Brian Carmen didn't set out to be a landlord. He still doesn't aspire to be one. It's a part-time gig. Full-time, he is a cyber security consultant.
But like many accidental landlords, Carmen, who lives in Baltimore, began construction on a new house about the time he realized that selling his old one wasn't going to be very profitable.
"We quickly realized that in the market today, with what we still owed, if we were lucky, we'd end up walking away from the table with a couple grand in our pockets," Carmen says, adding that the profit wouldn't even cover the down payment on the new house. So Carmen and his wife, Missi, decided to rent out their first house.
They listed the property on Craigslist, and within hours Carmen received a call from a young woman who was interested. She, along with two friends, became the Carmens' tenants on Oct. 1, paying $2,250 in total monthly rent. The three young professionals all have exceptional credit scores, Carmen says, and it's only been about a month, but everything has gone just the way he had hoped.
[Read: 5 Steps to Renting Out Your Home.]
But not every landlord is so lucky. Some see red flags the day tenants move in. When Aimee Elizabeth, a 50-year-old Las Vegas business consultant, first rented out her home 15 years ago, she discovered her tenants were stealing electricity from a neighbor's house. Later, the tenants were caught stealing electricity, gas and water from the utility companies.
"Not only did I have to pay thousands to the various utility companies to put the meters back on, but I had to have an electrician redo the entire wiring and breaker box, and have it re-inspected by the county before I could get a new electric meter installed," Elizabeth says. After the tenants were evicted, she discovered they had destroyed the meter in their efforts to steal electricity.
"I'm lucky my entire house didn't burn down," says Elizabeth, who now rents out three condos and 18 single-family homes.
So if you're planning to channel your inner Mr. Roper and would rather have an experience more like Carmen's than Elizabeth's, here are a few things – of many – to consider.
Get a background check for any prospective tenant. You'll typically spend between $20 and $30, but the cost far outweighs the risk of landing a bad tenant. Jay Malik, a business accountant and tax coach who advises doctors and dentists, says one reason you want to look at a tenant's history is to see if he or she has been evicted. Some tenants have made getting free rent something of an art, according to Malik, who says many of his physician and dentist clients became accidental landlords when the recession was riding high.
"In most areas, it takes a couple of months to evict a tenant through the local court process. Bad tenants know this," Malik says. He explains the process this way: The tenant gives a sob story about why the rent is late, and "after a few months, the landlord realizes that he is being played, so he files for eviction."
It may take a couple more months before the court date is set. Once the court orders eviction, the tenant finally leaves – many months of having lived rent-free.
Familiarize yourself with the laws involving landlords and tenants. Every state is different and, generally, you'll find a dizzying array of regulations. You can get started learning some of them by searching online for your state and the words "tenant," "landlord" and "laws." You should find a state government website that outlines the laws and rules you need to be aware of.
"Virtually all laws regarding landlord-tenant issues heavily favor the tenant, and if you – almost literally – forget to dot an 'i,' you can be eviscerated in court," warns Allen Morris, a real estate broker and owner of North Bloomfield Properties, based in West Bloomfield Township, Mich.
An example Morris cites for his state: "If you neglect to have a tenant fill out a lead paint disclosure and [forget to] give them the required HUD booklet, you just committed a felony punishable by two years in prison."