Housing - Landlord
Being a Landlord
Security Deposit Act
Eviction Requirements
Screening Applicants Legally
Local Rental Requirements
Tax Treatment of Property
Impact on Eligibility for Public Benefits
Being a Landlord
A possible solution for a senior faced with maintaining a big house on inadequate income is to consider moving to an apartment and renting out the home for extra income. This may be a win-win solution for some, but to advance smartly towards being a landlord, you need to consider some of the pitfalls. They too need to be weighed when making your decision.
Security Deposit Act
As discussed in the Landlord-Tenant Basics and Evictions sections above, if you decide to require a security deposit from tenants, many legal responsibilities and some financial risks are attached. You may consider this just another cost of doing business, or you may find it to be more trouble than it’s worth. There are landlords who prefer to use credit checks and references in the application process to limit their risk of unpaid rent or damage, instead of using a security deposit.
Eviction Requirements
Similarly, as a landlord, you must follow the legal eviction process, which takes time and money. You cannot change the locks, toss out the furniture, or turn off the heat, gas or water, without risking penalties and damages for acting illegally. Going through the process in court usually requires hiring a lawyer, and therefore some added cost. It is often difficult to collect a judgment for unpaid rent; if the tenant is not paying, start the eviction process promptly.
Screening Applicants Legally
Screening tenants carefully is probably the single most important thing you can do to avoid an eviction or other problems. Ask for references and check them. Verify an applicant’s ability to pay. While you may choose to rent to one person instead of another, your reasons for refusing to rent to any tenant cannot be in violation of anti-discrimination laws. In Michigan, discrimination in renting is covered by the Elliot-Larson Civil Rights Act. According to that law, a landlord, or real estate or rental agent, shall not discriminate on the basis of, "religion, race, color, national origin, age, sex, familial status, or marital status of a person or of a person residing with that person."
Exempt from this law are rentals of 12 months or less of the owner's home, which will remain the owner's legal residence after the 12 months are up, or rentals within the owner's home, or a duplex where the owner or the owner's family resides in one unit. All other rental situations are covered by Elliot-Larson's anti-discrimination protections.
Discrimination is serious business. Violations are punished by fines up to $10,000 for the first violation, $25,000 for the second, and up to $50,000 for two or more violations in seven years.
Local Rental Requirements
In some communities in Michigan (mostly larger cities), landlords must have the rental unit certified by the local licensing department before charging rent for the home or apartment. Usually the inspector is certifying that the property is safe and up to the building code requirements for rental property. For older homes, you may have to invest some savings in upgrades and repairs to bring the property up to code. Rental licenses and routine inspections usually require a fee. Before you enter the rental business, check with your local government to learn local rules on certifying rentals.
Tax Treatment of Property
Changing the use of your home from owner occupied to rental has tax consequences at both the state and federal level. Under the State property tax homeowner exemption, your school property taxes as an owner occupant are reduced to only 6 mils. If all or a part of your property is classified as rental property, the homestead property tax exemption is affected. Remember to take this increase into account in determining the rent you need to charge in order to cover a tax increase.
Moving out of your primary residence can also cost you the federal capital gains exclusion. To qualify for the exclusion you need to have owned the home for five years and lived in it as your principal residence for two out of those five years. Changing the status of residential property from primary residence to rental property has other federal tax consequences for depreciation, repairs, etc. when doing your annual income taxes. Keep this in mind and allow for the new expense of a tax advisor in setting the rental amount.
Impact on Eligibility for Public Benefits
Any net income you receive from renting your home will be included as income in determining your eligibility for Medicaid, Food Assistance Program (known as FAP and formerly called “Food Stamps”) or Supplemental Security Income (SSI). If you depend on these benefits, you need to carefully structure your rental agreement with a tenant to make sure you don't accidentally lose your eligibility.
On the plus side, by renting out your home once you can no longer afford to live there, you have successfully turned your asset into income, while continuing to hold on to the asset so it can be passed on to your family.
(For assistance on these and other Housing Issues, contact the Legal Hotline for Michigan Seniors at (800) 347-5297. More resources are also located in the Resource Section of this website.
