There is a lot more to owning rental property than just, well, owning a property. If this type of real estate investment is something you are considering, there are a few things to be aware of before making any major purchases of rental properties.
The Renting Process
While there is some flexibility as a property owner to set rules and regulations on rent, there are specific processes that are required to follow by state and local law. The City of Seattle in particular has a specific Rental Registration and Inspection Ordinance(RRIO) set in place to ensure that any property listed for rent is safe and in compliance with city housing laws.
Any rental property must be registered with the Seattle government. This registration must be renewed every two years, with an inspection occurring at least once every decade. Property owners are also responsible for hiring a qualified rental housing inspector or city inspector, and are subject to penalties if the premises violate these regulations. It is best to check the RRIO checklist before scheduling your initial inspection to be confident that you are compliant.
Getting Documentation in Order
The Washington Residential Landlord Tenant Act (commonly referred to as the “Landlord Tenant Act”) covers all residential rentals in Washington State, including Seattle. Landlords are required to maintain, at a minimum, the following documentation:
- The specific written rental agreement for the property, with rules that apply equally to all tenants, and a unit condition checklist.
- Records of rental payments.
- Copies of notices given to tenants, with evidence that all legally required notices were properly served.
- Any information or documentation to support a termination of tenancy, such as police incident reports or complaints from neighbors.
This Landlord Tenant Act also states that the property owner or landlord is responsible for meeting certain conditions (such as maintaining the property to pass inspections and installing smoke alarms), as well as responding to maintenance requests in a timely fashion. Tenants are responsible for notifying the owner of any issues, disposing of garbage properly, and refraining from using hazardous materials on the premises.
All of this information (along with other rules and regulations a property owner wishes to put into place) must be stated in a legal document that is signed by both the owner or property management group and the tenants. Some other regulations that may be helpful in the document are:
- Limits on excessive noise or number of people allowed within a unit (to discourage parties).
- Rules on decorations or items on the exterior of the building (including flags, exterior lights, holiday décor, or landscaping).
- Rules for painting walls or drilling holes. Some property owners allow tenants to paint walls if they are re-painted back to an original color before the tenant moves out.
- Limits on pets, such as how many are allowed, specific breed or weight regulations, and types of animals.
- Replacing batteries in smoke detectors.
To ensure that the lease agreement contains all of the required legal information to protect all parties, it is recommended to contact an attorney that specializes in real estate. The failure to specify most rules and regulations will result in tenants who are difficult to manage and could very costly in the long run.
Average Rental Costs
Since Seattle has grown so quickly, rental rates have increased by 3% annually, with the average rent for a one-bedroom home standing at $2,122 – which is over $500 above the national average.
In order to calculate a fair market rental rate for an owned rental property, factoring in the following variables is necessary:
- Age of amenities (such as appliances, overall design, and carpeting or floors)
- Square footage
- Additional property offerings (such as a pool, gym, laundry facilities, and designated parking)
- Location and proximity to popular destinations (such as major highways, popular businesses or shopping centers, and the desirability of neighborhoods)
Average Utility Costs
Utility costs will also need to be factored in. Some property management companies require tenants to pay these on their own by setting up an account with Puget Sound Energy(PSE).
However, this is only possible if each unit has separate meters, gas lines, and water systems. Otherwise, a landlord or owner may want to charge a capped fee that is equivalent to the average utility cost for the unit.
According to the Seattle Housing Authority, a household’s utility costs should vary based on the number of people living in a home. If it is a single unit, utilities are generally priced between $105 to $115 per month, while larger units will pay $260 to $465 for utility charges.
Once a tenant moves out, there may be some additional charges required to repair any damages or to simply cover the damages that go beyond reasonable wear and tear. It should be noted that the Landlord Tenant Act specifies that a tenant cannot be charged for “reasonable wear and tear” resulting from their tenancy, but tenants often can leave substantial damage that will need to be repaired to maximize the potential rental value of the property.
Any damage deposit must be set by the Property Management Company, landlord, and the tenant in the lease agreement. This money is typically deducted from the security deposit that is made before the tenant moves in. The total amount of the deposit is generally equivalent to approximately one month’s rent though regulations in the City of Seattle have capped such deposits at the amount of one month’s rent.
Some of the most common deductions made during move out are:
- Property damage
- Excessive cleaning costs
- Covering any unpaid rent or fees
- Remainders of utility bills
It is essential to inform potential tenants of all potential payments and charges before any meeting. Prospective tenants most commonly ask questions regarding potential deductions from the deposit when inquiring about renting a home. A property management company needs these rules beforehand since they must be incorporated into a rental agreement.