Real estate investing – and landlording in particular – is widely misunderstood by the general public. For instance, it’s often assumed that being an ethical landlord and running a profitable business are mutually exclusive concepts. And despite the fact that many landlords perpetuate this ideology, it’s simply not true. If you put your mind to it, you can be ethical and profitable.
What Does it Mean to Be an Ethical Landlord?
“Being ethical means conforming to accepted moral standards,” Keith Dooley writes for Bizfluent. “Applied to the work environment, it means that an ethical person has a higher standard than just avoiding a certain behavior or practice because it is illegal. What matters is that it might be the wrong thing to do morally.”
In other words, it’s possible to follow the law and stay within the boundaries (in terms of rules and regulations) yet still act unethically. Sometimes, doing the ethical thing requires you to go above and beyond what is expected – merely because you have a set of internal guidelines that tells you what’s right and wrong.
6 Ways You Can Be an Ethical Landlord
If we’re being honest, there isn’t always ethical behavior in the real estate world. Greedy investors and slimy landlords typically look out for their own best interests and don’t care about who gets hurt along the way.
But you don’t have to be most people. There are plenty of ethical landlords in this industry. (At Green Residential, we work with them every single day.) If you’d like to learn more about what it looks like to be ethical and profitable, read on. We’ll provide you with some practical tips to help you achieve this goal.
1. Develop Straightforward Contracts
A contract can be legal, but that doesn’t mean it’s necessarily ethical. While there’s definitely a need to protect yourself with various clauses and stipulations, be wary of including confusing language that tenants might not understand.
Lease agreements should be as simple and straightforward as possible. These documents shouldn’t require a tenant to hire a lawyer in order to interpret. The language ought to be clear and concise, with no fine print or confusing jargon.
2. Be Reasonable with Rent Increases
Rent increases represent one of the biggest grey areas in landlording. It’s poor business not to increase rents in order to reflect going market rates, but you also don’t want to be greedy and victimize your tenants.
The key is to raise rents incrementally. Somewhere in the 1 to 5 percent range (annually) is considered reasonable (assuming market rates have risen accordingly). On a $1,500 rent, that would be an increase of $15 to $75 per month. What’s not reasonable is a 25 percent rent increase, which would take rent from $1,500 to $1,875. (While this might technically be legal, it’s not ethical.)
The law states that you have to give tenants reasonable notice when a rent increase is coming. In most states, the law is 30 days. But once again, compliance isn’t always the goal. You’re trying to be ethical.
“If you can, give tenants a 60-day notice instead of just 30 days,” suggests Kevin Ortner, an expert in property management. “This will give the tenant more time to prepare for the increase and allows them a chance to shop around. If your increase is in line with market rates, they’ll see that there’s no better deal to be had. So, get those notices ready early.”
3. Do Proper Maintenance
Depending on the letter of the law and what sort of language is included in your lease agreement, you’re required to handle certain property maintenance tasks for your tenants. Then there are other maintenance issues that you don’t technically have to get involved with. Ethically, though, you should consider what’s right and wrong.
Take an inefficient AC system as an example. Technically, the AC system works. The problem is that it’s extremely expensive for the tenant to run. While you could tell the tenant to suck it up, is that really being an ethical landlord? The right thing would be to fix the system – even though you don’t have to.
4. Respect Privacy
An ethical landlord understands the importance of respecting a tenant’s privacy. Local laws may permit you to enter your renter’s residence in order to perform a repair or inspection, but don’t do it unannounced. Give tenants their space and don’t overstep boundaries.
5. Show Some Leniency
A good tenant pays rent on time. But even the best tenant is going to occasionally make a mistake or have an issue where they miss a payment by a day or two. While it’s important to say something and correct the behavior, show a little leniency. Don’t file eviction paperwork or threaten your tenants.
6. Don’t Nitpick on Move-Out
The move out process is often one of the biggest points of contention between landlords and tenants. Tenants want to get their security deposits back, while landlords typically look for any excuse to keep it.
If a tenant hasn’t taken care of your property and leaves broken appliances or big holes in the wall, you certainly have the right to keep part or all of their security deposit (and that’s the smart thing to do). However, don’t nitpick over small things like tiny nail holes from pictures, or a small carpet stain in the corner of a room.
Green Residential Professional Property Management
If your goal is to be an ethical landlord who cares for your tenants, yet still makes the bottom line a priority, be cognizant of your interactions and relationships – both personally and professionally. The people you choose to surround yourself with will either help or hurt your cause.
At Green Residential, we offer exceptional property management services at competitive rates. But we also pride ourselves on our honesty and transparency. We have a strict set of moral guidelines that influence our decisions and put our clients first.
If you’re interested in learning more, please contact us at your earliest convenience. We’d be happy to provide you with a free property analysis.