Are you planning on buying investment property in Seattle, Washington? If so, you are probably wondering where you can find a good mortgage to finance you rental property.
Well, there are a number of investment property mortgage options available. Each of them comes with their own set of features, requirements, pros and cons. That’s why it’s wise to ensure that you know everything about these different mortgages so you can find the best one for you.
Taking up a mortgage for a rental property is ideal for people searching for a way to lighten their financial burden. It’s also a way to minimize risks.
So, what are your investment mortgage options? Read on to find out.
Common Mortgage Options for Rental Property Buyers
Generally, there are many mortgage options for you to choose from. Knowing how each of them works is the best way for you to find a good and cost-effective mortgage plan.
Below is a list of popular rental property mortgages that most property investors in Seattle choose.
1. Federal Housing Administration (FHA) Mortgage
Arguably, it’s one of the best and most convenient types of mortgages to finance your investment property.
Unlike most mortgages, FHA loans come with little requirements, low-interest rates, and easier terms.
In fact, the only major requirement worth mentioning is that this real estate investment loan only applies to owner-occupied rentals. This means that for an applicant to get such a loan, they have to show interest in residing in the property.
Furthermore, the FHA doesn’t issue the mortgages directly. Instead, the agency insures loans against losses given to applicants by private entities. Therefore, lenders get more incentives and feel safe issuing high-risk applicants with mortgages.
And that’s not all. FHA mortgages allow for applicants to provide extremely low down-payments of up to 3.5%. Awesome, right?
Unfortunately, due to the high number of applicants for this kind of real estate loan, processing and approval may be a bit slow. Therefore, it’s not ideal for time-sensitive purchases.
2. Investment Property Mortgages
Another way to finance your purchase is by applying for an investment property mortgage.
Unfortunately, getting these loans is almost never easy. And to make matters worse, the costs can be pretty steep.
These real estate investment loans are often ideal for applicants with impressive credit histories and sizeable down payments. If you are wondering why this is, well, it’s because investment property mortgages are tailored to accommodate investors with:
- High credit ratings
- Decent debt-to-income ratios
- A sizeable down payment (at least +20% of the buying price)
- And full documentation of their pay stubs, W2s, and tax returns
Also, applicants must have enough cash or assets to cover the first six months of the mortgage. Naturally, very few people meet these investment property loan requirements.
If you’re lucky enough to meet these, you have to make sure you have less than four current mortgages. That’s because most banks and lenders don’t offer investment property loans to applicants with more than four mortgages.
3. Hard Money Loans
If you are in need of quick cash to buy a Seattle investment property, then a hard money loan is what you need.
These mortgages are often great because of a couple perks including:
On average, it takes less than a day to get a hard money loan processed and approved. This makes it ideal for investors handling time-sensitive or urgent purchases.
Unlike investment property mortgages, hard money loans don’t have a lot of steep requirements. Basically, anyone can apply regardless of their credit status or the number of mortgages they have.
Sounds great, right? Unfortunately, these loans also have their fair share of disadvantages. For example:
- This investment property loan comes with high-interest rates. If you decide to go with hard money loans, you should prepare to pay higher interests.
- Also, they are short-term. This means that you’ll be expected to repay the mortgage within a short period of time. In most cases, it’s often two to three years.
4. Conventional Mortgages
Now, if you are looking for a better alternative to investment property and hard money mortgages, a conventional mortgage will do.
Read on to find why.
Generally, conventional loans are less costly and are tailored to conform to guidelines set by reputable mortgage lenders like Freddie Mac and Fannie Mae.
The main difference between conventional and investment property loans is that the former accepts high-risk applications.
But the higher the risks, the higher the interest rates and down payment for the investment property, among other fees. Therefore, applicants with unfavorable financial profiles may end up paying more for such mortgages.
5. Veterans Authority or VA Mortgages
For veterans and those currently serving, getting financial backing is easy thanks to VA Mortgages.
A VA mortgage is a housing loan offered to people who’ve been – or are currently – serving in America’s armed forces.
The biggest perk of VA mortgages is that this investment property loan comes with no down payment requirements. Plus, they have very generous and lenient rates and terms.
But it’s worth noting that there are a few conditions that applicants must meet in order to get these mortgages. For example:
- The applicant must be a veteran or currently serving in the army.
- They should reside in one of the rental units for not less than one year.
- Also, the property has to be ready for occupancy and approved by legitimate VA home appraisers.
Obviously, there are other means that investors use to get investment property financing: These are just a few of the most common ones.
That being said, what can you do to make sure you are on the safe side as far as investment property mortgaging is concerned?
A Few Useful Mortgage Tips for Rental Property Buyers
- Research is key. It helps you to compare and contrast all available options then make a decision based on your facts.
- Consider making a large down payment. It can help reduce your interest rates.
- Make sure you read and understand the fine print. It will save you a lot of trouble and inconvenience in the future.
- Also, ensure you have at least six months’ worth of assets or cash. It gives lenders more incentive to loan you money.
- Stick to your budget. This ensures that your investment plan goes smoothly and as planned.
There you have it. A quick run-down of what your mortgage options are when buying an investment property in Seattle, Washington. All you have to do is to figure out which one of the options above comes closest to your preferences, budget, and plans.
Thanks to the Fair Housing Act, every American has the right to equal treatment when it comes to housing. Unfortunately, there are still some people in Seattle, WA who know very little about this law.
That’s why it’s not rare to find property landlords and sellers fighting lawsuits due to discrimination.
So, if you are a landlord looking for more information about the Fair Housing Act, here are answers to eight of the most common questions.
1. What’s the Fair Housing Act?
The Fair Housing Act is a law that deals with discrimination in the housing sector.
It was established to deter landlords and property sellers from discriminating against members of a particular class in society.
Basically, it ensures that every American, regardless of class, is treated fairly and equally in any housing-related activity including:
- Selling a house,
- Renting and;
- getting a mortgage loan
2. How long has the Fair Housing Act been in play?
Officially, the Fair Housing law was enacted in 1968. But, in truth, the fight for fair housing begun in the mid-1800s.
Sadly, back then housing discrimination was very rampant. That’s why it contributed to a series of actions, including:
- The Civil Rights movement (1960s)
- Rumford Fair Housing Act (1963)
- The Civil Rights Act (1964)
- And finally, leading up to the Fair Housing Act (1968) which was established a week after Martin Luther King Jr.’s assassination.
Evidently, this Act is one of America’s most significant milestones. And the fact that it affects so many lives makes it a necessity.
3. What are the Fair Housing Act’s primary goals?
So, what exactly does the Fair Housing Act do? Or better yet, which examples of housing discrimination does this Act protect people from?
Well, as stated earlier, the Federal Fair Housing Act touches on three main aspects of housing including the selling, renting, and mortgaging of a house.
Here are some examples of discrimination that the FHA shields tenants and property buyers against:
- Refusing to rent, sell, or negotiate for housing
- Lying about the availability of a housing unit or making
- Treating different people with different terms and conditions when renting or selling a home
- Blockbusting (convincing property owners to sell their homes under false pretense)
- Offering different housing amenities and accommodations for different renters
- Setting disparate terms and conditions on a mortgage loan
- Refusing to purchase or make a loan
- Practicing discriminatory practices during property appraising
- Refusing to make information about a mortgage loan available
- Setting divergent requirements for purchasing a house loan
- Using discriminatory statements or being bias against a protected class in your property adverts
- Threatening or interfering with someone’s Fair Housing rights
4. What classes of people are protected under the Fair Housing Act?
The FHA currently protects tenants categorized by seven classes.
The list of protected classes includes:
- National Origin
- Sex (1974)
- Disability (1988)
- Familial Status (1988) – Pregnant women and having children under 18 in a home.
In addition, the year 2017 saw the addition of two more classes to the list. Despite the fact that these classes are not yet explicit in the Fair Housing Act, they are also considered as protected classes. These new classes are:
- Sexual Orientation
- Gender Identity
5. Who enforces the Fair Housing Law?
You may be wondering; who enforces this law?
Well, for many years, enforcement has been a major concern among housing advocates. This is mainly because of inconsistencies across local jurisdictions. Although, anyone whose rights have been violated can file a lawsuit in a federal district court or file a claim with HUD.
Officially, the U.S. Department of Housing and Urban Development or HUD is fully responsible for the Fair Housing Act.
But, how do they enforce this law?
HUD employs two methods of enforcement:
- Investigating discrimination claims – Obviously, anyone who feels like their Fair Housing right has been infringed can file a discrimination claim. Thereafter, HUD dispatches a team to investigate the claim. If they find any merit to the case, they’ll decide on the best course of action.
- Fair Housing Testers – HUD uses this technique to check whether sellers or landlords are compliant with the Fair Housing Act. They do so by hiring ordinary people to pose as tenants and home buyers. Therefore, as a landlord or seller, you have to be extra cautious with the things you say on the phone, face-to-face, or on an advertisement to your prospective tenants or home buyers.
6. Are there any exemptions?
Does the Fair Housing Act apply to everyone in Seattle, WA?
No. There are a few exemptions worth noting including:
- A members-only private club or organization,
- Single-family homes sold or rented without using a broker, and;
- an owner-occupied home with less than 4 rentable units.
7. What are the penalties for violating the Fair Housing Act?
In case you innocently (or not so innocently) violate the Fair Housing Law, there are a few penalties you may face.
Moreover, the penalties vary depending on the nature of the violation.
- A simple discrimination charge attracts a fine or imprisonment for at most a year or both.
- In case there are bodily injuries, the use/attempted use/threatened use of dangerous weapons/explosives/fire, there shall be a fine to be paid or imprisonment for at most ten years or both.
- Lastly, if the discrimination results in a death/attempt to kill, kidnapping/attempted kidnapping, aggravated sexual abuse/attempted aggravated sexual abuse, the penalty may be a fine or imprisonment for any number of years (sometimes life imprisonment), or both.
8. Are there ways to avoid an accusation of discrimination?
There are a few things you can do to steer clear of Fair Housing charges. For example:
- Treat every prospective tenant as a HUD agent trying to bust you for discrimination. Therefore, choose your words carefully when talking to prospects or creating an advertisement.
- Despite the fact that you are expected to comply with the Fair Housing Law, there are a few qualities you can use to deny the sale or renting of your property. These things include criminal records, poor credit, inability to pay the rent, or even unhealthy lifestyles like smoking.
- Maintain consistency at all times. Vetting your prospects using the same process minimizes the chances of you being accused of discrimination. Also, treat everyone with respect, dignity, and kindness.
In summary, these are eight of the most common questions people ask about the Fair Housing Act. If you are a landlord or a property investor in Seattle, WA, the information provided above can greatly help you to avoid legal issues with your prospects due to discrimination.
Turning your home into an investment property can be a fantastic way to start making extra income. But, the transformation should be treated as a financial decision rather than an emotional one.
Emotional decisions tend to be reactive. They are fast, reflexive, and don’t always have our long-term well-being in mind. Sure, it’s understandable that people develop strong connections with their houses. It is their home after all.
The dining room has been the setting for many a great dinner parties. You’ve spent many hours on the backyard patio. Your kids grew up in the house; you can still see the pencil marks made on the door frame marking their growth. Perhaps, you may even have grew up in the house, and it’s been in the family for over half a century.
However, when considering turning your former home into an investment property, your decisions should be based on the financial benefits. By hanging onto a “love affair” with your home, you are subconsciously sabotaging your chances for success.
That’s why in this article, we share 5 tips on how to transition from a home you loved to one that is strictly for business. It is easy to rent our a house, just read on.
Tip #1: Neutralize the home.
Neutralizing your home has two main benefits. One, it can help make the home ‘show ready’. And two, it will help depersonalize you home. It’ll seem more like a house and less like a home, allowing your guests to feel more comfortable.
That bright blue child’s room or red dining room might have pleased you, but your guest might not feel the same way. These personal touches are what people on HGTV refer to as “putting your stamp on something.”
So, essentially, your goal should be to get rid of your “stamp”. Here are some tips on how depersonalize your rental property:
- Paint in neutral colors. Neutral colors give off an open-minded and simplistic attitude. They create few distractions. They appeal to a greater mass of people and go with all furniture styles and colors.
- Clean your rental property. A clean home conveys a pride of ownership and assumed maintenance.
- Get rid of all your furnishings and personal belongings. Pack away “theme based” or ornate pieces of accessories, artwork, and furniture and replace them with nice and stylish objects.
- Repair all the quirky home decor you have grown used to: dated light fixtures, stuck drawers, leaky faucets).
Tip #2: Get additional landlord insurance.
Your homeowner’s insurance won’t be enough now that you are transforming your former home into an investment property. Anytime you have someone staying in your property, you assume some degree of responsibility to their safety.
What if there is a gas leak that causes an explosion? What if a tree falls on the home injuring your tenant? Or, what if a natural disaster occurs, destroying the home rendering it uninhabitable?
Landlord liability coverage may help protect you from financial loss arising due to property damage from severe weather, break-in, fire, and more.
In addition, you should also consider making a renter’s insurance mandatory for tenants. It’ll benefit you just as much as your tenant.
Tip #3: Determine how much rent to charge.
You’ll want to set a rent price that attracts tenants and will lead to profits. There are a number of things you’ll need to think about when you’re trying to determine how much rent to charge.
You could start by considering what landlords are charging for similar rentals in your area. This is what real estate agents refer to as comparative market analysis. Websites like Craigslist or Trulia can also prove useful in this regard.
Another way to determine how much rent to charge is by figuring out your former home’s value. You could use a website like Zillow to help you in this regard. However, for a more accurate assessment, a home appraiser is the best option.
The rent amount should be a percentage of the value of your home. Normally, rents fall between 0.8 percent and 1.1 percent of the value of the home. For a house valued at $250,000, for example, a landlord could ask a rent of between $2000 and $2,750 every month.
Also, bear in mind that some states have rental laws that limit how much landlords can ask for rent and security deposits. Places like Washington D.C, California, Maryland and New York, for instance, have rent control laws in place.
Tip #4: Advertise your house for rent.
Once you are emotionally detached and the home is show-ready, advertise it. Gone are the days of simply placing a sign outside a home when you are trying to rent a home. Today, the internet is a critical part of our daily lives and you need to use this to your advantage.
Prospective tenants are looking for dynamic content that gives them more than just a number of baths and bedrooms. They are looking for interactive media, real-time mapping, 3D walk-throughs, social integration, rental reviews, and videos.
Rental listing sites provide the best way to maximize exposure for your rental property. Remember, the goal is to get your listing in front of as many potential renters as possible.
Examples of rental listing sites include Realtor, Rentalhouses, Hotpads.com, Zillow, and Craigslist.
Tip #5: Prepare questions to ask prospective tenants.
Once you begin getting some interest from prospective renters, it’s time set up the showing. Prepare a set of questions to ask them. These will help you screen for good tenants from the bad, immediately. The following are some good examples of questions to ask your prospective tenants.
- Why are you moving? Look for legitimate reasons for moving, such as wanting more room and space or changing jobs.
- How many people will be living with you? Generally, the fewer the better. It means less wear and tear. As a guide, look for a maximum of two people per bedroom.
- What is your monthly income? Look for a tenant making at least two and a half times their monthly rent. The last thing you want is having to evict a tenant for nonpayment of rent.
- Will you agree to a credit and background check? If they hesitate to answer, it’s likely they have something to hide or don’t want to commit. Continue looking.
Becoming a landlord is a big step. Your world, like becoming a parent, is about to change; decision making, obligation and duty of maintenance are all matters to consider. Get it right and it can be fulfilling and financially rewarding. Get it wrong and it can become frustrating and stressful.
If you invest your money in the right property, in the right place, and at the right time you can end up with a lucrative real estate investment. In fact, real estate investments have produced more wealth than any other industry investments.
However, just like any type of business, it has its challenges. Managing tenants in Seattle isn’t easy. There’s a lot for one person to handle, especially if you are a new landlord.
To succeed, it helps to have a team of real estate professionals by your side. A general contractor, for example, can help you keep your property in top-notch condition. A real estate lawyer can help you solve legal problems. In addition to this, a property manager can help you secure reliable tenants as well as manage them.
Forming ongoing relationships with real estate professionals can guarantee success in managing your Seattle investment property.
1. Property Manager
Property managers can handle a myriad of responsibilities. For example, rent collection, lease termination, lease negotiations, property inspections, and maintenance issues.
They also make sure that each property is in compliance with all safety laws and property codes.
To determine whether a property manager is right for you, ask yourself the following questions:
- Do you have the time to stay up-to-date on Seattle’s landlord-tenant laws?
- Do you keep comprehensive and accurate records?
- Do you know how to perform thorough and efficient screenings on potential tenants?
- Are you willing to be on-call 24/7?
- Are you ready to handle troubled renters?
2. Property Inspector
Regular property inspections can help you enforce your lease and protect your rental property. Generally, inspectors will look for things like:
- Any exterior damage including the property’s structure and landscaping
- Internal damage beyond normal wear-and-tear
- Additional occupants
- Items needing repair
- Proper tenant maintenance
- Illegal activities
Normally, there are four types of property inspections: move-in, move-out, seasonal and drive-by inspections.
3. Real Estate Appraiser
A property appraiser estimates the value of your real estate for insurance, development, financing, sales and tax purposes. They construct an opinion based on the prices of similar surrounding properties and the environment in which your property is located.
If you are planning a project aimed at improving the value of your Seattle property, the appraiser’s impartial eye can be beneficial.
During the appraisal, be sure that you are available for any questions they might have. It’s important that they have access to all utilities because making their job easier can help your property get a good report.
4. Real Estate Agent
Finding renters for your Seattle rental property can be time-consuming and stressful. A good agent is well-versed with the local market and knows how to market a property to the right tenant pool.
Besides filling vacant properties, agents can also help you set prices. You can also trust a good agent to show your properties and handle phone calls.
5. Real Estate Lawyer
Conflicts between landlords and tenants in Seattle are common. Common causes of disputes include, but are not limited to:
- Cost of cleaning and repairs. When a renter moves out, the Seattle lease agreement usually requires that he or she return the property in its initial condition. Failure to do so and the landlord reserves the right to make the appropriate deductions from the security deposit. Dispute commonly arise over the cost for these deductions.
- Property maintenance. Having a properly maintained rental is a tenant’s right and a landlord’s duty. Disputes can arise when the landlord takes too long to resolve maintenance issues.
- Property damage. Property damage is undoubtedly one of the main causes of landlord-tenant issues. A dispute may arise when a renter causes excessive property damage.
With a good real estate lawyer at your side any landlord-tenant dilemma will be handled smoothly and according to Seattle’s rental law.
6. Certified Public Accountant
Keeping track of paperwork is difficult. However, it’s a necessity, and it can cause problems for those who are unprepared and disorganized. This is especially true at tax time.
A good accountant will ensure that your files are orderly and your tax returns are accurate. In addition, a competent accountant can help you claim your tax deductions. As a Seattle landlord, you can claim tax deductions on:
- Legal and professional services. You can deduct the fees you pay real estate investment advisors, property management companies, accountants, attorneys, and other professionals.
- You can deduct the premiums you pay for almost any insurance for your rental property. This includes landlord liability insurance, as well as flood, theft, and fire insurance.
- Home office. Provided you meet certain requirements, you can deduct your home office expenses from your taxable income.
- Seattle landlords are also entitled to a tax deduction for most of the driving they do in order to manage their rentals.
- Property repairs. Good examples of taxable repairs include replacing broken windows, plastering, fixing leaks, fixing floors or gutters, and repainting.
Every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of such tax deductions. Having a certified accountant by your side can help you maximize your income and cut losses.
7. Property and Casualty Insurance Agent
Seattle landlords need more than just regular homeowners insurance. They require insurance against lawsuits, accidents, and natural disasters.
A good agent ensures that you are well protected from common mishaps – such as damage from rain and wind – as well as less occurring ones, like flooding.
To sum it up, these are 7 real estate professionals in Seattle, Washington that you can’t live without. They will help ensure your business has a decent cash flow while making sure your tenants live in comfortable and safe premises.
It’s every landlord’s dream to get a good tenant. A good tenant is drama-free, clean, honest, creditworthy, respectful, responsible, and above everything else, is able to pay rent without issues.
Getting a good Seattle tenant is not easily a walk in the park. As a landlord looking for a new tenant, you need to do a lot. You need to verify the prospective renter’s creditworthiness, check their criminal and rental history, and more. Needless to say, the tenant verification process can be rather time-consuming.
To save time, you need to ask the right questions. The right questions will help screen the good renters from the bad immediately. In this article, we’ll discuss 5 questions landlords can ask potential tenants as well as questions landlords cannot ask.
5 Good Questions to Ask Prospective Seattle Tenants
1. “What’s your reason for moving?”
Tenants may want to move for various reasons. For example:
- Moving due to changes in their relationship status.
Those getting married may be looking to move to a larger place, while those undergoing a separation or divorce may be looking to downsize.
- Moving because they want to be located in a different neighborhood.
They may want to switch school districts, want to experience a new location or they may feel their current neighborhood has become unsafe.
- Moving due to issues with neighbors.
For whatever reason, they may feel unsafe around a neighbor or may have noise complaints.
- Tenants may move due to maintenance issues.
They may be tired of dealing with pest problems, leaky roofs, or clogged drains.
- A renter might have to move because they are dealing with a job relocation.
- If a tenant is looking for more space or less space they may also choose to move.
When asking this question to potential renters, you want to look for legitimate reasons for moving. Watch out for things like moving because of an eviction. A renter who has broken a lease term once is likely to do it again.
2. “When do you want to move in?”
This is another question that you need to ask your potential Seattle tenants. It will help you learn more about them. Since most landlords require a 30-days’ notice to end a tenancy, a prospective tenant wishing to move in immediately may signal something suspicious.
That being said, there are certain situations that can cause a tenant to move in a hurry. For example, domestic abuse, a sudden job transfer, or a pay cut.
Otherwise, always look for someone who starts their search at least a month before moving in. Such tenants are likely to be responsible.
3. “How much money do you make every month?”
When screening tenants, one important thing to look for is the tenant’s income. The income will show you whether or not the tenant will be able to pay rent without issues.
Generally, look for a renter whose income is at least thrice the monthly rent. That is, look for a person who is making no less than $3,000 a month if the monthly rent is $1,000.
Checking the renter’s income is, however, half the story. You will need to also check how much debt they have. To get such details, you need to run a credit check on them. This will, however, require the renter’s consent.
4. “Will you be able to pay the first month’s rent and security deposit upon move-in?”
In general, before exchanging keys, you should make sure that you have received the full first month’s rent and security deposit, as well as any other fees. A good example of a fee is a pet deposit fee.
When screening potential Seattle tenants, always make sure they have enough money up front to cover all initial fees. If a tenant seems hesitant to make a commitment, chances are their financial situation isn’t good.
Such a tenant is likely to cause problems if you permit them to move in and then pay the money later.
5. “Do you currently have pets?”
Last but not the least in the rental questionnaire, ask the tenant whether they currently have pets. This can be a huge time saver. This is because if you have a “no pet” policy, it will immediately disqualify such a tenant.
However, if you allow pets, make sure they agree with your policies. Such policies may have guidelines that dictate the type, size, and weight of the pet allowed. Also, make sure they know the repercussions of not adhering to the policies imposed upon the rental or lease agreement.
For example, let them know that they risk being fined or even being evicted if they act contrary to the rules.
Questions Landlords Cannot Ask Potential Seattle Tenants
As a landlord, there are also certain questions that are illegal to ask potential tenants. Generally speaking, these are questions that that touch on Fair Housing Rules. The Fair Housing Act is a federal act in the U.S. that shields tenants from housing discrimination.
Simply put, the Act prohibits discrimination based on certain specific characteristics. In Washington State, for example, such characteristics include disability, familial status, national origin, sex, religion, color, race, sexual orientation, marital status, or gender identity.
Essentially, what this means is that you can’t ask potential Seattle tenants questions such as the following:
- “Are you gay, divorced, or married?”
This is a question that touches on the renter’s familial status. Familial status is a protected class under the Federal Fair Housing Act.
- “What is your first language?” or, “Where were your parents born?”
Both questions are discriminative as they seek to know the renter’s national origin.
- “Do you think you would fit in? There aren’t a lot of temples around here.”
This question assumes a tenants spiritual and religious beliefs. Under the Federal Fair Housing Act, a tenant’s religion should be none of your business.
- “Your skin is dark. Are you sure that you’d feel comfortable around here?”
You shouldn’t use a tenant’s color as a qualifying standard. It’s illegal.
Besides the Federal Fair Housing Act, it is illegal to ask a prospective tenant whether they have ever been arrested or not. You could, however, ask them whether they have been convicted of a crime.
Also, make sure you are up to date on the Washington State landlord-tenant law before carrying out any tenant screening questions.
Asking the right questions to prospective tenants will improve your chances of landing a good tenant for your Seattle rental property. On the other hand, asking the wrong questions can land you in legal hot soup. Hopefully, with this guide, you will be able to do the right thing and prepare you for questions to ask possible renters.
Have you ever asked your boss for a raise?
Have you brokered a deal with a big client?
If you have, then you may already know that it’s no easy task. Raising the rent on your tenants can seem just as difficult.
Increasing the monthly rent on your Seattle rental property is something that you will inevitably experience. For the process to be successful, planning is key. It isn’t uncommon for complaints to arise after you have raised your property’s rent. No one likes to be charged more for the “same” thing.
There are many reasons that might prompt you to raise the rent. In Seattle, common reasons include:
- Expenses on your property have increased
If your regular monthly expenses have increased, you definitely need to increase your rental fee. Such expenses include mortgage payment, property management fees, Homeowner Association (HOA) dues, insurance, and property taxes.
Did you spend money-adding backsplashes, installing wood flooring, replacing doors, adding a fresh coat of paint, or replacing cabinet doors? Or, are you planning to make some major upgrades? If so, it is a justification to raise the rent.
- Comparable rents have gone up
Are rental fees rising all around you? If so, then you should too.
- The current lease term has ended
Even if you don’t have any justification to raise the rent, you should always remember to raise the rent at the end of the current lease term. Most tenants expect the rent to increase slightly at every lease renewal time of say $20 to $50 or so. However, if you raise it to say $250 after not having raised it for 5 years, it’s likely that you will get complaints. Generally, you should increase the rent by about 3% to 5% each year.
Understanding When to Raise Rent
As already mentioned, always raise the rent at the end of every lease term, whether it is tied to a lease renewal or to a renter moving out. Conduct a comparative market analysis to understand what similar properties are charging.
Then, factor in other distinguishing factors that your property may have. This will ensure that you get the right Return of Investment (ROI) on your asset.
However, leave room for negotiation with your current tenant, especially if they are good. As a Seattle landlord, you certainly know that finding good tenants isn’t an easy walk in the park.
If the tenant is good, also consider the following two things:
- Check if the rental fees for similar properties in your neighborhood have increased, but only minimally. If so, you have the option to price your competition out of the market by simply not raising the rent.
- Whether other properties are providing promotions and incentives to prospective tenants. If they are significant, the competition could be really tough.
On the other hand, if rental fees have significantly gone up, your renters will likely expect – and accept – a reasonable rent raise. If you do lose them, it may be possible to get new ones at a nice rent increase.
Calculating the Rent Increase
When you have considered raising the rental fee, the next question is, how much should you raise the rent?
The answer is – it depends.
According to a market report, rents increased by 12.5% from 2011 to 2016. But, markets vary dramatically, even within the same metropolis. That is why it pays to analyze the market prior to raising the rent.
You could hire a local real estate agent to help you in this regard. Or, you could choose to perform a comparative market analysis yourself.
Charging the right rent will attract the best, most qualified number of prospective tenants. That means stable income and low turnover costs. On the other hand, charging a lower rent can mean leaving money on the table, and charging a higher rent can mean a longer vacancy period.
Your goal should be to remain as competitive as possible. Generally speaking, you should raise the rent by around 3% to 5% every year. Of course, you should also factor in market forces.
When calculating the amount to increase the rent by, consider the following things:
Cash flow matters. In fact, it’s likely the reason you became a landlord. When you are making money from your Seattle rental property, it means that your cash flow is positive. This essentially means that your investment is profitable.
- Similar properties in your area.
Have rentals similar to yours charging more? If they are, increase your cost as well.
- Seattle local housing laws.
Generally, landlords must give their tenants a 30-day notice prior to raising their rental fee. In Seattle, however, the notice period depends on the rent increase amount.
If the rent increase is less than 10%, then you need to give your tenant the normal 30-day notice. However, for a rent increase exceeding 10%, then you need to give your tenant a 60-day notice.
Compliance with Seattle Fair Housing Rules
As with all aspects of being a landlord, ensure you are compliant with Seattle discrimination laws.
Check Out: http://tsquareproperties.net/overview-of-the-landlord-tenant-laws-in-washington-state
In Seattle, protected classes include:
- Military status
- Use of a service animal
- Sexual orientation
- Political ideology
- Parental status
- National Origin
- Marital Status
- Gender Identity
- Breastfeeding in a public place
Essentially, you should not increase rental fees based on a tenant characteristic. For example, it is discriminative to raise the rent on tenants of a certain familial status or race. Likewise, you cannot increase the rent to punish a tenant that complained to the city about your inability to make needed repairs.
In Seattle, you are restricted from raising rent for a set period if your tenant has:
- Been involved in a tenant’s organization
- Filed an official complaint to a government authority
- Or, has exercised a legal right
If you raise the rent after the tenant has done any of the above, a court may assume it’s a retaliatory act.
Informing Your Tenant of the Rent Raise
Make the communication as clear and professional as possible. Also, don’t leave any room for confusion, argument, or negotiation. The best way to inform your tenant is through a written notice.
No tenant will appreciate a rent increase. But, if you make the process structured, you will likely get through it will less backlash. With a little bit of luck, this article will help you achieve just that.