Texas Residential Lease Agreement with fill-in blanks the landlord can complete to identify the tenants, amount of rent, due date, charges where applicable, and any additional terms of the lease such as no smoking, no pets, no parking, or other restrictions.

Despite the availability of standard lease forms, landlords may use any originally written lease, so long as it complies with Texas law. The advantage can be to both the landlord and the tenant when both want to create specific rights and duties. For example, tenant may keep a dog on the premises, so long as the dog is kept in the home or within a certain fenced area on the property, a dog run or corral, to not get into the owner’s landscaping or garden. While custom leases offer such opportunities, it is important to make sure a custom-written residential lease complies with Texas law. If your lease fails for legal compliance, it may be voided and in certain circumstances, regrettably.

Compliance with Texas law when using custom-written residential lease agreements

An experienced attorney whose practice includes representing individuals in residential real estate and rentals may incorporate the terms of your custom lease agreement as you wish for you and your tenant. Your attorney will also make sure that all the legally required terms and language is included in your lease agreement, consistent with the Texas Property Code. The following are a few legal rights and duties required by Texas law:

  • Appointing an agent for service of legal process;
  • Duties of a landlord that may not be waived;
  • Responsibility for and interruption of utilities;
  • Tenant right of re-entry if unlawful lock out;
  • Occupancy limits and state and local rules;
  • The manner and method of cash and other payments;
  • Termination of lease and conditions causing same;
  • Notices of lease violations and associated legal rights.

Above is simply a sample of legal terms to be included. Clearly there are many aspects of landlord-tenant law that an owner may want to review with an attorney, even if they chose a standard residential lease, because with any tenant, a landlord may become all too familiar with any aspect of Texas law.

Attorneys at The Michael Kim Law Firm, PLLC, are experienced in all aspects of residential (and commercial) leasing and can offer advice and counsel and prepare you to be a landlord. Even though offering a home for rent is a relatively straight forward operation, it is a business, nevertheless. The Michael Kim Law Firm, PLLC, can also help you incorporate a business entity through which you lease your home. As well, you may seek legal advice and representation as necessary.

About us: The Michael Kim Law Firm, PLLC, in Dallas, Texas, is a full-service business transaction and litigation law firm of experienced attorneys serving the Dallas-Fort Worth Metroplex.

The Michael Kim Law Firm, PLLC, represents individual clients and organizations with business and commercial law needs. The firm also represents both plaintiffs and defendants in general civil litigation, injury, property, employment and consumer matters.

To speak to an attorney please dial (214) 357-7533. Additional information about our attorneys and practice areas is available on our website.

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