A Guide for Landlords on How to Rent Property in California

The rental market in California is flourishing and many people are seeking to earn money by renting out their property.  Being a landlord requires taking on many responsibilities and creating a rental property is not as simple as finding a tenant and signing a rental contract.

The process involves a bit of research, preparation, and consideration of several California and federal laws.  This guide will help prospective landlords prepare their property for rent.

1. Familiarize yourself with local, state and federal laws.

Before you prepare to rent out your property, you’ll need to make sure it’s legal.  Your city, neighborhood, or homeowners association may have rules or by-laws that cover rental properties.  

Additionally, California has many laws that govern the tenant screening process and rental process. There are laws that require certain things to be disclosed to applicants and tenants, and laws that place restrictions on the way landlords impose fees and collect rent.  

All California landlords must give tenant’s written information about Megan’s Law. Another example of a required disclosure would be for lead-based paint.  If you are renting a property built before 1978, you will have to tell your tenant about their potential exposure to lead-based paint and provide them a copy of “Protect Your Family From Lead In Your Home” , a document created by the federal government.

Aside from regulations that cover the rental process, you should be aware of other implications that come with renting your property. For example, the IRS stipulates that rental income must be reported on your tax return. Also, your home insurance rate may increase if the property is turned into a rental.

An overview of many relevant landlord/tenant laws can be found on the
California Department of Consumer Affairs website .

2. Consider creating an LLC (Limited Liability Corporation) for your rental property

Running a rental property is a lot like running your own business, and with it comes the potential for lawsuits.  If the property is under your own name, a lawsuit would list you as the defendant and any assets you own could potentially be lost.  An LLC for your rental property limits your personal liability to the value of that one property.  The LLC is the preferred legal entity for your property. See How to Form a Single Member LLC in California .

Forming an LLC requires a filing with the Secretary of State.  There are also tax advantages to forming an LLC .  More information on creating an LLC can be found on the California Secretary of State’s website .

3. Determine how much you’ll charge for rent

Before creating a rental property, it is important to research how much you should expect to charge for rent.  Start by looking at listings in your neighborhood on Craigslist or your local newspaper and compare those listed properties to your own property.  Does your property offer special amenities? If so, you can consider these things when determining the amount of rent you’ll seek from tenants.

4. Prepare a detailed rental contract

This step will be more time-consuming than the others because of the amount of specific terms you may or may not include in your rental contract.  California does not have a standard rental agreement or lease, so this varies with each property owner. See  California Residential Lease Agreement .

First, you must consider whether you’d like to offer a periodic rental agreement or a lease to your tenant.  A lease binds a tenant to a certain period of time while a periodic rental agreement only lasts for the length of time covered by each rent payment. Leases are more common.

Default rental contracts may be found online, at office-supply stores, or through contacting a real estate office or an attorney.  Be sure to thoroughly edit these documents to suit your needs.  It is very important to prepare your rental contract because it establishes the rights and obligations of both the tenant and the landlord, and this can help you to avoid lawsuits in the future.

As mentioned earlier, there are several California laws that require a landlord to disclose certain information and restrict the amount a landlord may charge as a security deposit. For example, every rental contract is required to include a written provision about Megan’s Law and the government website where the tenant can find information about certain sex offenders.  

Required disclosures include those for lead-based paint, pesticides sprayed by a pest control company that will be treating the property, the known existence of asbestos and other cancer-causing materials, and whether a previous tenant died in the property.

5. Show your property

Once you’re prepared to rent out your property, you will have to show it to prospective tenants.  Plan a time when you can hold an open house and advertise it online, in your local newspaper, and outside with a sign.  These advertisements should include a description of the property, monthly rent, and your contact information.  Prepare a rental application to give to those that show up to the open house and are interested in renting the property.

6. Screen potential tenants

After showing your property, you will have to screen potential tenants.  You can require those potential clients to fill out an application that asks about the applicant’s past and present landlords and/or employers, monthly income, and other ability to pay rent. 

However, you may not ask about or discriminate against the applicant’s race, color, religion, sex, sexual orientation, national origin , ancestry, familial status, source of income, disability, or whether the tenant will have children living in your rental property. 

7. Enter into a rental contract

Once you’ve decided on a tenant, you should present him or her with the prepared rental contract.  Do not turn down any of the other applicants until the contract between you and your first-choice applicant is finalized.  Once the agreement is signed, you must provide a copy of it to your tenant within 15 days.  

Creating a rental property can be confusing and time-consuming.  It would be wise to consider hiring an attorney to help you navigate through this process and/or a property manager to attend to your tenant’s needs and landlord obligations.  Also, if you’d like to form an LLC for your rental property, an attorney can ensure that you set it up in a way to maximize tax advantages.  

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Some related legal documents:

Rental Application

California Residential Lease Agreement

House Rules

Form a Single Member LLC in California

Disclosure of Information on Lead-Based Paint and/or Related Hazards

Pet Agreement

“Protect Your Family From Lead In Your Home” is required by federal law to be provided to tenants of buildings built before 1978.

 

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