8 Essential Documents All Landlords Should Understand
If you are planning on leasing a property for the first time, the paperwork involved from security deposits, leases, rental payments, and even evictions may seem a little overwhelming. There are several documents that you have a legal obligation to provide your tenants with as well as others that you should have as the landlord.
Even if you have experience renting property out, some of the documents you are required to maintain may change. Whatever your renting experiences, these are the documents that every landlord needs to have and understand.
Essential Landlord Documents to Have and Understand
The importance of maintaining some documents cannot be overstated. They can be crucial if you experience an IRS audit, must file a lawsuit, are sued by a tenant, need to report to a property owner, or need to evict in a worst-case scenario. Whatever situation might arise, these are the documents that you need to have and understand.
1. A Rental Application
The rental application submitted by prospective tenants provides important details that enable you to decide whether to accept a tenant or deny the application. This document should include:
- Applicant's contact information
- Previous and current residence
- References
- Proof of Income
- Employment history
- Authorization to pull a criminal record
- Authorization to request a credit report
Keep both accepted and denied rental applications. It's important to check federal and state legislation to determine how long you need to keep these records on file. When creating your rental application form, consider having it reviewed by an attorney to ensure that it is legal and includes all the essentials.
2. The Lease Agreement
The lease is the official document that certifies you to permit the tenant to occupy your property for a specified length of time. It should define the responsibilities as well as the rights of both the tenant and the landlord. This document is fundamental in legal disputes and for an eventual eviction. While lease terms will vary, this agreement should include:
- Dates and terms of the rental agreement
- Rights and duties of the landlord
- Rights and responsibilities of the tenant
- Tenant accountability and property protection
- Payment details such as methods and due dates
- Pet policies, required deposits, additional rental fees, cleaning, and duties
- Sub-leasing policies
- Eviction procedures
- Move-out inventory and property condition list
Keep the lease even after your tenant moves. The IRS can require an audit long after a lease has expired and in the event of a legal dispute, can prove to be critical to your case.
3. Co-signer document
Consider the possibility that your potential tenant will need a co-signer as they may not have a credit or rental history. It may be a parent, relative, or caregiver. In this agreement, the co-signer guarantees to pay the rent if your tenant fails to.
4. Rental Property Income Statement
This profit and loss statement for rental property is essential to understanding the financial returns or losses on your investment. It will include all income received and all expenses for managing your property. It aids in budgeting and identifying problems, and it will come in handy at tax time for both earnings and deductions.
5. Move-In Rental Inspection List
A move-in inventory list is essential for both you and your tenant. This list enables you to keep track of the property's condition. It will also ensure a tenant's accountability for damage. If you do not prepare a move-in list that is signed by both parties and dated, should a conflict arise, it will be your word against that of your tenant.
It is a crucial document for tenants as it ensures that they will not be held responsible for pre-existing property damage. Review this list when your tenant moves in and again when he or she moves out. This document will aid in determining if there is normal wear and tear or real damage.
6. Lease Renewal or Non-Renewal Documents
A lease renewal will allow you to save time and money. You can avoid the expense and need to find new tenants and an eventual vacancy. Your current tenant will already be aware of your lease terms and have accepted them. Determine ahead of time how much in advance you will ask your tenant if he or she plans on renewing or leaving the property. All cost increases should be included.
7. Move-Out Communication
If your tenant is not renewing the lease, you need to send a move-out letter or email a month or two before the lease expires. Specify your tenant's responsibilities before leaving the property and how and when the security deposit will be returned. Vacancy costs a landlord money, so this document is essential. When a tenant does not vacate the property and return the keys is a day less you can rent, therefore you lose income. Your move-out communication needs to include cleaning needs, the final inspection date, a request for a forwarding address, and security deposit penalties.
8. Move-Out Inventory and Property Condition List
This document lists the tenant's responsibility upon vacating a leased property and can be included with the lease agreement. It is beneficial to both landlords and tenants because it encourages leaving the property in good condition upon lease termination for the landlord and improves a tenant's chances of getting the entire security deposit returned.
Protecting Your Rental Investment
Retaining essential documentation is the first step toward protecting your rental property. Keeping a digital copy of everything and storing it on the cloud or in a secure location can act as a backup to hard paper copies. File all communications with your tenants (emails, faxes, text messages, telephone conversation notes, etc.) from the application process until property evacuation. This, together with essential rental documents will aid you in the event of future disputes.