Many people purchase property intending to rent it out, and make it a continuing income source for them. This can be a smart investment that can yield profits. However, doing this makes you a landlord. Many lay people who are not experienced in such matters can find themselves confused by, or not aware of, important rights of landlords and tenants.
Potential Liability for Legal Violations
Potential landlords should be aware that violating tenant’s rights or other laws could get them sued. For example, laws specifically dictate how tenant’s security deposits can be handled and when they must be returned. Federal law prohibits discrimination in the rental process. Federal law also dictates when and how a potential tenant’s credit can be pulled for screening.
Evictions of non-paying or noncompliant tenants can be contested and lengthy if proper disclosures are not made in the lease, or if notifications are not sent to noncompliant tenants in the proper form or in the correct timeframes.
Any landlord tenant agreement that you use should be reviewed by an attorney before closing on the property. If there is a legally required condition in the lease that you are not comfortable with, you may want to know that before you purchase the property.
Liability for the Property’s Condition
It is not just violating landlord tenant laws that can lead to liability. In some cases, criminal attacks that take place on property or injuries caused by parts of the property that are maintained by the landlord can result in injuries that give victims a right to sue, whether those victims are renters or not.
People buying property with the intent to rent it out should make sure that they have liability insurance. The insurance should be procured early, as it may require alterations or changes to be made to the property in order to get the insurance, and those alterations can end up delaying a closing if not planned far enough in advance.
Ownership by a Corporation can be an Asset Protection Strategy
Corporations are separate legal entities, and as such, can sometimes insulate your personal assets from being taken if you are sued for more than your insurance limits (or for claims that are not covered by insurance). Although the company may have to pay outstanding judgements, including, possibly, the loss of the property itself, a judgment holder could not touch your personal assets or income.
Whether to create an LLC or other corporate entity is something to discuss with a tax attorney, as each has its own tax ramifications.
The business can even have a plan as to what happens to the property if you pass away. Bylaws, Articles of Incorporation, or Management Agreements can have these provisions, which will avoid lengthy probate issues and allow family members (or whomever you should choose) to take ownership of the property.
Contact a real estate attorney at The Law Office of Agnes Rybar LLC to make sure that you are prepared for every contingency in the purchase of your New Jersey rental property.
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