How to Manage a Secondary Suite (Without Losing Money)

by | Jan 2, 2018 | Tenant Screening

Secondary suites — apartments located withing existing homes — are viewed as a win-win situation, where homeowners can earn a little extra income, and tenants can find a convenient place to live in extreme low-vacancy markets.

Another benefit: secondary suites may be offered to tenants for less rent than apartment units with amenities. This may help to alleviate the affordable housing crisis, while helping homeowners pay their mortgages.

But, as is the case with all first-time landlords, there is a risk of income loss if the secondary suite rental is not treated like a business transaction:

Start from a Position of Strength

Secondary suites, like other residential rentals, are regulated. The primary focus of these regulations is the safety of the structure. Landlords who rent secondary suites under the radar may believe they are helping out a tenant. But in reality, the most likely person to turn in a landlord who is operating a secondary suite illegally is the tenant — after the landlord attempts to raise the rent or scolds the tenant for making too much noise. In one case, the disruptive tenant complained to the building department, and the landlord ultimately was forced to tear down the above-garage unit because it lacked the proper permits.

These safety precautions need to be taken seriously, even in situations where the homeowner has lived in the property for many years. Landlords can be held liable for injuries that occur. Take the time to anticipate possible risks. Secondary suites located in basements must have easy emergency egress. All units need to be equipped with carbon monoxide and smoke detectors. Doors should have deadbolts, and outdoor lighting should be installed around entries and parking areas to deter crime and reduce accidents. Every property should be safe enough for children and adults.

Have Processes in Place Before Advertising the Vacancy

Bad tenants seek out inexperienced landlords because these landlords are easier to manipulate. One bad tenant can cause tens of thousands of dollars in damage or other income loss. Don’t be a victim. Repel bad tenants by appearing professional. Have the proper paperwork in place beforehand, and demonstrate confidence about the leasing process. Meet with a landlord attorney or join a local landlord association to speed up the learning curve. Can you charge a deposit? Is your rent too high? What goes in the tenancy agreement? Learn some of the basic ground rules before meeting prospective tenants.

Policies to consider include parking issues, whether to allow pets, smoking or no-smoking, and what income requirements might make sense. Also, consider the day-to-day management of the property. Noise limits and related restrictions help keep the peace.

Once these policies are in place, it is easier to spot bad tenants — the ones who are testing to see if the landlord will bend the rules, or has no rules to begin with.

Advertise the Unit, Not the Tenant

Advertise the characteristics of the secondary suite, not the preferred tenant. One of the mistakes first-time landlords make is seeking out tenants based on biases as to what sort of tenant is most appealing. Race, gender, religion and other such characteristics have no bearing on the person’s ability to pay rent and care for the property. Landlords who advertise for students, retirees, someone employed for a specific number of years, or who work for a local employer not only are breaking the law, they are missing out on qualified tenants. The person can look the part yet be the tenant from hell. Bad tenants are counting on this mistake, so they’ll play to the landlord’s preferences or sympathies — even if it’s a fraud.

Run a Tenant Background Check

Run a tenant background check on the applicant under consideration regardless of how good that applicant appears. It is no coincidence that some of the worst tenants also are the most charming. They’ve had time and opportunity to practice the act. Tenants who have pretended to be rich turned out to be frauds. Tenants who have said they needed someone to give them a break turned out to be scammers. A tenant background check that includes a completed rental application, a credit report, and speaking with previous landlord references greatly reduces the risk of income loss.

For safety’s sake, the best practice is to prequalify the applicant over the phone before agreeing to meet and checking a photo ID before offering a property tour. Never waive the tenant background check for any applicant or rent to an applicant on the spot.

Tenancy Agreement Must be Clear

The tenancy agreement is most effective if the tenant understands it. Go over material provisions in the lease with the tenant in person. One of the most important provisions to review is reporting monthly rent payments to a credit reporting agency. TVS provides this service at Report Rent Payments. That information is then shared with Equifax Canada and included on the tenant’s credit report. The Notice to Tenant should be included in the Tenancy Agreement. Once the tenant understands that late rent payments will be reported, it serves as incentive to pay rent on time every month.

Encourage the tenant to keep the lease handy or provide a summary so the tenant can refer to it later if needed. Most tenants will try to abide by the rules, so long as they know what the rules are. Never allow a tenant to move in before signing a lease. That compromises the landlord’s legal rights.

Complete a Property Condition Report

This document simply profiles the condition of the unit when the tenant moves in, and again when the tenant moves out. It may be the only way to show that any damage to the unit was caused by that specific tenant. In fact, the condition report may be required by local rental laws before claiming deductions from a security deposit or pursuing the tenant for property damage.

Keep Emotions in Check

Never get emotional or personal with the tenant. Friction between the landlord and tenant can lead to missed rent payments, broken leases, or even legal action. Don’t judge tenants or get involved in their personal lives. Stay professional at all times. Remember, this is a business. It pays to keep it that way.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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