The Fair Housing Act: Anti-Discrimination Laws for Renters and Buyers

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In June 2020, Florida homeowners Abena and Alex Horton decided to take advantage of low interest rates due to the pandemic and refinance their mortgage. So their lender sent a professional appraiser to their home in a predominantly white area of Jacksonville.

Homes in the Hortons’ well-to-do neighborhood typically sell for $350,000 to $550,000. They expected theirs to appraise for about $450,000, a comfortable midpoint. But that’s not what happened. And it all came down to race.

Why We Need Fair Housing Laws 

In the Hortons’ case, the appraiser pegged the value at just $330,000, well under the going market price for comparable homes nearby.

To its credit, the lender agreed the appraisal was too low and ordered another. It came in at $465,000, in line with the homeowners’ expectations.

The Hortons didn’t undertake any last-minute home improvement projects or even take steps to improve the home’s curb appeal in the interim. They made only one change: removing any evidence that a Black person lived in the house. 

Before the appraiser arrived, Abena Horton, who’s Black, took her son shopping. She replaced mantel photos of herself and her son with images of Alex Horton, who’s white, and his white family members. She removed holiday cards from Black families. She even took books by prominent Black authors like Toni Morrison off the shelves.

The ordeal was humiliating but not surprising.

“I [knew] what the issue was,” Abena Horton told The New York Times. “And I knew what we needed to do to fix it, because in the Black community, it’s just common knowledge that you take your pictures down when you’re selling the house. But I didn’t think I had to worry about that with an appraisal.”

The Hortons’ low appraisal was neither a fluke nor the work of a rogue, racist appraiser. The family’s experience plays out in countless households of color across America more than a half-century after the passage of the federal Fair Housing Act. 

That law’s goal was to protect minority homeowners from discrimination. It was a vital component of a larger package of legislation — the Civil Rights Act of 1968 — meant to build upon the Civil Rights Act of 1964. 

The Fair Housing Act explicitly prohibits certain types of discrimination in the sale and rental of housing and mortgage lending against members of certain protected classes.

Subsequent legislation and court decisions have strengthened and expanded the act in meaningful ways.

Unfortunately, the Hortons’ experience shows that the Fair Housing Act did not usher in a world free from housing discrimination. 

Indeed, the National Fair Housing Alliance’s 2019 Fair Housing Trends Report recorded more than 31,000 housing discrimination complaints in 2018, an 8% increase from 2017 and the highest figure since the National Fair Housing Alliance began tracking housing complaints in 1995.

About three-quarters of these complaints were filed with nonprofit housing organizations compared with just under 6% filed with the U.S. Department of Housing and Urban Development (HUD). Many involve more egregious infractions than the Hortons’ lowball appraisal.

Some would-be homeowners or tenants dealt with outright denial of rental housing. Others experienced discriminatory mortgage lending practices that increased foreclosure risk and cost affected borrowers tens or hundreds of thousands of dollars over the life of a loan.

It’s true that not all Americans experience housing discrimination. But all Americans participate in the country’s housing market, even the housing-insecure. And any unequal treatment distorts that market, no matter how localized. That makes discrimination a collective problem, even when it doesn’t directly affect us as individuals.

Key Fair Housing Act Protections for Renters & Buyers

The Fair Housing Act protects most homebuyers, mortgage applicants, and renters from discrimination based membership in a protected class, including race and sex. The act prevents property owners, sellers, selling agents, and housing lenders from taking specific actions defined as discriminatory against members of its protected classes.

Certain identities not explicitly mentioned in the act, notably gender identity and sexual orientation, can be covered by explicit protections of the act, such as sex and disability status (which covers chronic health conditions like AIDS and the virus that causes it). Coverage for these identities is subject to judicial interpretation per the U.S. Supreme Court’s ruling in Bostock v. Clayton County.

Likewise, many states have enacted laws that expand and complement provisions of the federal law. However, the Fair Housing Act does have important exemptions that limit its applicability in certain situations, such as owner-occupied or unmarketed small-scale rental housing.

Protected Classes Defined by the Fair Housing Act

The Fair Housing Act’s protections extend to members of the protected classes or identities outlined in the law. These protections cover both explicit and indirect or implicit discrimination.

Race or Color

This protection applies to official Census-recognized racial categories: 

  • White American
  • Asian American
  • Black or African American
  • Native American and Alaska Native
  • Native Hawaiian and other Pacific Islander
  • Hispanic or Latino of any race
  • People of two or more races 

It also applies to informal racial or ethnic categories and perceived categories, such as assumptions based on a person’s dialect or accent. An offender need not definitively know the race of a buyer or renter to discriminate against them based on it.


The Fair Housing Act requires equal treatment of members of all religious groups, including nonbelievers. For example, in most cases, an apartment community or municipality can’t advertise itself using religious labels like “Christian” or “Jewish.”

National Origin

The Fair Housing Act prohibits activities that favor or disfavor buyers, renters, or borrowers based on national origin. For example, while it’s not illegal under federal law for property owners and other housing providers to ask applicants for proof of United States citizenship or legal residency, it is unlawful to do so only for certain applicants.

Familial Status

This protection prohibits discrimination based on family organization, marital status, and age in most cases. For example, a property owner who prefers not to rent to college students can’t simply deny housing to all applicants under age 23. 

Though the Fair Housing Act does not explicitly protect LGBTQ Americans from discrimination, the familial status class does include same-sex couples.


Any unequal treatment based on sex is prohibited under the Fair Housing Act. That includes restrictive policies enacted in the name of safety, such as refusing to rent first-floor walkout apartments to single women. It also covers any form of sexual harassment or coercion during the rental or sale process.


This protection covers individuals with significant documented disabilities, whether physical or cognitive. That includes those with chronic addiction disorders, such as alcoholism or substance abuse disorder, provided they’re engaged in treatment or recovery programs. 

Those engaged in the sale or rental of housing can’t ask about perceived disabilities or deny housing to those with disabilities. That’s true even when the offender’s intentions are pure, such as preemptively asking a person in a wheelchair if they require a first-floor apartment. 

Also, in rental housing, disabled tenants must be permitted to make reasonable improvements at their expense, and public areas and entryways must be accessible.

Explicit Prohibitions of the Fair Housing Act

The Fair Housing Act explicitly prohibits dozens of specific actions taken against members of any protected class by property owners, sellers, real estate agents and brokers, mortgage lenders, leasing agents, public officials, civil service, and insurance professionals. 

Some of these prohibitions pertain specifically to the sale or rental of housing, while others apply in the narrower mortgage lending context.

Actions Prohibited in the Sale or Rental of Housing

These actions include egregious violations, such as posting a sign restricting applications to a particular race, gender, or sexual orientation. But they also include more subtle offenses, such as steering nonwhite buyers away from predominantly white neighborhoods.

Some actions, such as eviction, may be legal when the intent or result is not discriminatory. For example, if local regulations allow, a property owner is within their rights to evict a tenant who’s seriously behind on rent as long as they treat all such tenants equally regardless of protected status.

Prohibited actions are:

  • Outright refusal to rent or sell housing
  • Refusing to negotiate the sale or rental of housing
  • Refusing to confirm housing is available for sale or rent
  • Discouraging the sale or rental of housing
  • Segregating housing (for example, grouping tenants of the same ethnic or racial group on a specific floor or building or in a specific neighborhood)
  • Extending favorable terms or unique incentives (for instance, charging opposite-sex couples lower rent than same-sex couples)
  • Making mention of any prohibited preference (for example, “families preferred”) in housing advertisements
  • Using different applications, screening or qualification criteria, or qualification processes (such as running credit checks for nonwhite applicants only)
  • Harassing applicants, tenants, or occupants or conditioning approval of a housing application on the applicant’s response to harassment
  • Evicting tenants or guests
  • Delaying or declining to make necessary repairs or maintenance
  • Offering property insurance on unequal terms (for example, asking higher premiums from members of certain protected classes, though underwriters may use indirect methods like credit scoring to account for higher perceived risk from certain occupants)
  • Profiting or attempting to profit by persuading homeowners to sell because members of a particular protected class are moving nearby
  • Denying real estate agents or brokers access to local agent organizations or multiple listing services

Actions Prohibited in Mortgage Lending

These actions also include a mix of egregious and subtle violations. However, all involve lenders’ or loan servicing companies’ refusal to treat mortgage applicants or borrowers equally based on their identities.

  • Refusing to provide information about loan opportunities
  • Refusing to originate mortgage loans to otherwise qualified applicants
  • Refusing to provide other financial assistance to otherwise qualified applicants
  • Offering unequal terms or conditions — such as higher rates, fees, or points — on mortgage loans
  • Discriminating during the appraisal process
  • A secondary lender or loan servicing company refusing to purchase a home loan
  • Conditioning issuance of a loan on the applicant’s response to harassment or coercion

HUD’s fair lending guide details mortgage applicants’ fair housing rights and mortgage lenders’ obligations under the law.

These actions are prohibited in all housing-related contexts:

  • Threatening, intimidating, or otherwise interfering with anyone attempting to exercise their rights under the Fair Housing Act or assist others in doing so
  • Retaliating against anyone who has filed a fair housing complaint or assisted with a fair housing investigation

State & Federal Housing Protections for LGBTQ Individuals

The Fair Housing Act does not explicitly forbid housing discrimination based on sexual orientation, sexuality, or gender identity. However, HUD requires lenders insured by the Federal Housing Administration (a HUD agency) to observe its Equal Access Rule. That rule prohibits certain acts of lending discrimination based on sexual orientation.

Additionally, the Fair Housing Act effectively forbids discrimination against LGBTQ individuals or families in circumstances covered by other class protections. And many state laws explicitly prohibit housing discrimination against members of the LGBTQ community.

Common Examples of Anti-LQBTQ Housing Discrimination Covered by the Fair Housing Act

The Texas Access to Justice Foundation-funded highlights common examples of circumstances in which explicit Fair Housing Act protections extend to LGBTQ individuals:

  • Sex Discrimination. A rental housing operator asks a transgender woman not to dress in women’s clothing in her building’s common areas; a property manager refuses to rent to a gender-nonconforming applicant.
  • Disability Discrimination. A property owner evicts a gay man whose HIV or AIDS status qualifies as a disability under the Fair Housing Act.
  • Equal Access Rule. A mortgage lender denies a loan to two same-gender co-applicants presumed to be a couple.

State Laws Protecting LGBTQ Individuals From Housing Discrimination

HUD maintains a list of states with laws prohibiting housing discrimination based on sexual orientation, gender identity or expression, or both. Jurisdictions that forbid housing discrimination on both grounds include:

  • California
  • Connecticut
  • Colorado
  • Delaware
  • Hawaii
  • Illinois
  • Iowa
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • Nevada
  • New Jersey
  • New Mexico
  • New York
  • Oregon
  • Rhode Island
  • Utah
  • Vermont
  • Washington, D.C.
  • Washington state

New Hampshire and Wisconsin prohibit housing discrimination based on sexual orientation but not gender identity or expression.

Noteworthy Fair Housing Act Exemptions

The Fair Housing Act covers most housing types and the vast majority of housing units available for sale or rent in the U.S. However, it does have important exemptions and carve-outs for certain housing types:

  • Small-Scale Rental Housing. Owner-occupied rental properties with four or fewer units (such as duplexes and quadplexes) and single-family rental housing that is not marketed or rented with help from a real estate broker. In the latter case, the exemption does not apply when the property’s owner owns more than three qualifying properties.
  • Housing Operated by Exempt Organizations. This category includes housing operated by legally recognized religious organizations or private clubs that limit eligibility to their own members.
  • Senior Housing. Multifamily communities that meet one of two criteria may legally deny housing to younger applicants: a) every resident is 62 or older or b) at least 80% of occupied units have at least one resident age 55 or older.

Why the Fair Housing Act Matters Today

It’s clear from the massive (and growing) volume of fair housing complaints tabulated by the National Fair Housing Alliance that the Fair Housing Act remains necessary and relevant to modern renters and homebuyers. And many acts of housing discrimination go unreported.

Though egregious examples of overt housing discrimination still occur, modern examples tend to be subtle, even covert. Modern housing discrimination often occurs without victims’ knowledge and sometimes without agency or intent on the perpetrator’s part. 

The Hortons’ first appraiser might not have acted on conscious animosity toward people of color or an explicit directive from their employer. They might well have acted on unconscious bias — an internalized, unquestioned notion that Black-owned homes are less desirable than white-owned homes.

Even if you believe you’ve never experienced housing discrimination and aren’t at risk from it in the future, you need to understand what housing discrimination looks like in practice. You also need to know how to recognize the financial, economic, and social consequences it can wreak. 

These consequences can and do affect all Americans’ personal finances and overall well-being. The effects can be direct financial issues for victims of discrimination or indirect harm to local economies and a fraying social fabric. 

For example, the subprime mortgage crisis of the late 2000s was fueled partly by discriminatory lending practices that resulted in higher default rates by borrowers of color. It resulted in millions of job losses, including those of many Americans who didn’t apply for a mortgage before or during the crisis.

Real-World Examples of Housing Discrimination

Theoretical examples from HUD and nonprofit fair housing organizations like the National Fair Housing Alliance provide a basis for public understanding of the various forms of housing discrimination.

Sadly, these theoretical examples have far too many real-world analogs. Many happened (or continued) during the 2010s. Another was a widespread historic ill that profoundly influenced America’s urban geography.

Disability-Based Discrimination in Dozens of Multifamily Housing Communities

In 2019, the U.S. Department of Justice (DOJ) reached a civil settlement with multistate apartment community operator Miller-Valentine Operations Inc. and Affiliates. According to the DOJ, the company stood accused of violating disability protections enshrined in the Fair Housing Act and the Americans With Disabilities Act. 

Under the terms of the settlement, the DOJ required the operator to “take extensive corrective actions” to improve accessibility at more than 80 properties in more than a dozen states and establish a $400,000 fund to compensate disabled individuals affected by its violations.

Illegal Lending in Sacramento & Philadelphia

Banking giant Wells Fargo has been accused of discriminatory lending practices by federal, state, and local authorities since at least the 2000s. 

The bank agreed to pay more than $230 million in 2012 to settle a DOJ civil action alleging a “pattern and practice” of lending discrimination against Black and Latino borrowers from 2004 to 2009. 

In 2017, the city of Philadelphia sued Wells Fargo over similar claims. The bank settled for $10 million in 2019, according to the Philadelphia Inquirer. A similar lawsuit filed by the city of Sacramento, California, in 2018 (per CNN) remains pending.

Racially Discriminatory Housing Ordinance & Enforcement

In 2019, the DOJ sued the city of Hesperia, California, and the San Bernardino Sheriff’s Department alleging that a city ordinance and its enforcement constituted discrimination against Black and Latino renters, according to U.S. News. 

A HUD investigation found that enforcement of the ordinance resulted in more than 140 evictions over alleged criminal conduct in 2016. In some cases, entire families were evicted over allegations leveled at a single tenant or guest. 

Enforcement disproportionately targeted minority neighborhoods, with Black tenants four times more likely to face eviction than white tenants.

Refusal to Rent to a Same-Sex Couple

In 2017, a federal court ruled that the denial of rental housing to a same-sex Boulder, Colorado, couple constituted prohibited discrimination under the Fair Housing Act and applicable state law. According to Lambda Legal, the property owner refused to rent to the couple over concerns that doing so would harm her standing in the community.

Racially Restrictive Covenants

Restrictive covenants are clauses in housing deeds that restrict future homeowners’ activities and are not in and of themselves illegal. 

However, one particular type of restrictive covenant has long been rendered unenforceable by state and federal law: racially restrictive covenants that forbade homeowners from selling to buyers of certain races or nationalities — often simply anyone who was not white. 

Racially restrictive covenants were common in the first half of the 20th century in cities like Minneapolis, Chicago, Seattle, and the Kansas City metropolitan area. Where widespread, they contributed to profound housing segregation. They were often used in conjunction with redlining, a common lending practice that diverted nonwhite borrowers into specific neighborhoods. 

These practices helped create majority-minority neighborhoods that subsequently experienced ills including disinvestment, neglect, and civil unrest.

Potential Consequences of Housing Discrimination

Real-world housing discrimination has real-world consequences for homeowners, renters, and their communities. 

Some are direct, such as harmful effects on victims’ long-term wealth-building capacity. Others, while indirect, can be more devastating at scale. Generations on, many cities continue to grapple with the far-reaching consequences of early- to mid-20th century redlining and restrictive covenants.

But all are incredibly harmful, both to the individuals who experience them and others. 

Greater Exposure to Environmental Health Risks

High-profile calamities like the lead drinking-water crises in Flint, Michigan, and Newark, New Jersey, underscore the disproportionate environmental health risks low-income communities face. These risks are particularly prevalent in low-income communities of color, like Flint and Newark. 

That isn’t merely a media narrative. A 2018 Environmental Protection Agency study found that people of color are more likely to live near sources of air pollution and breathe polluted air, often due to historical settlement patterns influenced by redlining and restrictive covenants. 

And a 2016 study published in the journal Environment International found that long-term exposure to particulate matter correlates directly with housing segregation. That is, residents of highly segregated areas inhale more particulate matter than those in less segregated areas.

Lead Exposure in Older Housing Stock

Affordable housing tends to be older. Subsidized housing available through programs like the Section 8 voucher scheme does as well. 

Unfortunately, many older homes still contain lead paint or water service lines. Lead exposure can cause a host of serious health and developmental problems in both children and adults. (Lead water service lines are typically benign but can cause problems when drinking water is not properly treated, as occurred in Flint). 

Inadequate Nutrition

The market opportunity is greater in moderate- to high-income areas. As such, full-service grocery stores with well-stocked produce sections tend to favor these places over low-income neighborhoods. 

The U.S. Department of Agriculture’s food access atlas shows regions that qualify as “food deserts” with limited nutritional resources. These places often occur in low-income urban neighborhoods and small rural towns served primarily by corner stores and dollar stores with little if any fresh produce.

Higher Incidences of Gun Violence & Other Serious Crime

According to a 2019 study published in PLOS Medicine, gun violence incidence closely correlates with higher rates of poverty and income inequality, low rates of social mobility, and low levels of trust in public institutions.

The legacy of residential segregation exacerbates these ills. For example, a 2018 mapping project by The Trace found that two low-income neighborhoods in highly segregated Cincinnati accounted for a disproportionate share of that city’s shootings.

Unequal Access to Quality Schools

NPR reports that a 2016 study by EdBuild found a $23 billion funding gap between predominantly white and predominantly nonwhite school districts. The gap is caused in part by two government-imposed phenomena. 

Districts rely heavily on local taxes, which generate more revenue in wealthier, predominantly white districts. Then there’s the principle of “local control,” which limits the equitable distribution of state education funds to poorer districts. 

This gap contributes to unequal educational outcomes, reinforcing the very racial wealth disparities responsible for it.

Impact of Discriminatory Lending on the Broader Economy

A 2010 study published in the American Sociological Review cited a “highly racialized process” of “differentially market[ing] risky subprime loans” to borrowers of color as a cause of the late-2000s subprime mortgage crisis that precipitated the Great Recession. 

It’s a stark example of the potential for discriminatory lending to impact the broader economy negatively. 

On a more granular level, Federal Financial Institutions Examination Council data cited by the Center for American Progress found that home prices in predominantly Black neighborhoods decreased by 6% between 2006 and 2017. During the same period, home prices in majority-white neighborhoods increased by 3%. 

This divergence disadvantages all homeowners in affected neighborhoods, not just members of the area’s ethnic or racial minority.

Increasing Racial & Cultural Tension

In a 2019 Pew study conducted before widespread protests over police violence in 2020, 58% of all Americans and 71% of Black Americans said race relations were bad in the U.S. 

Meanwhile, 65% of all Americans said it had “become more common for people to express racist or racially insensitive views” since Donald Trump was elected president. And 45% said it had “become more acceptable” to do so. 

While it might give comfort to characterize this as an aberration attributable solely to a particular political leader or party, that’s not the entire story. These alarming figures spotlight a fraying of the American social fabric caused in part by decades of residential segregation.

Despite incremental integration since 2000, a Washington Post visualization shows that most Americans continue to live in “majority” neighborhoods where one racial or ethnic group predominates. For example, a 2017 Harvard University study found that roughly 69% of the U.S. population lived in majority-white neighborhoods between 2011 and 2015.

Political Polarization & Increased Mistrust of Institutions

Residential segregation also exacerbates political polarization and public mistrust of institutions. 

Writing for Bloomberg CityLab shortly before the 2016 U.S. presidential election, urban studies professor Richard Florida noted that geography was increasingly predictive of political affiliation. 

Democratic voters cluster in cities and inner suburbs, while Republican voters favor lower-density geographies. This self-sorting creates bubbles of relative ideological homogeneity. That often manifests in antagonistic relations between local and state leaders, which came to a head during the COVID-19 pandemic in states including Texas and Wisconsin. 

It also leads to dysfunction in state and federal governments and coarsening public discourse. A 2016 study by researchers at the University of Mississippi and Stony Brook University, SUNY, found that the percentage of positive political ads declined from 90% during the 1960 U.S. presidential campaign to less than 15% during the 2012 presidential campaign.

Final Word

Selecting the “best” neighborhood is a fundamental part of finding new housing. Every prospective renter or homebuyer gives some thought to the characteristics of the communities they consider moving to and ranks them based on priorities like access to quality schools, open space, or urban amenities.

Few prospective renters and homebuyers think much about why certain communities have characteristics that make them desirable. They also never wonder why those same communities are often less accessible to those the Fair Housing Act exists to protect, from persons with disabilities to historically marginalized racial and ethnic groups. 

That’s understandable. The exercise is a discomfiting one, but it’s also necessary. 

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How to File a Fair Housing Discrimination Complaint

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Additional Resources

Housing discrimination is not a relic of America’s past. It happens to minorities of all kinds every day, even to well-to-do people like Abena and Alex Horton of Jacksonville, Florida.

They told The New York Times the first home appraiser for a 2020 mortgage refinance valued the house about 30% lower than expected, jeopardizing their loan. Suspecting the lowball number was because Abena Horton’s Black, they removed photos of her, all Black family members, and books by Black authors like Toni Morrison.

The ploy worked. The next appraiser valued the home closer to the couple’s expectations. But the experience was humiliating — and one that families with fewer resources would have struggled to navigate. Fortunately, the Fair Housing Act of 1968 provides expansive protections for homeowners and renters facing discrimination in housing and real estate lending.

Who Enforces Federal Fair Housing Laws?

The Fair Housing Act (FHA) prohibits discrimination in the sale and rental of housing and mortgage lending based on:

  • Race
  • Color
  • Religion
  • National origin
  • Familial status
  • Sex
  • Disability

Many local and state laws and regulations protect fair housing rights as well. Since the passage of the FHA, federal and state court decisions have strengthened and expanded the act’s protections and enforcement powers.

The federal government assigned enforcement of the FHA to the federal Department of Housing and Urban Development (HUD). There are two other enforcement arms, one within HUD and the other a group of third-party organizations.

HUD’s Fair Housing Office 

The HUD enforces the FHA through its Office of Fair Housing and Equal Opportunity. It investigates complaints made under the FHA, determines whether they have merit, and enforces their resolution. 

Fair Housing Testers

Nonprofit fair housing enforcement organizations play a key role in building public awareness of fair housing violations and enforcing fair housing laws. They do so by testing various aspects of fair housing law. 

A detailed 2014 report from HUD’s Office of Policy Development and Research describes the testing process. It relies on human testers who uncover discriminatory housing practices in the real estate industry by going undercover as prospective renters, homebuyers, and borrowers. They look for discrimination in:

  • The process of renting housing to new tenants
  • Rental housing management
  • Accessibility in rental housing, especially multifamily communities
  • How homeowners and real estate agents sell homes, from listing and showing to accepting offers
  • Mortgage lending

State & Local Authorities

When buyers, renters, and borrowers believe they’ve experienced housing discrimination, they can also file complaints with state and local housing authorities. When they do, they become known as complainants.

Filing an FHA complaint makes sense for complainants in places with strong fair housing regulations. For example, some states explicitly ban housing discrimination based on sexual orientation or gender identity. That protection isn’t part of the federal Fair Housing Act. 

Your experience filing a fair housing complaint with state or local authorities is unlikely to be much different than your experience filing with HUD. But you should consult with those authorities or fair housing or legal aid nonprofits in your area for specific guidance on what to expect.

Types of Fair Housing Complaints

Complaints fall into two broad categories. Some may qualify for both:

  • Complaints involving discrimination under the Fair Housing Act, including in privately owned and operated housing
  • Complaints involving discrimination in housing and community development programs, including those funded by HUD

A complaint involving alleged housing discrimination can apply to virtually any housing-related activities. That includes renting or buying a home, getting a mortgage, or seeking housing assistance.

The alleged offender (the target of the complaint) can be one or more of the following: 

  • A property owner
  • A developer
  • A property manager
  • A real estate agent or broker
  • A homeowners association
  • A mortgage lender
  • An insurance provider
  • Civil employees and authorities, including elected officials, whose actions can affect housing opportunities 

When Should You File a Fair Housing Complaint?

You must fall into one of the protected classes outlined in the FHA to file a fair housing complaint (race, color, sex, national origin, religion, familial status, or disability). 

The act doesn’t explicitly name sexual orientation or gender identity. However, subject to judicial interpretation, it may provide limited discrimination protection for LGBTQ individuals, including transgender individuals and same-sex couples and people with HIV/AIDS. These protections generally fall under the sex and disability characteristics, respectively. 

Unfortunately, many states don’t explicitly outlaw housing discrimination based on sexual orientation or gender identity. In these places, housing providers and lenders may still be permitted to discriminate against LGBTQ people. For information on the law in your jurisdiction, refer to HUD’s list of states with one or both protections.

If someone discriminates against you for any of the reasons outlined in the FHA, you can complain to HUD’s fair housing office. 

Offenses worthy of complaints include but aren’t limited to:

  • Refusal to rent, sell, or negotiate the rental or sale of housing
  • Refusal to confirm that housing is available for sale or rent
  • Discouraging the sale or rental of housing
  • Segregating housing by protected status (for example, grouping tenants of the same ethnic or racial group on the same floor of an apartment building)
  • Mentioning any prohibited preference in housing advertisements
  • Using different applications, screening or qualification criteria, or qualification processes for members of one or more protected classes but not all or none
  • Harassing applicants, tenants, or occupants
  • Conditioning approval of a housing or loan application on the applicant’s response to harassment
  • Denying real estate agents or brokers access or membership in local agent organizations or multiple listing services
  • A mortgage lender’s refusal to provide information about loan opportunities or issue mortgage loans to otherwise qualified applicants
  • A mortgage lender’s refusal to provide other financial assistance to otherwise qualified applicants
  • A loan servicing company’s refusal to purchase a home loan
  • Retaliating against anyone who files a complaint under the Fair Housing Act, assists a complainant, or assists with the investigation of a complaint

Determining Whether You Have Cause to File a Complaint

Before going through the headache of filing a complaint form, ensure you have reasonable cause to file. You can take these steps to increase your likelihood of success.

  1. Confirm Your Complaint Falls Within the Statute of Limitations. First, ensure the clock hasn’t run out on your claim. You have one year from the date of the alleged discrimination (or the most recent example of it) to file a complaint.
  2. Determine Whether Your Complaint Constitutes a Valid Allegation. Next, consult HUD’s Fair Housing booklet to determine whether your issue is a valid complaint under the Fair Housing Act. If you’re not sure, proceed to Step 3.
  3. Contact a Local Fair Housing Initiatives Program Organization. Organizations funded by HUD’s Fair Housing Initiatives Program play a vital role in assisting housing discrimination victims. Use HUD’s search tool to find one in your area. The staff can help you assess your complaint and determine whether to move forward.

Ultimately, it’s HUD’s job to assess your claim and determine whether it’s prohibited discrimination. But preparing and filing a claim is stressful for the claimant. It’s also time-consuming for the claimant and investigator.  

Filing an easily dismissed claim does no one any good. Plus, even if the harm you’ve suffered doesn’t qualify as prohibited discrimination under the Fair Housing Act, you could have other recourse. 

For example, say the property owner fails to repair your broken furnace despite repeated complaints from tenants. Under the law, you likely have grounds to file a safe housing complaint with your city’s housing authority and lodge a complaint with HUD’s Multifamily Housing Complaint Line at 800-MULTI-70 (800-685-8470). 

You may also have informal options to fix the problem, such as refusing to pay rent until the property owner or manager addresses the issue.

How to File a Fair Housing Discrimination Complaint

After evaluating your situation and determining you have cause to file a housing discrimination complaint, you must prepare and file your actual complaint. If you contacted a HUD-funded assistance organization, they will help.

You’re free to hire an attorney with expertise in fair housing claims at any point during the process. But that’s often unnecessary if you’re working with an assistance organization. Many of them have full-time staff attorneys or access to external legal aid resources.

From start to finish, the process involves several steps. 

1. Gather Supporting Documentation

If HUD’s fair housing office later decides to investigate your complaint formally, they won’t expect you to provide all the information needed to see the investigation through. But be prepared to give a detailed accounting of the circumstances precipitating the complaint, including:

  • Where the event or events in question occurred
  • When the event or events in question occurred
  • The identities of others present when the events occurred, regardless of whether they’re included in the allegations
  • The identities of others who may have knowledge of or information about the events in question, including others who may have experienced similar harms
  • Any physical or electronic records or documents relevant to your complaint, such as rental or mortgage applications, loan documents, or truth-in-housing disclosures

The Fair Housing Act prohibits retaliation against claimants and those assisting them. But when gathering documentation, you shouldn’t put yourself in physical danger or increase your risk of losing housing. 

If HUD accepts your complaint, professionals trained to collect and corroborate relevant records and information will investigate.

2. File Your Complaint

You’re now ready to file your complaint through your regional fair housing office. This part of the process involves several possible steps:

  • Intake Interview. Upon receiving notice of your complaint, the fair housing office conducts an initial interview to determine whether you have a legally legitimate discrimination complaint.
  • Complaint Drafting. If the office concludes there was discrimination, a staff member may draft the complaint for you to review and sign. They then notify all parties to the complaint, including those accused of discrimination, of the complaint’s filing.
  • Outside Referral. If investigators conclude there was a violation of state or local laws, HUD may refer you to a state or local fair housing office. If so, you’ll work with staff from that office instead. Don’t take it as a setback. It could help your case to work with a smaller agency that understands your area’s housing market.

If you believe you’re at risk of losing housing due to the alleged discrimination or retaliation for your complaint, make this clear as early as possible. HUD may be in a position to intervene or provide housing assistance before its investigation concludes.

3. Participate in the Investigation

If the fair housing office determines your complaint has merit and accepts the filing or refers your complaint, the next step is a thorough investigation of the allegations. 

If HUD remains responsible for the investigation, it will assign one or more investigators and notify the parties named in the complaint. It will then take some or all the following investigative steps:

  • Interviewing you and any other alleged victims of discrimination
  • Interviewing others with knowledge of the allegations, including witnesses and the parties accused of discrimination
  • Inspecting properties named in the allegations
  • Gathering relevant documentation and records

As part of the investigative process, the parties named in the complaint can provide their versions of events and respond to specific allegations. 

At the investigation’s conclusion, all parties to the complaint receive written reports outlining the findings. That includes the complainant or complainants and the party or parties named in the complaint. 

Though investigative procedures can vary somewhat at state or local fair housing agencies, you should expect any referred investigation to follow a similar pattern.

4. Work With HUD on Voluntary Resolution to the Complaint

Throughout its investigation, the fair housing office acts as an intermediary between you and the targets of the complaint. It’s likely to attempt to broker a voluntary resolution before completing the investigation and beginning the costly, time-consuming hearing or court process.

This process is strictly voluntary. You’re not obligated to agree to any proposed settlement. However, you could feel some pressure from the fair housing office, which has limited resources to devote to court action, to do so. 

That doesn’t necessarily mean the fair housing office isn’t acting in your best interest. The reality is that success isn’t guaranteed in court. But if you’d like to ensure you have an advocate thinking only of what’s best for you, your best move is to retain a lawyer. 

If successful, the voluntary resolution process typically produces one of two types of agreements (and sometimes both): a voluntary compliance agreement or a conciliation agreement.

Both types of agreement address three important issues:

  1. The steps the parties accused of discrimination must take to make things right
  2. The compensation or redress provided to the complainant, if any 
  3. Ground rules the accused parties must follow to prevent future harm

These agreements can’t stand in the way of ongoing HUD monitoring and enforcement. If the accused party continues to discriminate, you or other complainants can and should file new claims.

Once all parties sign the agreement or agreements, the investigation concludes.

5. If Voluntary Resolution Is Impossible, Receive a Determination

If no voluntary resolution occurs, the investigation continues to its conclusion. Investigations have one of two outcomes:

  1. Dismissal, formally known as a determination of no reasonable cause, if HUD finds the allegations do not constitute prohibited discrimination
  2. Determination of reasonable cause and charge of discrimination — essentially, a finding that the allegations likely do constitute prohibited discrimination

If the investigation results in dismissal, HUD considers the matter concluded. Complainants can request reconsideration if they wish.

6. The Case Moves to an Administrative Hearing or Federal Court

If the fair housing office determines the allegations have merit, the case moves into the adjudication phase. 

After receiving notice, all parties to the complaint have 20 days to inform HUD whether they’d prefer to have the case tried in federal court. Any party can state this preference and force all parties into court. If none does, HUD schedules a hearing before a HUD administrative law judge. 

Though overseen by the executive branch rather than federal courts, administrative proceedings resemble adversarial court proceedings. The parties all have the opportunity to make arguments, cross-examine witnesses, and present evidence favorable to their claims. 

However, administrative proceedings are faster and less costly than traditional court proceedings. 

HUD assigns its own attorneys to represent you in these proceedings at no cost to you, so you don’t have to worry about retaining an attorney on your own dime. However, you’re free to do so if you prefer.

Though they save time and money, administrative hearings aren’t always the best choice for fair housing claimants. Depending on the facts of your case, you may have better luck in civil court proceedings. Emotional arguments are more likely to hit home with jurors than judges. 

Additionally, federal civil procedures provide more leeway to appeal unfavorable decisions. Consult with an attorney to decide whether your case is a good one to take to court.

If any party requests trial in federal court, HUD refers the matter to the U.S. Department of Justice (DOJ), the government agency responsible for enforcing federal law. The DOJ then files a civil lawsuit on your behalf in the jurisdiction where the alleged discrimination occurred. Essentially, the DOJ serves as your attorney in the case. 

But you may still wish to retain an attorney at your own expense, especially if you expect to be cross-examined by attorneys for the respondent or respondents. 

In either case, expect the trial to last for many months and perhaps years after accounting for appeals. If the administrative or federal court judge decides the case in your favor, their ruling could provide some or all the following types of relief:

  • Reasonable attorney’s fees if you hired an attorney at your own expense
  • Compensation (civil penalties) for damages incurred as a result of the harm, such as out-of-pocket relocation expenses
  • Equitable relief, such as providing housing or a loan that was initially denied
  • Injunctive relief, such as a promise by the respondent not to discriminate in the future
  • Punitive damages (financial compensation beyond that necessary to redress the harm itself)

What to Do if Your Fair Housing Complaint Is Denied

HUD doesn’t always side with housing discrimination complainants. Many fair housing investigations result in a determination of no reasonable cause and never proceed to the adjudication phase.

If your complaint’s investigation ends with such a determination, you’re not at the end of the road. You have two primary options for further recourse. One involves very little effort. The other takes substantially more time and money.

1. Written Request for Reconsideration

You can submit a written request for reconsideration to the fair housing director’s office at any time after your complaint’s dismissal. Send this request by certified postal mail to:

Director, FHEO Office of Enforcement
U.S. Department of Housing and Urban Development
451 7th St., SW, Room 5226
Washington, DC 20410-2000

Include in your request any new information that has come to light since your complaint’s investigation. That might include statements by the alleged offender that could support your claim of discriminatory intent or evidence of subsequent actions by the offender that could support allegations of a pattern of discrimination.

The Fair Housing Act does not mandate reconsideration of dismissed housing discrimination claims. HUD does not adhere to a formal, standardized reconsideration process, either. That means there’s no guarantee your request will receive a timely response. And HUD could ignore it altogether.

2. File a Private Lawsuit

If your request for reconsideration is denied or ignored or you simply don’t want to wait to hear back, you can move forward with a private lawsuit against the alleged offender.

You must file this suit within two years of the most recent date of alleged discrimination or the conclusion of HUD’s investigation of your complaint, whichever came later. 

However, two circumstances prevent you from filing a lawsuit at all:

  • Your complaint is presently pending before an administrative judge
  • You signed a HUD conciliation agreement to resolve your complaint before the fair housing office could make an official determination of cause

You’re responsible for all costs related to your filing and could be liable for the defendant’s legal fees if the judgment goes in their favor. 

If you can’t afford to pay a lawyer to represent you, visit your regional court’s self-help center for information about obtaining pro bono legal representation at no or reduced cost. Alternatively, you can approach local legal aid or housing assistance organizations and request they represent you.

Final Word

The Fair Housing Act’s mere existence is a check on the potentially discriminatory behavior of individuals and entities with power over Americans’ housing access, including property owners, real estate agents, lenders, and public officials.

However, for all its value, the FHA has limitations. Its protections don’t extend to actions that aren’t inherently discriminatory, such as a failure to repair a broken furnace. The FHA also doesn’t protect you from eviction or foreclosure for lawful reasons, such as nonpayment of rent or mortgage payments. 

But tenants and homeowners do have other means of recourse, such as withholding rent, entering a lender’s loan workout program, or tapping sources of emergency financial assistance for renters.

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Late Rent Notice: When and How to Send One to Overdue Tenants

If your tenant runs late with the rent, here are steps you can take to resolve the situation and get paid.

When a new tenant moves into your unit, you expect that they’ll pay their rent on the first of the month like clockwork. But, that might not always be the case. Despite their best intentions, some tenants might be late paying rent and you’ll have to send a late rent notice.

Handling late rent payments is an inevitable part of owning or managing rental property. So, creating a process for late rent, including a standard letter to send to tenants, will make the situation run much more smoothly. Here’s an overview of how to write a late rent notice, when to send one to renters and what to do when the tenant doesn’t pay the overdue rent.

What is a late rent notice?

Simply put, a late rent notice is a letter written by the property manager (or owner) to the tenant informing them that rent is past due — according to what’s included in the lease agreement. The lease should specify the rent amount, when it’s due, when it’s considered late and how you will notify tenants of overdue rent.

The notice tells the tenant how much they owe, any late fees you’ll charge and when they must pay rent. You should also include the next steps for renters — either pay the rent and continue living in the home or what will happen if they don’t remedy the situation, such as starting the eviction process.

When rent is late, it’s a good idea to encourage tenants to discuss the situation with you. Good communication will help you find out if they’re struggling with financial problems or if they believe you’re not holding up your end of the lease agreement, such as neglecting repairs. To maintain a positive relationship with renters, try to work with tenants to come up with a resolution that benefits everyone.

Writing a late rent notice.

Writing a late rent notice.

What should a late rent notice include?

When drafting a late rent notice, first check your local rental laws to understand any regulations regarding late rent. For example, you’ll want to find out if you can charge late fees, whether there are specific time frames for what’s considered late rent and when you’re required to notify tenants that you’re taking action.

A late rent notice should include the following elements in most cases:

  • The entire property address of the rental
  • Date of issue for the notice
  • Names of the tenants on the lease
  • The rent balance due
  • A list of late fees
  • How tenants can pay the late rent, such as online or by check
  • An explanation of what happens if they can’t clear up the late rent or continue to pay late
  • A resolution date for the situation
  • Signature of the property manager or owner
  • Contact information for the property manager or owner

Sample late rent notice template

To streamline the process of late rent payments, create a standard letter that you can send all tenants. You can use this sample late rent notice template below. Simply download as a PDF or download as a Word document and customize it for your needs.

sample late rent notice letter

sample late rent notice letter

When to send a late rent notice?

Property managers typically require tenants to pay rent on the first of the month. They will also specify when rent is considered late, usually five or seven days after the due date. So, the best time to send a late rent notice is immediately after that grace period.

Local rental laws often include rules when rent is overdue, when to send notices, whether you can add on late fees and the late fees permitted. Some late fees are a percentage of the rent, such as 5 percent, or a flat rate. Include all of these details in your lease agreement.

You can deliver the notice in person or send it certified mail, which provides proof of delivery. Another option is to email it with a “read receipt” notifying you that the tenant opened the message. However you send it, maintain a copy of the late rent notice in your files.

What if tenants don’t pay the past-due rent?

After you’ve sent the late rent notice and the tenant doesn’t pay the overdue balance, you can begin an eviction. These processes differ by state (and even at the city level) so it’s crucial to learn about the requirements and legalities in your area. Consult an attorney for help before taking any action against a tenant.

An eviction is a formal process to terminate the lease agreement early because of failure to pay rent (or other reasons such as a tenant damaging property). Often, that starts with a pay or quit notice, a formal letter sent to the tenant stating that they need to pay the overdue rent or vacate the home. The notice usually gives tenants a few days, often three to five, to pay up or move out. If a tenant leaves the home without paying rent, you might be able to get a judgment from the court to recoup the missed payments.

In some states, a pay or quit notice begins the eviction process, while in others, you’ll need to take additional action to evict. That’s why understanding local landlord-tenant laws is vital.

Couple talking to landlord

Couple talking to landlord

How to work out a deal for rent repayment

No one wants to go through an eviction. Evictions are costly for property managers and owners and can mar a tenant’s credit and bring extra charges for them. If your tenant contacts you about the late rent notice, see if you can work out an agreement. After all, you don’t want to place more financial burden and extra stress on the tenant if they’re struggling with something like a lost job or another issue.

Finding a way to keep your existing tenant, especially if their struggles to pay rent are only temporary, will likely save you money in the long run. Some possible rent repayment agreements you can come to include:

  • Adjust due dates: For renters with multiple bills, agreeing to change the rent due date in the future could ensure they’re better able to pay on time.
  • Split rent into two payments: If tenants struggle to pay the lump sum, setting two smaller rent payment due dates might be helpful. Consider scheduling the due dates closer to when the tenant gets paid each month.
  • Waive late fees: Consider not enforcing the late fees if the tenant is able to repay the rent balance.
  • Set up a repayment plan: A repayment plan could help tenants repay the past-due rent in smaller increments, which they may find more financially doable. Consider dividing the late amount over six months or a year and adding it to the regular rent payment.

If you can come to an agreement with your tenant over the late rent, put it in writing. Include all the details that you’ve agreed to, as well as what happens if they violate the agreement, and make sure you and the tenant sign it.

How to make sure late rent doesn’t continue

Whether you’ve resolved the late-rent situation with your tenant or want to ensure it doesn’t happen with a new renter, establishing a few best practices can help. Though, late rent is inevitable sometimes.

  • Charge a reasonable amount of rent: Check out how much similar properties in your area are renting for and charge something comparable.
  • Screen tenants before signing a lease: Part of the screening process should include checking their credit, verifying employment and talking to previous landlords about the tenant’s rental history.
  • Review the lease with tenants: Before signing, verbally go through the lease with each tenant. Explain when rent is due, when it’s considered late and what happens if they don’t pay on time.
  • Accept rent payments online: Letting tenants pay rent online and encouraging them to set up automatic payments could help you get paid timely. enables property owners and property managers to accept rent online.
  • Send reminders: Set up automatic email reminders to send to your tenants a few days before rent is due. This might ensure no one forgets!
  • Post notices in your apartment community: Hang posters in common areas of your apartment community, reminding everyone when rent is due.
  • Keep the lines of communication open: Maintain a positive relationship with tenants and foster a sense of openness. Encourage anyone with a problem paying rent to discuss it with you as soon as possible, so that you can find a solution and avoid eviction.

How and when to send a late rent notice

Property managers and property owners likely don’t expect late rent payments to occur. But sometimes, events outside a tenant’s control come up and prevent them from paying on time. Being prepared and drafting a late rent notice will help resolve the situation easily. Consider listing your property on, where you can reach potential renters, screen them and collect payments online.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.


How to Write a Rent Increase Letter To Your Tenants

Follow this process to notify your tenant of an upcoming rent increase.

Increasing rent each year is a common practice for many property managers. And when the time comes, you need to write a rent increase letter to tenants informing them of the change.

Many states have rental laws that stipulate how much you can raise a tenant’s rent, when you can increase rent and how and when you’re required to notify tenants that their rent is going up. Standardizing this process will help you apply rent increases consistently and equitably for all your tenants.

Not sure how to write a rent increase letter? Here’s an overview of what the letter should include, how to send it and when to deliver the notice to your tenant.

Reasons to raise a tenant’s rent

If you’re planning to raise rent sometime soon, you’re not alone. Over the past year, rent prices have crept up about 20 percent nationwide, according to ApartmentGuide. The reason is that there are fewer rental properties available and a large number of renters are looking for affordable properties. Keeping up with the local real estate market is one reason property owners increase rent each year.

You might also raise the rent if there’s a rise in property taxes, insurance, homeowners association fees or utility prices. Another reason is if you made significant upgrades or repairs to the home. Increasing rent can help cover some of these expenses.

You can’t increase rent for retaliatory or discriminatory reasons, however. The federal Fair Housing Act prohibits discrimination in housing based on race, religion, color, national origin, family status, sex or disability. Raising rent based on how many children a family has could violate this law, for example. Many states prohibit rent increases solely because you had a negative interaction with the renter.

Man working on a calculator

Man working on a calculator

How much can I raise the rent?

In October 2021, rent for a one-bedroom apartment averaged $1,660 nationally and $1,964 for a two-bedroom. The average rent increase is usually 3 percent to 5 percent a year. If rent is $1,660 a month, an increase would be $49 to $83.

In most cases, property owners can technically increase the rent as much as they want, but only by a reasonable amount. Raising rent too much could turn off a great tenant, and it will likely cost more to have the apartment sitting vacant.

When deciding how much to increase a tenant’s rent, it’s best to start with your local landlord-tenant laws. Some states or municipalities may cap rent increases or not allow rent to exceed a certain amount, especially if the property is rent-controlled.

When is the best time to increase the rent?

Property managers can’t raise the rent on a whim or in the middle of a lease term. When a tenant signs a lease, they agree to a specific rent amount for a certain timeframe. Some leases specify how rent increases work and how much rent will go up. Rent increases should occur once the lease term ends, which is usually every 12 months.

You can propose a rent increase ahead of a lease ending with it going into effect once the term expires — however, the tenant doesn’t have to agree to it. The renter can choose not to renew the lease with higher rent and move out. If they stay in the home after the lease expires, you have the right to go through the eviction process.

When to send a rent increase letter

You must provide tenants with written notice before raising the rent. State laws specify the timeframe for when you should send the notice, but it’s usually 30 days before a lease term ends or when the increase will take effect. Then, give renters time to respond to the notice — if they agree to the rent increase and will renew their lease or they’re not renewing and plan to move out.

Woman putting. a letter into an envelope

Woman putting. a letter into an envelope

How to write a rent increase letter to tenants

A rent increase letter serves two purposes. It notifies tenants that their rent is going up and is official documentation that you notified them of the increase within the required timeframe.

When writing a rent increase letter, keep the tone professional but friendly — and be clear and direct. Make sure your letter includes these elements:

  • Name of the tenant
  • Property address
  • Name and contact information for the property manager (or property owner)
  • Date of the letter
  • Date the rent increase will go into effect
  • Amount of the rent increase
  • Amount of the current rent
  • Date first new rent payment will be due
  • Mention the current lease agreement’s expiration date
  • Include a timeframe for when the tenant must notify you that they’re not renewing their lease

Sample rent increase letter to tenants

Here’s a rent increase letter template that you can use to notify your tenants. Simply update anything in brackets. You can also download a PDF or word document of this file.

[Property manager or owner name]
[City, state, ZIP Code]
[Phone number and email address]

[Date of notice]

[Tenant’s name]
[Property address]
[City, state, ZIP Code]

Dear [Tenant’s name],

This notice is to inform you that beginning [date the rent will increase], the monthly rent that you pay to occupy the unit at [property address] will increase if you choose to renew your lease. Your current lease expires on [date of lease expiration].

The current monthly rent is [amount of current rent] and your new rent amount will be [amount of new rent]. The first payment at the new monthly rent amount will be due [include date payment is due].

Please let us know if you agree to this increase. Check one of the boxes below and sign and return this notice to the address provided by [date to return the notice]:

I agree to the rent increase of [amount of new rent] effective [date the rent will increase]. Please send me a lease renewal.

I do not agree to the rent increase and will vacate the unit by [date to move out], as specified in the lease agreement.

Please let us know if you have any questions about this notice.


[Property owner/manager’s name]
[Property owner/manager’s signature]
[Tenant’s signature]

How to deliver the rent increase letter

Check with your local laws to see if you’re required to deliver a rent increase notice via a certain method. You can hand-deliver the notice by leaving it on the tenant’s front door.

If you mail the rent increase letter, send it certified mail, which provides confirmation that the tenant received it. Email is another option. Just make sure you include a read receipt to ensure they received the message.

Play by the rules

Increasing rent is a standard part of running a rental property. You just need to make sure you’re following all state and local laws regarding how much and when you can raise rent and how to notify tenants.

When you list the property with, you can collect rent online, as well as accept applications and screen tenants.


When Does a Guest Become a Tenant?

When hosting family or friends in your rental, it’s important to know your rights as a tenant.

If it hasn’t happened to you, you probably know family or friends who have been in this situation. A family member or friend comes to visit and they don’t seem to have any intention of leaving. Maybe it’s because they’ve had a run of bad luck and need time to get back on their feet. Or, perhaps a significant other started spending more time at your place instead of their place.

Regardless of the reason, their presence is starting to feel more like a roommate than a guest. The only problem is you’re still paying the rent and utilities solo. So, when does a guest become a tenant?

It’s a question worth asking because you may not be the only one interested in the answer. Your landlord may have noticed your guest’s extended stay, as well, and may start making noises about a second tenant in your apartment. As such, it’s important to know what constitutes a guest versus a tenant and when you may need to make that transition official.

Has your guest overstayed their welcome?

Legally speaking, a tenant is a person named on a rental or lease agreement and is responsible for paying the rent and agreeing to not damage the property. A guest is someone not named on the rental or lease agreement who comes to stay with you with the intention of leaving after a brief visit.

Unless your rental or lease agreement states a specific time period for guests, there’s not a designated timeframe for how long guests can stay. Of course, if your guest hasn’t been talking about leaving any time soon or avoids your questions regarding when they’re headed home, that could be cause for concern.

Transitioning from guest to tenant

In addition to how long your guest stays, there are other factors for when a guest becomes a tenant. For example, has your guest started referring to your place as their home? Are they listing your address as their address when applying for jobs or to attend college? Have they started to bring their own furnishings or personal items to your place? Is their pet now your pet?

These are all indications that they consider your place their place. In addition, your landlord also will use these factors to prove your guest is no longer a guest but, in fact, a tenant.

You’ll need to make the call for when a guest becomes a tenant to avoid any legal problems if it looks like your guest has no intention of leaving. If your landlord has noticed your guest has become more of a permanent resident, he may serve you with a notice to terminate your rental or lease agreement for adding another tenant without notifying him or adding that person to the agreement.

You’re responsible for repairs or replacing damaged items your guest destroys. Even if you have renters insurance, your policy may not cover damages incurred by your guest.

Also, if your guest has plans to stay for the long term, then it’s only right for them to pay their share of the rent, utilities and other living expenses.

signing a lease

signing a lease

Roommate: Ready or Not

When it becomes clear your guest is now effectively your roommate, you’ll need to notify your landlord so your guest can be added to the rental or lease agreement. Keep in mind your landlord is under no obligation to add your guest to the agreement. He likely will evaluate your guest using the same criteria you provided when you first applied to rent the property. This includes verifying employment, running a credit check and possibly asking for a security deposit.

When your guest is added to the rental or lease agreement, they need their own renters insurance. Your policy only covers your personal belongings and any damage you cause in the apartment or home. Your guest will need to cover their personal belongings and any damage they may cause.

Show your guest the door

If your guest shows no signs of leaving and balks at the idea of becoming a tenant, it may be time to ask them to leave. Explain that you may face legal issues if they stay. Remind them that you’re paying additional expenses in the form of utilities, groceries and so on to accommodate them, and your budget is taking a hit. Make sure they know you enjoyed the visit, but you can’t lose your apartment.

If your guest is resistant, prepare for a possible battle. You may be able to enlist the aid of other family members to encourage your guest to leave. Or, you may need to retain the services of a lawyer and engage in a court-ordered eviction process. That may not be as easy as it sounds.

Depending on local and state laws, your guest may have squatters’ rights that permit them to stay. In some states, squatters may stay as little as 30 days to be considered a tenant of the property, even if they have not signed a rental agreement. The process to have them evicted could be expensive, lengthy and time-consuming. Hopefully, your guest will not want to put you through that experience and will leave as requested.

Moving on

Hosting a friend, family member or significant other for a quick visit can be fun and enjoyable. But when that visit stretches out too long, it can become a problem. Knowing how and when a guest becomes a tenant is important to ensure you won’t face eviction or other legal problems.


Using Your 401K to Pay Down Debt

You have debt. But you’ve also got a stash of cash in your 401(k).

If you’re feeling overwhelmed by high-interest credit card balances, a student loan, and/or an auto loan, you might think taking money out of your 401(k) is a good way to pay down that debt and get it under control.

But is withdrawing money from your 401(k) to pay off debt a good idea? How would you go about doing it — and then paying it back?

What Are Some Options for Taking Money out of a 401(k)?

There are two basic options for taking money out of a 401(k): withdrawals and loans.

401(k) Withdrawal

A withdrawal removes money from your account permanently. You don’t pay the money back — but you can typically expect to pay taxes on the amount you withdraw. And, depending on your age, you may have to pay an early withdrawal penalty as well.

401(k) Loan

A loan lets you borrow money from your account and then pay it back to yourself over time. You’ll pay interest, but the interest and payments you make will go back into your retirement account.

There are pros and cons for each of these options. And the rules can vary depending on your age and what your employer’s plan allows. Here are some things to consider.

What Are the Rules for 401(k) Withdrawal?

Tax-deferred retirement accounts like 401(k)s, 403(b)s, and others were designed to encourage workers to save for retirement, so the rules aren’t super friendly for those who want to make a withdrawal before age 59½.

But depending on your financial situation, you may be able to request what the IRS calls a hardship distribution .

Employer retirement plans aren’t required to provide hardship distribution options to employees, but many do, so it may be worth checking with your HR department or plan administrator for details on what your plan allows.

According to the IRS, to qualify as a hardship, a 401(k) distribution must be made because of an “immediate and heavy financial need,” and the amount must be only what is necessary to satisfy this financial need. Expenses the IRS will automatically accept include:

•   Certain medical costs.

•   Costs related to buying a principal residence.

•   Tuition and related educational fees and expenses.

•   Payments necessary to avoid eviction or foreclosure.

•   Burial or funeral expenses.

•   Certain expenses to repair casualty losses to a principal residence (such as losses from a fire, earthquake, or flood).

You still may not qualify for a hardship withdrawal, however, if you have other assets you could draw on or some kind of insurance that will cover your needs. And your employer may require documentation to back up your request.

You probably noticed that credit card and auto loan payments aren’t included on the IRS list. And even the tuition expense requirements can be a little tricky. You can ask for a hardship distribution to pay for tuition, related educational fees, and room and board expenses “for up to the next 12 months of post-secondary education” for yourself, your spouse, your children, or your dependents. But you can’t expect to use a hardship distribution to repay a student loan from when you already attended college.

Are 401(k) Withdrawals Subject to Taxes and Penalties?

Even if you can qualify for a hardship distribution, it’s a good idea to plan to pay taxes on the distribution (which is generally treated as ordinary income). And, unless you meet specific criteria to qualify for a waiver , you’ll also pay a 10% early withdrawal penalty if you’re younger than 59½.

So, let’s say you’re 33 years old, and you have enough in your 401(k) to withdraw the $20,000 you need. Right off the top, unless you qualify for a waiver, you can expect to pay a $2,000 early withdrawal penalty. Then, when you file your income tax return, that 401(k) distribution will most likely be counted as ordinary income, so it will cost you even more. And if that added income bumps you into another tax bracket, you could end up paying even more.

But taxes and penalties aren’t the only costs to consider when you’re deciding whether to go the distribution route.

Since compound interest creates the potential for your initial investment to grow significantly over time, every dollar you take out now could mean several dollars less in retirement. Essentially, withdrawing from your 401(k) now is like borrowing money from your future self, because you’re losing long-term growth.

What Are the Costs Associated With 401(k) Loans?

You may be able to avoid paying an early withdrawal penalty and taxes if you borrow from your 401(k) instead of taking the money as a distribution. But 401(k) loans have their own set of rules and costs, so you should be sure you know what you’re getting into.

There are some appealing advantages to borrowing from a 401(k). For starters, if your plan offers loans (not all do), you might qualify based only on your participation in the plan. There won’t be a credit check or any impact to your credit score — even if you miss a payment. And borrowers generally have five years to pay back a 401(k) loan.

Another plus: though you’ll have to pay interest (usually one or two points above the prime rate ), the interest will go back into your own 401(k) account — not to a lender as it would with a typical loan.

You may have to pay an application fee and/or maintenance fee, however, which will reduce your account balance.

Of course, a potentially more impactful cost to consider is how borrowing a large sum from your 401(k) now could affect your lifestyle in retirement. Even though your outstanding balance will be earning interest, you’ll be the one paying that interest. Until you pay the money back, you’ll lose out on any market gains you might have had — and you’ll miss out on increasing your savings with the power of compound interest. If you reduce your 401(k) contributions while you’re making loan payments, you’ll further diminish your account’s potential growth.

Another risk to consider is that you might decide to leave your job before the loan is repaid. According to IRS regulations, you must repay whatever you still owe on your 401(k) loan within 60 days of leaving your employer. If you fail to pay off the outstanding balance in that time, it will be considered a distribution from your plan. And when tax time rolls around, you’ll have to include that amount on your federal and state tax returns, where, typically, it will be considered ordinary income.

If you’re under age 59½ and the loan balance becomes a distribution, you may also have to pay a 10% early withdrawal penalty.

There may be similar consequences if you default on a 401(k) loan.

What Are Some Ways of Minimizing Risks to Your Retirement?

If you decide using a 401(k) to pay off debt is your best (or only) option, here are a few things that could help you lower your financial risk.

•   Not using your high-interest credit cards once you use your 401(k) to pay them off. If you continue to use your credit cards, and then have credit cards and the 401(k) loan payments to make every month, you could end up in even more financial trouble.

•   Continuing to make contributions to your 401(k) while you’re repaying the loan — at least enough to get your employer’s match.

•   Not overborrowing. Creating a budget could help you determine how much you can comfortably pay each quarter while staying on track with other goals. And try to stick to taking only the amount you really need to dump your debt and no more.

Why Do People Use Their 401(k) to Pay Down Debt?

Although there are significant costs involved in taking money out of a 401(k) to pay debt, many people still do it. It can seem like a good option if you have high-interest debt like credit card debt and you have to face those bills every month. If you have lower interest debt like student loans, personal loans, auto loans, or a home equity line of credit (HELOC), then the early withdrawal penalty and other consequences may be a deterrent.

But if you’re paying high interest on your current debt, or if you have debt payments due and no way to cover them, using your 401(k) might seem better than the risks of missing payments on those bills. Late payments can rack up fees, interest, and can ding your credit score. And if you default on a debt, that can have even more dire consequences, potentially including court actions and wage garnishment — depending on the type of debt and the creditor or lender. You can’t exactly wait it out and count on winning the lottery or inheriting money from some long-lost relative.

If your credit score ends up damaged due to late payments, that, too, could have a huge impact on your finances. Having a low credit score can make it more difficult to get loans in the future. You might have to pay a higher interest rate or there might be limits on how much you can borrow.

Given the dire consequences of doing nothing, using your 401(k) to pay off debt might seem like an attractive choice. But before you contact your HR department or plan administrator to request a loan or withdrawal, you may want to take time to look at some other options that could help you repay your debts.

What Are Some Alternatives to Taking Money Out of Your 401(k)

When it comes to paying down debt, your 401(k) isn’t the first or only place you can look for relief. There are some solid alternatives.

For example, refinancing your debt might be an option. When it comes to things like student loans or auto loans, you might be able to get a lower interest rate than you’re currently paying.

This may be especially true if your credit score or income has improved since you first took out your loan. If you took out educational loans when you were still a student, for example, you’re likely making more money now and might have built up a credit history that could make you eligible for a better deal.

If you have federal student loans and are still working toward that dream job (and salary), you could look into income-driven repayment plans that limit the amount that you pay each month to a certain percentage of your monthly discretionary income — which could help keep your monthly payments more manageable.

Many of these plans will also forgive any remaining balance on your federal student loans after 20 to 25 years of qualifying, on-time payments — something that you won’t be able to take advantage of if you pay off your loans with your 401(k).

If you still need help, you could look into whether you qualify to have your federal student loans put into forbearance or deferment (although you’ll want to consider these programs carefully, as you may still be responsible for any interest that accrues).

If you have credit card debt or other high interest debt, you could look into a credit card consolidation loan. Debt consolidation loans are loans designed to pay off your current loans or credit cards, ideally at a lower interest rate or with more favorable terms.

You can get these loans from a bank, credit union, or online lender, often by filling out a quick form and sending a few scanned documents. But it’s important to remember that this is still taking on debt, even if it’s debt with different terms.

One critical thing to remember when using a personal loan to refinance or consolidate debt is that you may have the option to extend the length of your loan, which may reduce your monthly payments and free up some near-term cash flow.

While extending your loan term means you’ll likely pay more in interest over the life of your loan, it might be a worthwhile move to ensure you can cover your debt payments.

The Takeaway

It may not have ever crossed your mind, when you opened your 401(k), that you’d use it for anything other than retirement. And though it may be tempting to tap it now, especially if you’re facing a daunting amount of expensive debt, that’s a decision with both short- and long-term consequences. Before you use your 401(k) to pay off debt, you may want to consider other available alternatives. With a SoFi Personal Loan, for example, you might be able to get a do-over on that debt and a more manageable monthly payment.

Learn more about personal loan options with SoFi for consolidating debt.

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Capitalization (Cap) Rate Definition – How Real Estate Investors Use It

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One of the greatest advantages of real estate investments lies in their ability to generate ongoing passive income. 

It’s certainly what attracted me to rental properties. Because with enough passive income, you can cover your living expenses and retire early. 

And capitalization rates — cap rates for short — let you compare properties’ income potential, compare different real estate markets, and more. You can do all the math on the back of a cocktail napkin, even after your second or third helping. 

What Are Cap Rates?

Cap rates might sound jargony, but they’re actually extremely simple. 

In short, they simply represent the net return on investment (ROI) you can expect an income property to generate each year, in the form of cash flow. Cap rates don’t include returns from appreciation, and they don’t account for financing, to help you just compare income yields. 

Thus, they offer a shorthand way to compare cash flow on different properties if you buy in cash.

Capitalization Rate Formula

You don’t exactly need a degree in mathematics to calculate cap rates. Here’s the formula for capitalization rate:

Cap Rate = Annual Net Operating Income (NOI) ÷ Purchase Price (or Value)

For example, imagine a property nets $8,000 in income per year and it costs $100,000 to purchase. That makes the cap rate 8%. Just remember this is a simplified stand-in for ROI, so don’t mistake it for your actual cash-on-cash return (more on that later).

While the purchase price is easy enough to understand, the annual net operating income requires a little explaining and a formula of its own. 

Calculating Net Operating Income

A property’s NOI is simply the net income it generates each year, after operating expenses. 

Operating expenses are easy for novice investors and non-landlords to overlook or try to ignore. But the fact is that most rental properties come with expenses that average around half the rent when averaged over time. There’s even a term for it in the world of real estate investing: the 50% rule. 

These non-mortgage expenses include: 

  • Vacancy rate
  • Property management costs
  • Repairs and maintenance
  • Property taxes
  • Insurance
  • Accounting, bookkeeping, travel, legal costs, and other miscellaneous costs

So when you buy your first rental property, if it rents for $2,000 per month, expect around $1,000 of that to go to non-mortgage expenses. It won’t happen every single month, but you can expect expenses like that averaged out over time. 

Oh, and word to the wise: even if you plan to self-manage rather than hiring a property management company, budget for property management fees. It’s still a labor expense, whether you do the labor or you pay a property manager to do it for you. Besides, the day will likely come when you either can’t or no longer want to field 3am phone calls from tenants complaining that a light bulb burned out.

How to Forecast Expenses

Your cap rate figures will only be as good as the expense numbers you plug into the formula.

For each expense figure above, do your due diligence. Call up local landlords, property managers, and real estate agents to find out the vacancy rate in that neighborhood. Look up the local property tax rate, and multiply it by the purchase price. Get quotes for property insurance, and so on. 

In other words, get real numbers wherever possible — don’t guess. 

With repairs and maintenance costs, I usually estimate around 13% of the rent. But depending on the age and condition of the property, expect them to average out to 10% to 15% of the rent over time.

How Do Real Estate Investors Use Cap Rates?

Cap rates come in handy in several ways as a real estate investor. While some investors use this metric for other purposes, keep the following three main uses in mind as you explore single-family or multifamily real estate investments.

1. To Compare Properties

Imagine two identical properties down the street from one another. They both cater to the same quality of tenant, and both are in the same condition. Which should you buy?

In theory, you should buy the one with the higher cap rate because it will deliver a higher rate of return. 

Cap rates offer a quick and dirty way to compare rental income returns on investment properties. They offer a shorthand for a property’s income yield to help you compare properties. 

While the example above is uncommon, consider a more common one. After looking around town, you come up with several properties that look promising. One of them offers a cap rate of 8%, another offers a cap rate of 10%. The property with the higher cap rate sits in a lower-end neighborhood, with more crime and higher turnover rates. 

Which one you buy depends on your risk tolerance, and your tolerance for landlording headaches. You may well opt for the property with the lower cap rate to avoid the higher risk of break-ins, more frequent turnovers, more difficult tenants, and so forth. Knowing the cap rates of both options helps you compare the properties and decide whether the higher return is worth the risks.

If you buy turnkey properties on Roofstock, you can filter properties across the country by cap rate. Which can not only help you find appealing properties, but also appealing real estate markets.

2. To Find Attractive Markets

I actually find the best use of cap rates to be identifying higher-profit housing markets for investors. 

For example, as much as tenants and housing activists love to complain about the rents in San Francisco, the ratio of rents to home prices there actually favors tenants — by a lot. So much so that rental investors can expect negative cash flow if they finance a typical rental property there. 

In Memphis, however, investors get far more rent for each dollar of purchase price. The ratio of rents to home values favors landlords, leading to high cap rates. It also doesn’t hurt that median home prices in Memphis are a tiny fraction of those in San Francisco, making it easier to invest there.

By researching cities with higher cap rates, you can find markets with high rents relative to asset values. And in doing so you can identify some of the best cities for real estate investors that the nation has to offer.

3. To Set an Offer Price Limit

Often real estate investors set a floor for the minimum cap rate they’ll accept for a property. That in turn helps them set a ceiling for the most they’re willing to pay for any given property. 

For example, imagine an apartment building generates $18,000 in net income each year. The seller wants $300,000 for it, which would mean a cap rate of 6% ($18,000 ÷ $300,000 = 6%).

Your minimum cap rate is 7% however, so you offer $257,000 as your highest and best offer ($18,000 ÷ $257,000 = 7%). The seller can agree or decline, but either way you know you’ve stayed within the bounds of your investment strategy. 

It frees you to ignore what other people think the market value of the property is, and focus on maintaining your own minimum standards for returns. 

Limitations of Cap Rates

Despite their uses as a simple way to compare properties and make investment decisions, cap rates come with several limitations. 

First, the very thing that keeps them simple and allows them to compare properties on equal footing is what limits their usefulness for you personally. By ignoring financing, you can compare apples to apples among properties — but that tells you nothing about what you can personally expect to earn on your own cash investment. 

Your cash-on-cash return is the return you receive on your actual cash invested in the deal. That includes your down payment, closing costs, and any initial repairs and carrying costs before you rent out the property. And don’t assume that mortgages always improve your cash-on-cash return, either. Leverage can turn a mediocre cap rate into negative cash flow each month. 

Imagine a property that offers a 7% cap rate if you were to buy it in cash. You buy it for $100,000, and after all expenses, you net $7,000 each year. Now imagine you were to finance $80,000 of that property, and you net $2,600 per year (after the mortgage payments) on your $20,000 cash down payment. That would put your cash-on-cash return at 13% (ignoring closing costs in both cases, for the sake of a simple example). 

Cap rates can help you do a quick analysis, but cash-on-cash return is your true bottom line for any given property. Make sure you calculate the net annual income you can expect on your total cash invested. 

Finally, remember that financing terms and opportunities can vary from one location to the next. 

You might be able to borrow money at 4.5% interest from a lender in one state, but 6% interest in another where regulations are tighter and fewer lenders operate. Or in high-regulation states, lenders might offer a lower loan-to-value ratio, requiring a 30% down payment instead of 20%. Or lenders could charge higher loan fees in those states, or transfer taxes and recordation fees could be higher. 

Cap rates don’t include borrowing terms or closing costs, but these factors impact your profitability and returns nonetheless.

What Makes a “Good” Cap Rate?

Every investor has a different answer for what they consider a good cap rate. Even so, rental properties come with far more hassles and work than truly passive investments like real estate investment trusts (REITs), so you should demand higher returns on them. 

I personally wouldn’t invest in a property with a cap rate under 7% or 8%, and I wouldn’t exactly get excited about those numbers. I can earn higher returns on real estate crowdfunding through platforms like Fundrise, Streitwise, and GroundFloor without the rent defaults, eviction moratoriums, or phone calls from alleged adults who don’t know how to change a light bulb. 

Those platforms also require a far lower minimum investment, and let me diversify my funds into commercial properties and real estate assets all across the country. 

But because platforms like Roofstock have made it so much easier to buy real estate properties from anywhere, buyers have flooded a once-niche market and driven prices up and returns down. That makes the average cap rate on U.S. properties unappealing to me, so deals have to be exceptional for me to consider them in today’s housing market. 

What’s a “good” cap rate? One that beats other real estate investments by enough margin to justify all the headaches that come with being a landlord. 

Final Word

Cap rates offer an easy way to compare potential returns on different investment properties. Consider them a fundamental that every new real estate investor should understand. 

But they lack nuance, and should be treated as a high-level valuation tactic, not the basis for your investing decisions. 

Use them to find good markets and review comparable properties, or to set price ceilings. But remember that they’re only as useful as the accuracy of the numbers you plug into the cap rate formula. If you underestimate vacancy rates or repair costs, it throws off your cap rate calculations — and your bottom line. 

Don’t like the idea of all this research to invest in real estate? Skip the labor and learning curve required to buy rental properties, and invest through real estate crowdfunding platforms instead.

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Turnkey Rental Properties – 7 Mistakes to Avoid When Buying

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Love the idea of investing in a rental property but not the idea of hassling with renovations or constantly hunting for deals?

Turnkey properties, which can be purchased through Roofstock, let you skip the headaches and jump straight into being a landlord. By its very definition, a turnkey property is either immediately ready to rent (no work required but “turning the key”) or is already rented to a tenant. No muss, no fuss, just rental income right away.

For all their ease, though, turnkey properties come with their own pitfalls. Here’s what you need to know before investing in one to make the process smooth and your profits strong.

Mistakes to Avoid When Buying Turnkey Properties

Many first-time real estate investors find themselves lulled into a false sense of security. They think to themselves, “I know real estate. I’ve bought and sold several homes. Besides, I’ve been living in real estate my whole life!”

Then, they promptly go out and make mistakes costing them tens of thousands of dollars.

Buying a turnkey rental property is not the same as buying a home. Here’s what investors need to know to avoid costly mistakes and ensure their first deal is a successful one.

1. Overestimating Returns

Yes, turnkey properties offer predictable returns. But that doesn’t mean all investors run the numbers correctly.

Far too many new investors underestimate or even ignore expenses like vacancy rate, property management, and repairs and maintenance. I did when I first started investing.

Similarly, investors sometimes get starry-eyed about rents, using the best-case rent in their calculations instead of the worst-case rent. These two mistakes combine to leave many new investors’ cash flow calculations woefully overstated.

Before buying your first investment property, do your homework and collect accurate figures for rents, neighborhood vacancy rates, and other expenses. Use conservative numbers, always plugging the worst-case scenario into your calculations.

Otherwise, you might find yourself with a property that loses money every year rather than earning passive income.

2. Confusing “Turnkey” with “New”

Just because a property is tenant-ready doesn’t mean it’s in perfect condition or that every component in the property is new.

To be considered turnkey, a property must simply be ready for marketing to renters. Everything needs to work, but “functional” doesn’t mean “new.” A furnace can be 20 years old and still work just fine. But there’s a huge difference between a 20-year-old furnace and brand-new one.

Turnkey properties still need ongoing maintenance and repairs, often major ones. Six months after buying a turnkey property, the air conditioning condenser, hot water heater, or refrigerator may need repair or even replacement.

Investors must take the long-term average of ongoing expenses to forecast returns. Once you own the property, those numbers should go from theory to practice. You need to actually set aside money for those expenses every single month. Then, when these expenses inevitably rear their heads, you won’t have to wonder how to pay for them.

3. Failing to Do a Home Inspection

To estimate the potential expenses mentioned above, you need to know the condition of the property before buying it. That means getting as many expert eyes on the property as you can.

That starts with a home inspection. While Roofstock requires sellers to get a home inspection before listing their property and to include the report with the listing, buyers should also conduct their own due diligence.

Review the inspection carefully and ask someone else with real estate experience to review it as well. Ask the inspector questions about anything you don’t understand. If you’re using a real estate agent, ask their opinion about the age of each major appliance and mechanical system in the property, as well as the age and remaining lifespan of the roof.

There’s nothing wrong with buying an aging property — if you know it’s aging and budget accordingly. But far too many new investors get complacent when shopping for turnkey real estate, assuming everything in the home is in great shape just because the property is in “rentable” condition.

4. Failing to Build a Support Team Before Buying

Likewise, just because the property doesn’t need renovation now, that doesn’t mean it won’t need repairs in a year — or even a month — from now.

Start screening and networking with contractors before you buy. When you do get that 3am phone call about a burst pipe, you need to have a plumber and general contractor lined up and ready to spring into motion.

That goes for every specialty of contractor, plus several low-cost handymen as well. The property will need repairs, and you need to be ready with trustworthy people to make them.

Your support team doesn’t end with contractors. If you plan to hand over management to a property management company, you should be screening and interviewing managers before you even take title.

And as important as all of this is when you buy local turnkey properties, it goes doubly when buying properties long-distance. Your support team is your eyes, ears, and boots on the ground. Screen them carefully and build trust and rapport with them. The day will come when you need to rely on their judgment because you aren’t there to handle an issue yourself.

5. Fixating on Traditional Mortgage Financing

When new investors go to buy their first property, they typically stick with what they know: traditional mortgage financing.

It’s what they used to buy their own home, and they understand the process. But while it may work, especially for the first property or two, it’s a one-dimensional way of thinking about funding.

Real estate investors should instead start thinking in terms of building a “financing toolkit.” Different situations call for different types of financing, and investors need to get comfortable with a range of options.

Turnkey properties are well-suited to portfolio loans kept in-house by the lender rather than sold off on the open market. Many portfolio lenders specialize in working with investors and offer discounted interest rates and fees to experienced investors.

In contrast, traditional mortgage lenders restrict the number of mortgages an investor can have on their credit report. Most often they cap borrowers at four mortgages.

Other types of financing include seller financing, private financing from friends and family, and hard money loans, which are best for short-term purchase-rehab loans. Start familiarizing yourself with different types of financing, and start networking with lenders in each category, particularly portfolio lenders for turnkey properties.

6. Failing to Screen Existing Tenants

Turnkey properties that come with existing tenants are a double-edged sword. While it can save you the hassle of advertising the unit, running credit checks on applicants, and signing a new lease, it also leaves you stuck with a tenant who may not be everything the seller claims.

I knew an unscrupulous turnkey seller once whose only criteria in screening tenants was the amount of rent they were willing to pay. He’d stick some deadbeat in the property paying above-market rent so he could advertise the property as generating higher revenue and therefore justifying a higher sales price.

Never mind that the deadbeat tenant would default within a month or two. That was the buyer’s problem, not this seller’s.

As a buyer, your due diligence doesn’t end at evaluating the property. You also need to evaluate any existing tenants and make sure they’re reliable, clean, and respectful of your property.

Ask to see the original tenant screening reports, including credit, criminal, and eviction history. If the seller can’t or won’t release them, consider it a huge red flag.

Conduct your own inspection of the property with minimal notice to the tenants. You want to see how they live and keep the property on an average day, not after cleaning up specifically for your visit.

You can and should ask to see the property’s rent roll, but take it with a grain of salt, because the seller can fudge the numbers.

7. Allowing Mediocre Tenants to Stay

Along similar lines, if you inherit tenants who turn out to pay rent late or treat your property roughly, you need to get them out of there as quickly and peacefully as possible.

That could mean filing for eviction if they’ve violated the lease contract in a tangible way. For tenants who don’t merit immediate eviction yet aren’t ideal renters, the other option is simply not renewing their lease agreement when it comes up for renewal. 

Word to the wise: Each state imposes a minimum notice requirement, usually between 30 and 90 days, before the lease is due for renewal. So plan accordingly.

As a landlord, your returns are only as good as your renters. Reliable, respectful, low-impact tenants mean strong returns and few headaches. Unreliable, dirty, and downright bad tenants make your life miserable and lead to dramatically higher expenses.

If you inherit bad or just plain mediocre tenants, do yourself a favor and show them the door. The world is full of good people who will treat your property respectfully and pay their rent on time — rent to them instead.

Final Word

Far too many new investors dive headfirst into turnkey rental properties, falsely assuming that just because they don’t require renovation, they don’t require knowledge and skill to invest in.

Turnkey properties do help you avoid the headaches of corralling contractors for rehab work, pulling permits, and carrying a vacant property for months on end. But direct real estate investment still costs time and labor on your part.

Before laying out thousands of dollars on a down payment, invest in your own education. Learn how to accurately forecast cash flow. Assemble a team of experts to help you find and manage turnkey properties. And if you decide to manage the property yourself, learn the ropes of property management.

Not everyone is cut out to be a landlord. But for those who are, rental properties can make outstanding income-generating investments.

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Are You a Good Tenant? 6 Qualities Your Landlord Will Appreciate

You may think you’re the bee’s knees as a tenant, but your landlord might not agree.

A positive landlord-tenant relationship is crucial to any rental experience. Most landlords will go to great lengths to find and keep qualified, trustworthy tenants. Those who honor lease terms, respect the property and display financial responsibility.

However, your desirability as a tenant goes beyond a good credit score and a clean background check. There are certain qualities that will make you stand out as a tenant in your landlord’s eyes and certain qualities that are immediate red flags.

Are you the type of tenant that helps landlords breathe easier or the type they warn each other about?

Rent due on the 1st.

Rent due on the 1st.

Do you pay rent on time?

Sometimes, all it takes is making one payment on time each month to stay in your landlord’s good graces.

Your monthly rent payment is likely one of your largest expenses, and it’s also probably one of your landlord’s largest sources of income. Receiving this payment even a few days late can affect a landlord’s ability to pay their mortgage or other financial obligations related to a property management business.

If you’re simply having difficulty remembering to put a check in the mail each month, talk to your landlord about online payment options. This will allow you to set up automatic payments or instant bank transfers.

If you’re dealing with financial struggles, avoid lying to your landlord or making up excuses to avoid repercussions for late payments. Be honest and direct to maintain trust — most landlords will be willing to work with you.



Do your guests crash for months at a time?

Most rental leases veto long-term guests without first touching base with your landlord. This is mainly because these guests go unscreened and they’re not on the lease. Unapproved subletting or long-term guests can put you at risk, as well, since your name is on the lease and you are responsible for any potential damage they may cause.

If your landlord finds out about any unapproved roommates, you risk breaking your rental agreement and forfeiting your security deposit. Of course, your rental should feel like your home and you should host visitors as you please. But go ahead and give your landlord a quick heads up for any guests that are sticking around (check your lease agreement to see if long-term guests are defined as 7, 14 or 30 days).

Woman on the phone with landlord because her sink is leaking.

Woman on the phone with landlord because her sink is leaking.

Do you report maintenance issues right away?

Regular maintenance can make or break the profitability of a rental property, so your landlord will appreciate your help in protecting their investment. Issues like water leaks, electrical complications or HVAC system failure can quickly grow into larger problems if left unaddressed. Landlords have no way to keep tabs on these items themselves.

They’re trusting you as their tenant to report maintenance issues in a timely manner, even if they might not seem like a big deal to you.



Do you keep your space generally tidy?

Some tenants are cleaner and some tenants are messier. But keeping your rental in generally good condition is crucial to preventing pests and ensuring the return of your security deposit at the end of your tenancy. The best way to ensure the longevity of a rental property is to keep it clean and well maintained, free of dirt, garbage and pests.

Carefully read through your lease agreement to understand your responsibilities as a tenant when it comes to maintaining the rental property. If your landlord conducts regular property inspections, they’re likely to take note of the cleanliness and upkeep of your rental.

Commit to a deep clean of the entire unit on at least a seasonal basis to disinfect and keep less trafficked areas free of dirt and debris.



Have you gone through an eviction?

A prior eviction is one of the biggest red flags a tenant can have in a landlord’s eyes. It means you’ve directly violated lease terms in the past with no potential to resolve the conflict. It’s important to note that tenants may also be evicted for reasons that don’t have to do with rental behavior. For example, if your landlord wants to occupy the property themselves or complete substantial renovations.

Having an eviction judgment against you can make it more difficult for you to rent in the future and can also negatively impact your credit report. If you’ve gone through an eviction, it’s time to start working on your tenant appeal. Focus on building your credit score, pay any outstanding debt involved in the eviction and try to build a roster of strong references.

Remain professional and honest about the situation and consider offering an additional deposit or first and last month’s rent to show your new landlord that you will be a stable tenant moving forward.

Are you a good communicator?

While landlords value open communication and timely responses, no one wants a tenant who is constantly complaining or asking for above and beyond attention. Bring up maintenance issues right away, be available to answer landlord inquiries as needed and contact your landlord with any other questions or concerns that may arise. Prioritize your requests and understand what classifies an emergency. In most cases, you won’t be your landlord’s only tenant or only priority. Unless it’s a true emergency (fire, burst pipe, etc.), try to resolve the issue on your own before bringing in your landlord.

Keep up with being a good tenant

It’s never too late to start being a great tenant. If you’re struggling with your landlord-tenant relationship, check in with your landlord to see where you can improve as a renter to try and salvage the relationship.

Pay your rent on time and treat the property as if it was your own and you’ll be well on your way to a better relationship, plus a higher probability of having your security deposit returned and an overall great rental reference in the future.


Explaining an Eviction to a Future Landlord (Sample Letter)

If you’re a renter, then you’ve heard the term eviction — the process when a landlord removes a tenant from the rental property for failure to comply with the lease agreement. Evictions can happen for several reasons but the most common reasons a renter will be evicted are:

  • Failure to pay rent on time or repeated late payments
  • Disruption to other tenants
  • Illegal activity
  • Damage to the property

Neither the landlord nor the renter wants to see an eviction on a rental application or background checks. Landlords see evictions as a red flag because they indicate that a renter did not follow through with their end of the lease.

Landlords take a chance on their renters and want to make sure they rent properties to people who will pay on time, keep the apartment clean and in working condition and be a good neighbor. When an eviction appears on a rental application, it can make landlords wary and deter them from renting to people.

Renters do not want an eviction on their record because it makes it difficult to find a new place to live and get a landlord to trust that you’ll be a good candidate to whom to rent. Evictions are a red flag for both parties.

So, how do you go about renting after eviction? Well, one of the first steps to take is writing a sample letter explaining eviction. We’ll walk you through when and how to write a sample letter explaining eviction and include a template in case you find yourself in this situation.

When to write a letter explaining an eviction

If you’ve been evicted and are trying to rent after an eviction, then you should write a letter explaining your eviction to your future landlord. Regardless of the reason, a letter explaining an eviction can go a long way with a prospective property manager because it shows that you’re willing to put in extra effort to be honest about your past and show who you really are.

As you’re submitting a rental application for a new place, you can attach your letter to the rental application. That way, the landlord has all your information to begin with. Think of it this way — landlords see hundreds of rental applications where the tenant has filled in the basic required information. However, a hand-written (or typed) letter explaining your eviction can help tell your story and humanize your application in a way that checkboxes cannot.

man writing letter explaining an eviction

man writing letter explaining an eviction

How to write a letter explaining an eviction

So, how do you go about writing a letter explaining an eviction? While it can seem scary to explain your history in a short letter, it doesn’t need to be. These letters should be sincere, direct and honest. Remember, your goal with writing this letter is to appeal to the future landlord, show them you care, tell them about yourself and convince them that you’ll be a great renter whom they can trust. Here are some things to include in your letter:

1. State who you are

Briefly write about who you are and why you’re a good candidate to consider.

2. Talk about why you want to live in this apartment

Include concrete details about why this specific apartment complex appeals to you. When you share why this apartment complex interests you, it shows that you’ve done your research.

3. Be honest about your eviction

Evictions happen. You don’t want to lie about it or try to sugarcoat what happened. In this case, honesty is the best policy. You can tell your future landlord about the circumstances leading up to the eviction and what happened.

4. Explain your plan of action as a renter after an eviction

Landlords need to know that you’ll be a good bet so you’ll want to explain how you’ve changed and what your plan is to avoid the same scenario that happened before to cause the first eviction. Explain how you’ll do things differently to ensure that you’re worth taking a chance on.

5. Show them you care

Be sincere and show them that you care about earning their trust and being a good tenant. At the core, landlords just want to rent to people who will pay their rent on time, keep the apartment in mint condition and follow the terms of their lease.

Keep in mind that your rental application itself will include standard information like name, address, work history and income. While you can gloss over these things, use the letter to really show your landlord who you are beyond the paper application. This is your chance to stand out among other rental candidates who do not have an eviction on their record.

Sample letter explaining an eviction

Now that we’ve talked about renting after an eviction and the main benefits of writing a letter explaining eviction, here is a sample letter template to help you create your document. Simply download this letter and update everything in parentheses ( ) based on your situation.

Eviction letter template




Re: Prior Eviction on My Rental Record


My name is (INSERT NAME) and I’m a prospective tenant hoping to rent at (INSERT APARTMENT NAME AND LOCATION). Upon receiving my application, you’ll notice that I’ve had a past eviction. I wanted to bring this to your attention immediately as I know that evictions are a red flag for landlords. My hope is that this letter will show you who I am and help you truly see me as the great tenant that I can be.

I was evicted because (INSERT REASON). While I can’t change what happened in the past, I am actively working and taking steps to ensure this doesn’t happen again. I have done (INSERT 2-3 THINGS YOU’VE DONE TO AVOID EVICTION AGAIN).

Because I’ve made these changes, I’m hoping that you’ll see me as a candidate that would be a good fit for your apartment complex. I’m eager to live in this apartment complex because (INSERT REASONS).

I am hard-working, responsible and committed to being the type of renter that you’re looking for. I’ll be an ideal tenant who will comply with my lease, pay rent on time and keep my apartment clean and cared for.

Please feel free to reach out to my references (ATTACH ANOTHER DOCUMENT WITH REFERENCES) for a character interview. You can also contact me directly if you need more information. I appreciate your time and consideration.






Additional tips for renting after an eviction

In addition to writing a letter explaining an eviction, you can do a few other things to improve your chances of renting after an eviction:

  • Improve your credit score
  • Get a co-signer
  • Find the right references
  • Pay rent upfront
  • Offer to take on additional responsibilities at the apartment property
  • Find a private owner
  • Rent from apartment complexes that do not require a background check

Whether you try one or all of these tips for renting after eviction, remember that people before you have had evictions and found new places to live. You’re not the first or last person to be evicted. These tips are intended to help you have a leg up on other prospective renters.

Settle down into a new home after eviction

Renting after an eviction is more difficult but it can be done. With sincere effort and diligent research, you can find a new place to live and have a fresh start. Eviction doesn’t need to be a red flag on your background forever. Use the tools and resources you have to explain your history, show the landlord who you are, find a new place to rent and settle into your new home.