Home Remodeling Advice: Take Two Aspirin and Think Again in the Morning

Spring has arrived, and with it, an overpowering desire on the part of homeowners everywhere to clean up, spruce up, freshen up, lighten up, and otherwise make homes that suddenly seem old and tired look more like new. Sometimes a good old-fashioned top-to-bottom spring cleaning is all it takes. But for many homeowners, nothing less than a full-scale remodeling project will do. If taking two aspirin and a nap doesn’t make that feeling go away, where should you start?

As a first step, think carefully about what you want to do, and why. The motivation matters. If you are planning to sell your home and are remodeling with an eye toward prospective buyers, you have to consider the likely return on any investment you make. In this context, most real estate experts advise, less is almost always more. Your likelihood of recovering your costs is a lot smaller than the risk of making changes that potential buyers won’t like. That is especially true in a strong seller’s market. If you think major renovations are needed to improve your home’s market appeal, you might be better off offering to pay a specified sum toward the remodeling and let buyers make the changes they want.

Getting Your Money Back

Extensive pre-sale renovations are hardly ever indicated; on the other hand, relatively small upgrades can make a big difference. National surveys have found that spending less than $300 to clean and “de-clutter” your house can add $1,400 to $1,700 to your selling price. Similarly, spending less than $400 on outdoor landscaping (just mowing the lawn and trimming the hedges will help) can bring up to $900 more than you might get otherwise.

If you are considering pre-sale renovations, there is no question that some will provide a larger payback than others. Kitchen renovations are at the top of that list. Remodeling magazine’s annual cost/return survey found that a “minor” kitchen renovation (defined as installing new appliances, replacing old cabinets, and repainting the walls) recouped 81 percent of the cost ($8,655) for properties sold within one year of the project. That’s a national average. The same remodeling work in the Boston market would cost $10,040, but the recovery would be almost 100 percent.

Bathrooms – specifically, adding a second (or third or fourth bathroom, depending on how many teenagers will be occupying the house) ranked second on Remodeling’s most cost-effective renovations list, returning 72 percent of the average $13,918 cost (83 percent of $16,145 in the Boston area). Simply remodeling an existing bathroom as opposed to adding a new one costs a lot less ($6,442) but produces approximately the same (80 percent) return.

Remodeling to Stay

If you are remodeling a home you plan to keep rather than one you plan to sell, the perspective is different. You don’t have to worry about making changes prospective buyers won’t like; however, you do have to worry about contracting the home renovation virus – a dangerous and apparently contagious illness that infects approximately 75 percent of all homeowners who remodel their homes. Symptoms include an irrational conviction that all things are possible, an inability to perceive the connection between the renovations planned and their likely cost, and a tendency to smile and say “why not” to any suggestion for “just one more change” that will make the finished project even better. The best example of this syndrome is found in the movie “The Money Pit”—a good image to keep in mind as you begin the renovation process.

There is no known cure for this illness, but there are some things you can do to increase your immunity to it. Start by developing a list of everything improvement you want to make; then divide that list into changes you would “like” vs. those you need. The must-do list might include replacing a repair-prone and inefficient heating or cooling system or repairing or replacing a leaking roof. Installing skylights, putting a spa in the master bathroom or adding a swimming pool, on the other hand, might wind up on the non-essential or (if your spouse reacts like mine) the “have you lost your mind” portion of the list.

Financing Alternatives

Obviously, your available funds will dictate (or should dictate) the scope of the renovations you decide to undertake. So you should decide up front how much money you are planning to spend and where you intend to obtain those funds. A home equity loan, cash-out refinancing, sale of stock, or cash savings all represent possible financing options, and all have advantages and disadvantages. Using your savings, for example, might deplete reserves you need available for emergencies or divert funds you might invest elsewhere. An equity loan or cash-out refinancing will increase your debt load and reduce the equity in your house. These are not arguments against any of those options, but they are factors to consider when deciding what represents the best financing strategy for you.

Whatever your source of financing for the remodeling work, you will want to develop a budget – or at least, a ballpark budget – and stick as close to it as possible. If you are hiring a contractor for the work (a process discussed later in more detail), the estimates they submit will give you an idea of the budget you will need. Of course, no construction job in history ever finished on time or under budget, but you can hope. And you can try to adopt a disciplined approach, starting with developing a realistic project outline, and continuing with a determination not to make major changes (or even minor ones) after construction begins. Every time you make a change you change the cost and usually not in your favor. If adding a fireplace is an afterthought (after the sheetrock has been finished) or if you decide the shower would be better on another wall (after the plumbing has been installed), you probably can live without those changes a lot better than you can live with what it will cost you to make them.

The more carefully you plan the project at the outset, the less likely you will be confronted with painful and potentially expensive second thoughts. Of course, no amount of planning can avoid the problems that are intrinsic in remodeling jobs. You can’t know exactly what’s behind a wall until you tear it down, and you can’t predict what will be required to cope with the surprises you encounter. So build a contingency fund into your budget and be prepared for the possibility that you will either have to pay more for the project or reduce its scope.

Mending Fences

Once you’ve decided (more or less) what renovations you are going to undertake, find out what permits you will need. If you are adding an extension – building up or out – zoning, setback or height restrictions may apply. You want to find out what they are and get any approvals or variances you need if the changes you are planning fall outside the rules. Because variances typically require the approval of abutters to a project, you should assess your relationships with your neighbors and make an effort to mend any long-standing feuds. Anyone with a grudge against you will use the variance appeals process to express his dissatisfaction. If you’ve ever objected to a neighbor’s variance request, you can pretty much forget about getting approval for yours. This might be a good time to have that neighborhood get-together you’ve been planning, just to remind everyone what good neighbors and all-around good guys you are.

Selecting a Contractor

Your most important decision, next to deciding what renovations you are going to do, is whether to hire a contractor or do the work yourself. This will depend on the nature of the project, your budget, your skills, and your time, among other factors. Just try to be realistic, especially about your abilities and available time – there is a tendency to over-estimate the former and under-estimate the latter, with unfortunate results. If you don’t know which end of a hammer to use or what to do with it, don’t assume that you’ll be able to learn quickly as you go along. If timing is important—if the baby is due in four months and the nursery has to be constructed before then—you may want to hire a professional to do the work. That won’t guarantee your desired completion date, but it will improve the odds.

Of course, hiring a contractor has its own set of cautions and concerns. Stories of shoddy work and home improvement scams are legion. Home improvements topped the list of consumer complaints in the annual survey conducted by the National Association of Consumer Agency Administrators and the Consumer Federation of America, beating out auto sales (second, auto repairs (fourth) and even landlord-tenant problems, which tied with collection practices for the eight and ninth spots on the top 10 list. There is no magic bullet, but there are some steps you can take to protect yourself:

• Get at least three bids – more on a larger project. The best recommendations for contractors will come from people for whom they have done work in the past, so check with friends and relatives who have hired contractors for similar projects or who know others who have gone through this process. Ask any contractors you are considering to provide additional references (and check them). Take a look at some completed projects if you can.
• Insist on proof that the contractors are licensed or registered with the state and don’t take their word for it; verify that the registration is current by contacting the Board of Building Regulations and Standards (800-223-0933, or 617-727-3200, ext. 605. You can also verify licenses on line at www.state.ma.us/bbrs/Hicsearch.htm.

Additionally, you will want to make sure contractors you are considering don’t have a history of consumer complains. The Better Business Bureau (426-9000) and the state Attorney General’s Office (727-8400) can provide that information. The state Office of Consumer Affairs & Business Regulation (727-7780 or 888-283-3757) can tell you if there have been any arbitration cases or claims for reimbursement from a state guaranty fund established to compensate consumers who suffer losses resulting from shoddy or illegal home improvement practices.

• Ask contractors to provide verification of their workmen’s compensation policies and insist on proof of liability insurance coverage as well. You might want to call the insurance company listed on the policy, just to be sure.
• When soliciting bids, be very specific about the project you outline. The clearer your specifications, the less room for misunderstandings about the extent of the work required or the cost of the project. You want to make sure all are bidding on the same work, using comparable materials, so your price comparisons are as accurate as possible.
• When you have chosen your contractor, insist on a written contract specifying in detail the work to be done, the materials to be used, the estimated completion date and the cost. Have someone you trust (preferably, an attorney) read the contract before you sign it. The contract should include, among other details, a copy of the contractor’s insurance, the contractor’s registration number, and an explanation of the payment schedule, including the amount of any up-front payment required. (State law prohibits a contractor from collecting more than one-third of the total contract amount in advance unless the project requires materials available only through a special order.) You want the contract to state clearly that the bulk of the payment will be made after the work has been completed to your satisfaction.

You cannot (and should not) withhold payment unreasonably, but don’t sign off on the project until you are certain the contractor has done the work promised. Even if you’re dealing with a reputable contractor, follow-up work may be necessary, and you will never have more leverage than you have before you have made the final payment.

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You, too, Can Purchase a Home at a
Foreclosure Auction — but Do You Want To?

Economists look at loan delinquency rates, bankruptcy filings, and consumer debt loads, among other statistical indicators, to gauge the level of financial misery. I look at the late night television ads hawking something-for-nothing real estate investment schemes to tell me what I need to know about economic conditions.

These high-energy come-ons never really go away, but the frequency and intensity with which they appear seems to rise and fall with the economy. While they didn’t claim any spots on the Super Bowl broadcast (too much exposure there already, I guess) the “you can get rich instantly with no money and no sweat” schemes are crowding the airwaves again, suggesting that the economic recovery may not be quite as far along as some politicians suggest and as the rest of us might hope. Weighing the Odds Among the promotions that you hardly see at all when times are very good, but tend to see a lot when they aren’t, are those highlighting the opportunities to purchase homes at foreclosure sales. According to these singers of real estate siren songs, those in the know (a group that could include you, too, if you pay $28.95 plus tax and shipping) can show up at a foreclosure auction and walk away with a luxury home in an exclusive neighborhood for which they have paid just pennies on the dollar. These pitches, predictably, exclude a few crucial details, such as:

• Your odds of finding a dream home and purchasing it at a foreclosure sale are quite low — roughly equivalent to your chances of winning the lottery.
• Your odds of losing your shirt, and several layers of skin, on the other hand, are quite high — comparable to your chances of having an accident if you drive down Route 93 blindfolded at rush hour during a snow storm.

The comparison is not as exaggerated as it seems. When you purchase a home at a foreclosure auction, you will usually be bidding on a property you have only seen from the outside. It’s like unwrapping an unexpected gift, except that the surprises inside are not likely to be pleasant ones.

Recognizing the Risks

In a conventional home purchase transaction, you find a house you like and you make an offer on it that is contingent on, among other factors, a satisfactory home inspection. If the inspection reveals problems you didn’t see or aren’t willing to pay for, you can renegotiate the price or back out of the deal, without penalty.

Not so in a foreclosure auction, where what you see may or may not be what your get. You purchase the home “as is” and you won’t know exactly what that means until you’ve submitted the winning bid. At that point, you’ve agreed to buy the property along with all of its potential problems, which may include outstanding tax liens, costly repairs, a clouded title (that may make it impossible for you to sell the property in the future) and occupants who are unwilling to leave voluntarily. Congratulations. You’ve won a lot more, or less, than you bargained for.

Financing a foreclosure purchase also entails risks that you don’t encounter in a conventional transaction. If you submit the winning bid, you will have to make a sizable deposit on the spot, usually at least $10,000 or more. You will then have a specified period time, usually no more than 30 to 60 days, to obtain financing and complete the purchase.

Unlike a standard purchase and sale agreement, the auction purchase contract does not contain a financing contingency clause; if you can’t obtain the financing you need by the purchase deadline, you will lose your deposit — all of it — with no recourse.

Even arranging the financing in advance (definitely a good idea) won’t necessarily provide all the protection you need. A lender’s pre-approval of your loan will be contingent on the appraisal; if the appraised value of the property is lower than your winning bid, the maximum loan the lender will approve may fall short of the amount you need, in which case, you will have to close the gap from your own resources or find alternative financing — not a pleasant prospect, especially given the looming purchase deadline.

Real Estate Owned

One of the biggest risks at any auction is that you will get caught up in the bidding frenzy and end up paying more than you can afford, or more than the property is worth. The ads suggesting that you can expect to pay pennies on the dollar for foreclosed homes are a bit misleading. It’s true the lenders holding the loans are anxious to sell the properties, but it is not true that they are willing to give them away. In fact, in most cases, it’s the lender that submits the winning auction bid, to keep the price high enough to avoid taking a loss on the sale.

After taking possession of the property, the lender will turn around and offer it for sale. For most consumers, buying a property from a lender’s “real estate owned” portfolio will be a better idea than attempting to negotiate an auction purchase. For one thing, purchasing from the bank will be more similar to a conventional purchase; you will be able to have the home inspected and you can include all the standard contingency protections in the purchase agreement.

Depending on market conditions, the lender may also be willing to provide financing for the purchase, along with an attractive purchase price, but attractive does not mean fire sale. You are unlikely to purchase a $300,000 home in mint condition for half price. But you will probably get a better deal than you would by purchasing a comparable property directly from an owner who is not facing foreclosure or otherwise pressured to sell.

HUD Homes

If you are determined to try your luck at an auction, you might consider buying a HUD- (Department of Housing and Urban Development) foreclosed home. The owners of these homes purchased them with mortgages insured by the Federal Housing Administration (FHA), which is why HUD, rather than a bank, or credit union or mortgage company, is foreclosing on them. Although HUD auctions involve many of the same risks as lender auctions, they have some advantages for buyers, primary among them, the opportunity to inspect the property before bidding on it. Additionally, on some homes (usually those in particularly bad shape) HUD may offer an allowance, in the form of a purchase price rebate, for upgrades or moving expenses, or a bonus for closing early.

HUD-foreclosed homes are also easy to identify; the agency lists them on its Web site http://www.hud.gov/foreclosure/index.cfm. You can also find foreclosure listings (for lender as well as HUD homes) by scanning local newspaper ads, or by subscribing to publications that track this information. One of the best, http://www.foreclosures.com offers a seven-day free trial period, after which subscribers pay about $28 per month for access to complete listings. One major advantage: You pay for the service monthly, and only for as long as you are using it, instead of paying an annual fee for a service you might end up using for only a few weeks.

As with a conventional auction, you should arrange your financing for a HUD auction in advance, or risk losing your deposit if you can’t complete the transaction within the time allowed. Buyers also cannot bid directly on HUD homes; you have to submit your bid through an approved real estate broker. If HUD does not accept any of the bids submitted during the designated “offer period,” interested buyers can continue submitting bids until the agency receives an offer it likes.

Auction Advice

Buying at a foreclosure sale is not the best idea for everyone, but it does offer opportunities for those who understand the process and who recognize the risks as well as the potential rewards involved. If you are planning to try your luck (a bit of which will certainly help) at a foreclosure auction, keep the following points in mind:

• Attend several auctions to see how they work and to get a feel for the atmosphere before you participate in the bidding.
• Arrange your financing in advance. Explain your auction purchase plan to the lender, find out exactly what documentation is required, and complete as much of that paperwork as possible in advance. Also order a copy of your credit report and clear up any problems you identify. You are not going to have time after the auction to eliminate any financing obstacles you encounter.
• Do your homework. Find out as much as you can about the property on which you are bidding and the market in which it is located. Use that information to establish a realistic target for your bidding.
• Keep your eye fixed firmly on the prize – the house, not the bidding competition. The worst outcome at an auction is not losing a house you wanted but acquiring one you regret buying, paying a lot more for it than you should, or both. …

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What Condominium Owners Don’t Know Can Hurt Everyone

Many new condominium owners settle into the communities in which they have purchased units with great enthusiasm for the “someone else shovels the snow” lifestyle conveyed in the marketing brochures, but with little understanding of what it means to live in a condominium community or to be part of a community association. And that gap between what new condominium owners know and what they need to know, is responsible for some of the most difficult and most frustrating problems condominium communities and their governing boards confront.

If original sin has an equivalent in the condominium context, it is the failure of many new condominium owners to read the key condominium documents—the master deed, the by-laws, and the rules and regulations – before buying their units. That is tantamount to buying a board game you’ve never played and then throwing away the instructions before you open the box, except that the consequences for condominium buyers and community associations are far more serious.

I remember getting a letter from a unit owner some years ago who said that while she recalled receiving a copy of the condominium documents before buying her unit, she “thought they were unfriendly and threw them away.”

That all-too-common reaction explains why so many new condominium owners bring three or four vehicles to communities that provide only two parking spaces per unit; or why so many owners are shocked to discover that the “no pet” clause they did not notice or ignored when they bought their unit is a rule the community association enforces with no exceptions, not even for the three cats “who never make any noise” or the Great Dane the owners insist all the other residents will love as much as they do.

Obviously, finding some way to ensure that prospective owners simply read the rules before buying would do much to ease their transition into the condominium community and eliminate much of the friction that can mar the condominium experience both for new arrivals and for the other residents and condominium trustees who must cope with the problems created by what new condominium owners don’t know. Condominium “veterans” offer many other suggestions for prospective buyers and new owners.

Follow the Rules

Trustees say one of their hardest jobs is dealing with individual owners who often resent the very idea that other members of the community can tell them what they can or can’t do with the units they own. Many owners don’t realize just how costly and counter-productive (not to mention unpleasant) fights over the enforcement of rules can be. The time, energy, and money boards expend fighting with balky owners divert resources from activities that would benefit the entire community.

Educate Yourself

It is not just the failure of some owners to read the rules and regulations that creates problems for condominium communities; it is their failure to do even minimal research on condominium living generally and on the particular condominium community in which they are planning to live.

Prospective buyers should insist on seeing current financial documents, including the operating budget, and they should ask about the association’s future plans so they will no in advance about a scheduled fee increase or planned special assessment. Equally important, prospective buyers should knock on doors and talk to other owners, to find out how current residents like living in the community and to get some sense of what their future neighbors will be like. Condominium communities have (or should have) distinct personalities, defined in part by the demographics of the owners, the amenities of the development, and the management structure, among other factors. It is important to determine before you buy whether a particular community and its residents represent a good match for you.

Buy Some Earplugs

The most common and vexing complaint in a condominium community is probably noisy neighbors. You will find the same complaint in an apartment setting, with one exception: Tenants usually expect to hear their neighbors; condominium owners expect the unit they own to be 100 percent soundproof, even if it is identical in structure and design to the unit they used to rent—as if ownership somehow should magically obliterate all external noise. The reality is, if you share common walls and common hallways with your neighbors, you are going to hear some sounds of their existence, regardless of whether you own the walls or rent them.

Some noise levels really are excessive and unacceptable and many community associations try to establish reasonable boundaries, specifying, for example that owners should restrict their use of vacuums, power saws, and other noisy equipment to hours when residents are least likely to be disturbed, or incensed, by the clatter. But while owners have the right to what is known as the “quiet enjoyment” of their units, that does not mean they should expect or can demand total silence. Quiet enjoyment simply means the ability to use your unit without unreasonable interference by others. With that in mind, you can reasonably insist that your neighbors refrain from playing rock music full blast at midnight. But it is not reasonable to complain when a neighbor who works the night shift showers regularly before dawn. There is a difference between objectionable noise and the sounds of daily living—an important distinction that many owners fail to make.

A little more tolerance on one side and a lot more consideration on the other would resolve most noise disputes between condominium owners, and avoid many clashes altogether. A large dose of common sense also would help. A family with young children might choose a ground floor unit, knowing that the “pitter-patter of little feet” along with the bouncing balls, raucous wrestling matches and other sounds of children at play may not always be welcomed by the residents below. Similarly, someone who works at night and sleeps during the day, or is otherwise sensitive to daytime noise, might purchase an upstairs unit, to avoid the risk that a “noisy” family will occupy the unit above them.

The Privileges – and Obligations – of Membership

Membership in the community association is not an option for condominium owners, it is a requirement. When you buy a condominium unit, you automatically become a member of the association and you retain your membership as long as you own your unit. Membership has its privileges, including access to common area facilities and eligibility for the services the association provides, along with the right to vote for trustees and to run for a seat on the governing board yourself.

But association membership imposes obligations as well, primary among them, the obligation to pay your monthly common area fee and your share of any assessments the trustees impose. You can object to the fees and assessments and you can challenge them formally if you think they are improper or incorrect, but as with taxes, you have to pay them first. If you don’t, the community association can assess late fees and interest, and file a lien against your unit. And if the board has to hire an attorney to collect your back payments, you will be responsible for paying the association’s legal expenses as well. If you withhold your common area fees or your share of a special assessment, you are withholding those funds partly from yourself. If the association can’t collect the payments owners are required to make, it can’t provide the services and offer the amenities that probably led you to buy a unit in this community in the first place.

This is a futile battle for unit owners but a common one, fueled often by an “us-against-them” mentality that doesn’t make much sense. Board members aren’t the evil empire; they are owners, just like you. They have to pay common areas expenses, just like other owners, and if they approve a special assessment, they have to pay that, too. The community association isn’t some amorphous, distant foreign power aligned against the owners; the association is the owners – all of the owners, including you.

Get Involved

You have no choice about belonging to the community association, but you can determine how actively you will be involved in association governance and in the life of the condominium community. If you have ever wanted to influence the governmental decisions that affect you, condominium ownership will provide that opportunity. If you don’t like the way the community is governed, you can seek election as a trustee or campaign to elect others who will make decisions more to your liking. If you have ideas for new programs or activities, you will find plenty of volunteer opportunities to put your ideas into action. And if you want to sit on the sidelines and complain about the way things are run, you’ll find a lot of company, although not much sympathy from the trustees and owners who choose to play a more active role. Being involved isn’t just a question of making sure your voice is heard within the association; it’s a means of protecting the sizable investment you’ve made in the condominium you own. “When you consider the return on your investment compared to the hours spent working on condominium affairs,” one condominium owner observed, “getting involved really is a no-brainer.”

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Advice for Prospective Landlords: Think Twice, Take Aspirin, Buy a Wrench

Buying a multi-family property has many advantages, but it also involves a step many first-time rental property owners don’t consider fully – it requires them to become landlords. And that is a role for which many buyers, including those who have themselves been former tenants, are not at all prepared.

As a tenant, when the pipes froze, the heating system failed or the toilet overflowed, you called your landlord or the property manager, reported the problem, and expected it to be fixed – immediately. As a landlord, living in the building, you’re going to get those 3 a.m. calls, and you will either have to make the necessary repairs or hire someone else to do so.

That’s an important consideration in selecting a rental property. A property in less than prime condition will cost less, but it will also require more maintenance and be more prone to problems. Do you have the necessary skills and time to handle some if not all of the regular maintenance work as well as the emergency repairs? If not, do you have the financial reserves you will need to take care of those expenses? While you might be willing to live with minor problems (or major ones) for a time, tenants who are paying rent will be far less tolerant.

Avoiding Nightmare Tenants

So selecting the right property is essential. And selecting the right tenants is even more crucial. Every landlord has had at least one tenant-from-hell experience – tenants who trashed the apartment, violated lease terms, annoyed other tenants, and used legal maneuvers to stall eviction proceedings for months, refusing to pay rent in the process. Ideally, you want to avoid these tenants; unfortunately, there is no foolproof method of doing so. But there are some steps you can take to minimize the risks of ending up in a hellish landlord-tenant relationship.

Begin by insisting on purchasing your multi-family property “free of all tenants.” This will require the existing owner to negotiate settlements with or evict existing tenants before you take possession. There is some risk that you will lose desirable tenants, but the greater risk is that you will be locked in combat with tenants you don’t want who refuse to accept the rental terms you want to impose.

It is usually better to start fresh by finding your own tenants. A landlord-tenant relationship is like a marriage in some respects, except that it probably is harder to evict a tenant than it is to divorce a spouse. So try to find out as much as possible about prospective tenants before you sign a lease or rental agreement.

Check References

The best tenant references usually come from former landlords. They are in the best position to tell you whether tenants paid their rent on time, how they treated the apartment, and whether these are people you would like to have living in your property. One obvious and important question is why the tenants are moving. If they say it’s because they have had problems with their current landlord, you might want to check further back. If other landlords also say they had a bad experience with these tenants, you’ll have to decide whether these people simply have bad luck with landlords, or are tenants you should avoid.

Even seemingly impeccable references aren’t foolproof, of course. Landlords struggling with difficult tenants have been known to give them glowing references, just to get rid of them. And even landlords who have some compunctions about foisting problem tenants off on unsuspecting property owners often are worried about being sued or harassed by former tenants if they say too much, or are too honest, about them. So while a favorable landlord reference is a good sign, it’s not a guarantee, and it isn’t the only information you need.

Even though you’re only dealing with two or three units, you should probablyrequire prospective tenants to submit applications. The more businesslike your selection process the better, because in many ways, it will set the tone for the landlord-tenant relationship that will follow. Have interested tenants indicate: places of employment, time in current jobs, salary levels, bank accounts and credit references, as well as current and prior residences. At a minimum, you will want to verify that they are employed where they say they are working, earning the salary they say they are earning, and have a history of paying their bills (especially their rent) on time.

Don’t Discriminate, but Be Discriminating

Although your primary concern is that the tenants you select will be able and willing to pay their rent, you are going to be living in close proximity to them. They don’t have to be people you would choose as friends; in fact, it may be better if they are not. But they do have to be people you want to have as fairly close neighbors. So ask about their interests and find out as much as you can about their lifestyle.

This doesn’t mean you should exclude or discriminate against people whose lifestyles (race or color) are different from yours; that is illegal as well as objectionable. But it does mean you should consider whether the part-time rock musician who thinks the den over your bedroom would be the perfect place to practice – between two and three every morning – is an ideal tenant choice. It is obviously in your interests as well as your tenants’ to identify and resolve – or avoid – potential problems before a tenancy is established.

So when you’re talking to prospective tenants, explain clearly what you expect and outline in detail any restrictions you plan to impose. Pay as much attention to the kinds of questions they ask as to how they answer the questions you pose. People who find fault with the apartment before they move in aren’t likely to become more laid-back after they’ve signed a lease or a rental agreement. Above all, make sure you allow plenty of time to find a desirable tenant so you don’t feel pressured to accept the first applicant who visits the apartment.

Put it in Writing

Once you’ve selected your tenants, have them sign a lease or a rental agreement that spells out in detail the terms and conditions of the tenancy, including any requirements you plan to impose. This is the place to spell out in detail all the “house rules” – what’s allowed and what is not. Will you permit smoking? What portions of the property are available for the tenants’ use and what areas, if any, are off limits? Will you allow pets and if so, what kinds? (If you say you accept dogs, bear in mind that this will include the 150-pound mastiff that who growls at you every time you pass as well as the cuddly cocker spaniel you had in mind.)

The time to address all of these issues is at the beginning of the tenancy, so that everyone understands what is expected from the outset. Tenants may violate the rules you establish, but if they do, you will have grounds for evicting them. You can’t count on being able to evict a tenant for breaking rules that aren’t spelled out clearly in your agreement.

Consider a Security Deposit

Regardless of how good the tenants’ references are, or how positively you feel about them, you may want to consider insisting on a security deposit, which you could use at the end of the tenancy to pay for any damages for which the tenant is responsible. There are bookkeeping and procedural requirements involved in collecting and maintaining security deposits. Among other things, you’ll have to provide a detailed description of the apartment’s condition at the beginning of the tenancy, and you’ll have to hold the deposit in an escrow account and pay the tenant interest on those funds. But many landlords think the advantages of having a security deposit available to pay for repairs more than offset the headaches involved.

These are just some of the issues you should consider if you are thinking about becoming a landlord. Whole books have been written on the subject, and you should consider adding some of them to your library – along with the do-it-yourself maintenance guides you will want to acquire, and the landlord-tenant law guides that you will definitely want to keep close at hand.

Becoming a landlord is challenging, but it does not have to be overwhelming, as long as you select your tenants carefully and draft your lease or rental agreement effectively. It also helps if you have a cousin who is a plumber and a close friend who specializes in landlord-tenant law.