If you decide to rent your home...

When you rent your home, you want to make sure the person that you hire "gives you peace of mind", and that can be acheived with 20 years experience. This will protect you and your home - your most valuable asset. I honor your business and your home.

Louis Santoro / Designated Broker

Portland Press Herald - January 17, 2003

Renting out a residence often easier with help

Copyright © 2003 Blethen Maine Newspapers Inc.

When Audrey Knight and her husband finished building their home in Harpswell in early 1994, they decided to rent out the two-bedroom condominium unit at Glenridge in Portland that she had bought and lived in since 1986.

"In order to save a buck, we just used a standard lease and rented it ourselves that March. That was an expensive $3,000 mistake," she said.

The lease permitted the woman who rented the condo to have two children, one cat and no dogs living with her. However, the condo association soon informed Knight in a letter of complaint that more people were living in the condo than the lease allowed. Knight found that the woman; her three daughters, one with a baby and boyfriend; a big dog; and three cats, one that had just had kittens, were all living in Knight's 1,000-square-foot unit.

To make matters worse, they weren't paying the $700 rent on time or at all. Knight had to hire a lawyer to begin eviction proceedings. Once the renters were out in September, she saw the mess that they had made of her once pristine condo. Cat urine and feces had ruined the floors and carpets.

"The guy who came to flea bomb the place got bit by fleas," she said.

The Knights cleaned, repainted, sealed the floors and tore up and replaced carpets. "Our loss would have been even greater if we hadn't done much of the grunt work ourselves," she said.

Determined not to be penny-wise and pound-foolish again, Knight used a property management company to successfully rent her unit in November 1994 until July 2000, when the real estate market was in better shape and she broke even selling the Brighton Avenue condo.

Knight admits that she failed to do a proper credit check on her renter and later found that one of the renter's references was a relative who was eager for the woman and her extended family "to be out of his house."

"Many tenants are more knowledgeable and savvy than their unsuspecting landlord. And many have hidden agendas in a seller's market," said Louis Santoro, owner of Rental Property Specialists in South Portland.

Some lease for a year under false pretenses because they are building a home and can't find the needed four- to six-month rental. "They know full well that they'll skip out of their rental early and just be out the one-month security deposit, which they'll apply to their last month's rent," Santoro said.

This leaves the landlord with an empty house that needs to be heated in the winter and opens the door for what Santoro calls "artful dodgers, who are savvy, high-risk tenants, and their pets, to take advantage of the now strapped homeowner."

"Handling your own rental property without professional experience could cost money and headaches in the long run and be an overall terrible experience," said the licensed real estate professional, who has been in the residential leasing and rental business since 1984. Single-family dwellings, condos and townhouses comprise 90 percent of his business.

While the general assumption is that renting is leasing, Santoro pointed out this slight technical difference: "With renting, you have an owner or landlord and a tenant, who is a tenancy at will, usually month to month. With leasing, there is a commencement and an expiration date where both parties – the lessor and lessee – have an obligation to fulfill specific terms and conditions," he said.

The most common reason people lease their residential properties, he said, is that they're relocating to another area for work and plan to return to Maine. "They don't want to sell their home because most likely they won't be able to buy in again at the same type home, at the same location, and at the same price. This property becomes an investment for them," Santoro said.

During a soft real estate market, homeowners who need to relocate for work might hold on to their property and rent it out in anticipation of a seller's market, he added.

If you rent your home, does it lose any value if you decide to sell it? No, says Cindy Landrigan, a partner with Town & Shore Associates in Portland. "Just the function of renting your home does not change its value. However, if it hasn't been maintained, it will lose value just as any house that hasn't been maintained will," Landrigan said.

In the past few years, there has been a huge demand for and short supply of rental homes for qualified applicants, but the market for residential rentals has softened a bit since September. That's when furnished seasonal rentals came on the market and interest rates dropped even further, making prospective renters eligible homebuyers, Santoro said.

The "snowbirds," who head for warmer climates and lease out their properties each year from Labor Day to Memorial Day, depersonalize their properties by taking down pictures and cleaning out closets and drawers.

"It's very common for people renting seasonals to just pack up and leave. With seasonals and other high-risk rentals, I require first and last month's rent and the security deposit in advance. It makes lessees less apt to vacate unexpectedly," Santoro said.

He noted that he represents owners on any issues that may arise during the full term of the lease and tries to lease properties at their highest and best use. "The best time to commence a year's lease on a three- to four-bedroom house is from May through August 31 so a family can become acclimated to the neighborhood before school starts," he said.

His fee to oversee the property is approximately one-month's rent for a one-year lease. For subsequent leases, he adjusts the fees. "Many people don't realize that rental housing management fees are deductible," he added.

Those who rent or lease their home also receive tax benefits not available when they live in the home, said William Judkins, a South Portland certified public accountant. Once the house is rented, Judkins said, the landlord can fully deduct the cost of current maintenance such as painting rooms, cleaning carpets, checking the plumbing and providing snowplowing and lawn service.

Major repairs such as new windows or a new furnace can be capitalized and depreciated over a period of up to 27 years. A new roof would be depreciated over 15 to 20 years "because that's approximately how long roofs last before they need to be replaced," he said.

Judkins noted that when a residence is converted to a rental, the basis for depreciation is "the lesser of the property's fair market value or adjusted basis (cost plus improvements) on the date of conversion."

Santoro said that he never leases without getting a complete credit history of the prospective tenant. That includes a credit/payment profile for the past 10 years, income/debt ratio and rental history going back at least three landlords.

"I don't go on word of mouth. I screen and select within legal bounds. I can refuse to lease based on pets, smoking and poor qualifications. High-risk applicants should be avoided at all costs," he said.

As for potential lessors, Santoro said that they should make a list of things that are nonfunctional and things that need immediate repair in the house. They should also have a furnace maintenance plan in effect with a heating company and a list of professional licensed maintenance people to call.

Lessors often forget to inform their insurance company that they're leasing. "It has implications on such things as chimney and fireplace use. Insurance rates also go up if they lease to a family who has a certain class of vicious dogs," he said.

Santoro maintains proper lease and paperwork to go to court with if necessary. For example, he documents the condition of the property at the lease start, and lessees have 10 days to make notations such as cracked windows and gouges in hardwood floors.

When the lease commences, Santoro makes sure that utilities commence in the tenant's or lessee's name. "I monitor that especially on utilities created through town water and sewer. One homeowner that leased his home on his own found that a town had placed a lien on his home because his lessee was in arrears with Portland water and sewer," he said.

At the end of the lease, Santoro said, lessees often pressure the homeowner for the immediate return of their security deposit. "When homeowners use my services, they are removed from these uncomfortable situations," he said.

Homeowners have 30 days to respond in writing regarding the return of a security deposit or assessment of damages. Santoro said it's not advisable to return the security deposit without first taking the time to run all appliances and make sure that the dishwasher and all burners on the stove work.

"Tenants can be deceptive, and if the unsuspecting property owner returns the full security deposit before all damages are assessed, it's too late. I have a certain procedure that I go through before I return the security deposit," Santoro said.

His procedure includes checking for unpaid utilities and damages to the exterior and interior of the home through use of the photos and documentation that he took at the commencement of the lease.

Neil Shankman, a Yarmouth lawyer, is an expert in landlord/tenant law and has written two books on the subject. He said the most common reason landlords begin eviction proceedings is their failure to check references and failure to interview prospective tenants.

Shankman strongly recommends dealing quickly with any problems that arise. "It's common for people to want to help when they hear a good sob story from a tenant, but landlords have to follow their business sense rather than their good heartedness. For example, if a tenant tells you that his rent will be two weeks late, give him sympathy, support and a notice for termination. Begin the process right away and if the rent arrives as promised, you can simply withdraw the notice," said the lawyer, whose firm represents 9,000 rentals from Kittery to Houlton.

He said the good part about eviction proceedings is that you get into court within four weeks, but the bad part is that judges put the burden of proof on the landlord. Any failure to stick to the letter of the law will cause the judge to rule in favor of the tenant. "If you don't dot your i's and cross your t's, you have to start all over," he said.

Shankman recalled a horror story where a homeowner accepted for three months his tenant's story that his rent of $1,000 per month would be paid when his workers' compensation claim was paid. The claim eventually was denied, so during the fourth month of not being paid rent, the homeowner sent a letter to the tenant saying that the tenant had lied and told him to get out.

However, the judge ruled that the letter did not provide adequate specificity and notice. During the fifth month, the landlord hired Shankman's firm to provide a proper notice of eviction. The tenant's response was to file for bankruptcy.

The landlord had a decision to make – wait three more months for bankruptcy proceedings to run their course, or pay more legal fees to file a motion for permission to proceed with the eviction. The Bankruptcy Court authorized the landlord to proceed and then the eviction was rescheduled for hearing in the middle of the seventh month without rent.

The judgment went to the landlord, and the tenant was given seven days to get out. "However, the landlord was also out $7,000 in rent and $2,000 legal fees," Shankman said. Because landlord/tenant law is very specialized, he recommends that a person just dabbling in renting or leasing use a property management company.

Elizabeth Webster is a free-lance writer who lives in Cape Elizabeth.