If you’re looking to become a real estate investor in rental properties, it would behoove you to understand there are a few rules to the game of landlording.

Besides the rules and principles of finance, return on investment and passive cash flow, there are also laws and regulations that even the fledgling landlord must master. Unlike the land holders of centuries ago, who were “lords” of the land, and therefore could rule as either a benevolent or despotic dictator, the landlord of the 21st century in America will find him or herself girded with a plethora of local, state and federal rules that govern the practice of dealing in real estate.

The regulations real estate landlords face include fair housing (local, state and federal), disclosures on lead-based paint (federal), and state-level tenant/landlord acts that regulate the responsibilities and privileges of both the renter and the landlord.

First a warning: this column is nothing more than a word of caution to those who want to start renting out real estate as a means of generating income. The area of real estate investment is littered with the corpses of those who failed to equip themselves legally or financially for the task of investing in real estate. Not only will you have laws to deal with, but now you may be viewed differently under the federal tax code as well. As with any business venture – and investing in real estate IS a business venture – seek out proper legal and financial counseling besides clicking onto various get-rich quick web sites.

Now to the meat.

Fair Housing The Fair Housing Act of 1964 affects everyone. Whether you are a buyer, seller, renter, landlord, neighbor or protected class – this law requires all parties to not discriminate based on race, color, sex, religion, handicap, familial status, or national origin.

Even if you’re not involved in the real estate transaction, if you stand in the way of someone enjoying their property ownership, you could be sued for housing discrimination. For instance, if a person starts to threaten or treat badly a neighbor because they are of a certain religion, the person being discriminated against could sue the neighbor – but the complaint could also come from a civil rights group, real estate professional or government agency – anyone who is aware of the discrimination could file the suit.

Obviously, landlords must adhere to the Fair Housing Act. In addition, states and localities may tack on even more classes for protection. In Washington, D.C., for instance, it is unlawful to discriminate based on political affiliation, matriculation (students), personal appearance, or even on ancestry. As a landlord, you must be aware of what your locality

does and does not allow in your tenant selection process. If it’s missing in the local or state fair housing act, then defer to the federal rules.

Lead-based paint disclosure Houses built before 1978 most likely had lead-based paint in them and this is now a required disclosure whether you’re renting out a unit or selling a house to someone. The current supply of paint used in houses is lead-free. In some states, there are other requirements besides the federally-mandated disclosure, such as required participation in insurance programs to cover possible lead-poisoning.

Your Realtor should have a copy of the government-required disclosure form in her listing package as you put the house on the market, but it is the owner’s responsibility to make sure their tenants or buyers have been informed of the presence of lead-based paint in the house. Federal regulators treat this part o the code very seriously. A Maryland landlord made national headlines last year when he faced criminal charges for not disclosing and was fined tens of thousands of dollars as a result.

If your house was built before 1978, then disclose to your tenants and let them decide whether or not if they are willing to live in your house. By the way, painting over the lead-based paint doesn’t take away your liability.

Tenant-landlord Laws More than likely, your state has a tenant-landlord law and if you are going to rent out property to tenants, you need to get real personal with this document. Go to Cornell University’s Law section at http://www.law.cornell.edu/topics/landlord_tenant.html for landlord information from court rulings to federal and state regulations. Once you’ve read your state act, contact the housing agency in your county or

city and see if they have even more requirements.

A tenant-landlord act regulates the actions between a landlord and his/her tenants. It lays out the guidelines for what both parties will and won’t be held responsible. For instance, while you may be able to sell a house “as is,” this is not the case with a rental. All appliances and systems (at least in most tenant-landlord acts I’ve seen) require them to be in working order. This is what you might call an anti-slum lord provision.

The contents of a tenant-landlord act will differ state to state. Some will go on for volumes, while others may not even have a dozen pages to peruse. Nevertheless, this is the real estate investor’s Bible of sorts and something that should be studied. It may not be the most exciting reading, but you’ll enjoy reading a summons for your appearance in court even less.

Real estate investment is one of the most invigorating ways to build personal wealth and participate in the American Dream, but it should be pursued with much respect and due diligence.

M. Anthony Carr writes about real estate from inside the industry. He has sold, bought, and invested in real estate for more than a decade. In addition, he is a national trainer for real estate professionals in such areas as marketing, sales and fair housing issues. He has been an editorial contributor to various newspapers, trade publications and Web sites across the country.

Published: March 1, 2002

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