Many Michigan property owners looking for a stable investment consider becoming landlords. After all, real estate value tends to appreciate over time, and rent is a reliable source of income. Renting out a property, however, can be more complicated than it looks. Before renting, make sure you understand all the ramifications and take the time to learn about important requirements.
Comply With Any License or Registration Requirements
Michigan landlords who rent out their own property do not need a license from the state. They may, however, need to register their property with the local government. Registration generally requires an inspection and a certification that the property is safe for occupancy. It may also require a fee.
Not all cities and townships require registration, and requirements vary widely among those that do. In Grand Rapids, for example, rental properties must be registered every year. Following an initial inspection, the city will issue a Certificate of Compliance good for two, four, or six years, depending on the property. Registration is free, but there are certification fees based on timing and property type. The City of Kalamazoo also requires registration, inspection, and certification. Properties inspected according to the Rental Certificate Guarantee Guidelines can receive certifications for up to 52 months. Fees are set out in the Community Planning and Development Department (CPED) fee schedule. Landlords in Battle Creek must apply for a permit and comply with a rental property checklist. There is no charge for an initial inspection, but there are fees for registration and follow-up inspections.
These are just a few examples. If you are considering becoming a landlord in Michigan, be sure to check with your local government for any rental registration requirements.
Check for Zoning or Deed Restrictions
Some neighborhoods have zoning restrictions that require all residences to be owner-occupied. Such restrictions are generally valid if they advance reasonable government interests and are not arbitrary or capricious.
Even if no zoning restrictions affect your property, your deed may restrict rentals. Deed restrictions that limit how owners can use their property are especially common in planned communities. The restriction might be in the deed itself or in the association rules. Restrictions in deeds sometimes expire after a certain number of years.
Short-term Rental Restrictions
Short-term rentals of less than 30 days are often more regulated and restricted. Some cities and townships treat short-term rentals as commercial activity and ban them completely in residential areas. There have been efforts to restrict such bans in the Michigan legislature. So far, however, no legislation has passed in both houses, and Michigan courts have upheld restrictions on short-term rentals.
Many communities have created their own rules around short-term rentals. Grand Rapids, for example, allows short-term rentals, but prospective landlords must jump through a few hoops. The city issues about 200 Class B Home Occupation Licenses per year. This license allows an owner to rent out one room in their principal residence to no more than two visitors at a time. There is currently a $480 application fee for new licenses and a $149 fee for renewals. If you rent out more than one room on a short-term basis, the city will classify you as a Bed and Breakfast, rooming house, or boarding house, which requires a Class C Home Occupation License and a Special Land Use Permit Application. Class C license applications are currently $488, and renewals are $139.
Maintain Adequate Insurance Coverage
Once you have passed any zoning or registration hurdles, the next step is to check with your insurance company about the kind of coverage you need. Landlord insurance can include extra protections over a standard homeowner’s policy, such as reimbursement for lost rental income after a covered loss. If you have only a standard homeowner’s policy and do not disclose that you are renting out the property, you could later find yourself in a coverage dispute.
Prepare the Rental Property
Landlords are responsible for maintaining rental properties. This means keeping the property safe and habitable and complying with local safety regulations and building codes. Install smoke detectors and keep them in good working order. Make sure you know how to turn off water, gas, or electricity in an emergency, and provide this information to your tenants. Taking care of any necessary repairs before a tenant moves in can save you from headaches down the road.
Screen Potential Tenants
Tenants who don’t pay rent on time or damage your property can turn an otherwise lucrative enterprise into an expensive nightmare. Make sure to verify the employment and income of any potential tenants, run a credit check and a criminal background check, and contact references.
While you want to be choosy about your tenants, give every applicant a fair chance. Federal fair housing laws prohibit discrimination based on race, color, religion, sex (including gender identity and sexual orientation), disability, familial status (such as having minor children), or national origin. Michigan law adds protection for marital status and age.
Use a Written Lease
Make sure to use a lease that includes all critical details. Some important things to include are payment terms, due dates, any restrictions (such as pet restrictions), required disclosures, and an agreement about when and how you can enter the property. While a lease that is less than a year in duration does not legally have to be in writing in Michigan, it is never a good idea to depend on an oral agreement.
We will dive deeper into leases and landlord responsibilities in future posts. Meanwhile, if you have questions about renting out your property in Michigan, contact an attorney in Kreis Enderle’s real estate practice group.