Updated January 28, 2016, with additional reporting by Virginia K. Smith
1. Know the rules—and get approval
Co-ops and condos: If you're renting out your own co-op or condo, have a clear understanding of the board’s rules and regulations, says real estate lawyer Steven Wagner of Wagner Berkow. “They look the same, but when you own a co-op, you’re subletting [to a tenant], and when you own a condo, you rent it to a tenant. Different rules might apply,” he explains.
The differences between the two can include the board's right to approve your tenant, the allowable length of the sublease or lease, and even the price you can charge. To start, condominiums are typically easier to rent out than co-ops because “they don’t get too involved in who the actual renter is as long as they meet the basic requirements," says Compass broker Gordon Golub. "A co-op, however, can reject [your tenant] without telling you the reason why.”
No matter where you live—in a condo or co-op that you own or an apartment that you rent—you’ll have to seek the approval of someone, whether it be the board, your landlord or management company. “It’s very important to know the rules, as they change from condo to condo and co-op to co-op,” says real estate agent Michael Lockley of Heddings Property Group.
A condo board has the first right of refusal to rent the unit, meaning if they reject your would-be renter, they have to match your price. But having your tenant refused virtually never happens. Co-ops, on the other hand, actively vet prospective renters, and are free to approve or deny them, just as they do with buyers without an explanation. They also typically limit the length of time and even the number of times you may sublet.
“In conventional co-ops (not regulated), you’re subject to the approval of the board,” says Wagner. “You have to see if there are conditions and policies established by the board such as you can’t rent, say two out of five years, or for less than one year.”
If you own a regulated co-op, beware of restrictions.
“While many people in Mitchell-Lama"—a type of affordable housing—"and other government-regulated apartments do sublet, and there are structural things that allow [some] people to do that, it’s generally not allowed,” says Dean Roberts, a real estate attorney at Norris McLaughlin & Marcus. “There are certain nuances about family members living there while you are away—if you are in the military, for example, but straight-forward commercial sublets are not allowed.”
Most conventional co-ops require prospective applicants to file a package demonstrating financial ability and may require them to pay an application fee.
Additionally, many co-ops charge the owner a sublet fee, such as 10 percent of your monthly maintenance or a percentage of the gross monthly rental or profit. This is something to consider when you set the price of your rental.
Rentals: Renters in buildings of more than four units have the right to sublet, but must ask permission at least 30 days in advance of the sublease.
In your request, you should clearly state the terms of the sublease, including details about the proposed tenant and the length of time they’re subletting (fewer than 30 days is not permissible by law in New York City, and longer than the terms of your lease may be considered an assignment of lease). If the landlord does not respond within 30 days, New York law considers that consent and you may proceed with subletting. (For more info on your rights to sublet or reassign your lease, see our article on how to break a lease.)
Note, however, that if you have a rent-stabilized apartment that you’re not using as your primary residence, your landlord may have the right to withhold lease renewals.
If you own the entire building, you don't need approval from a pesky landlord or board, but you'll still need to make sure your paperwork is square with the city before you proceed.
Double and triple check the status of your Certificate of Occupancy, as this document determines how your building may be occupied. (You'd do well to determine the status of the C of O before you buy a property, regardless of any plans to rent it out.) For instance, if you buy a brownstone and want to rent out the ground-floor apartment, the C of O needs to list the building as a legal two-family for this to be valid. "If you're renting out a unit and the C of O doesn't cover the apartment for residential use, that's a violation, and the landlord can't collect rent," Wagner explains. Or in the more likely scenario, your tenants would get wind of this paperwork problem, and would be well within their rights to stop paying you altogether.
2. Price it right
If you are subletting a rent-regulated apartment, you are not permitted to profit by charging a higher rent than what you're already paying. (If your apartment is furnished, you may charge up to 10 percent of your rent for use of your furnishings.)
Assuming there are no such restrictions, you can do what most landlords do: Charge whatever the market will bear. A good way to check is to compare asking rents of similar properties on websites like StreetEasy andNakedApartments. And be realistic about what the apartment is worth, so you don't end up with a rental sitting on the market as you keep lowering the asking price. "Some new landlords are too attached to the property, wondering 'Why won't anyone pay $5,000/month for my one-bedroom!'' says Citi Habitats broker Eric Kidhardt.
Keep in mind that if you're renting during the city's slow season (December, January and February are usually slowest), you may want to consider offering some incentives--anything from free cable tv to a free month's rent or paying part of all of the broker's fee, which ranges from one month's rent to 15 percent of a year's rent.
3. Find the right tenant
This might be the most important step of all: finding a renter who's financially qualified, reputable, and responsible.
“You would not want them to be spending more than 35% of their disposable income, and obviously look for things like someone who has not been involved in a lot of litigation and has a decent credit report,” says Wagner, the real estate attorney.
Run a credit check on your prospective tenant, which you can do through a tenant screening service such as Experian. The tenant pays the $15 fee.
Because rent payment histories don’t show up on credit reports, ask for a letter of reference from a previous landlord. As an alternative, ask for copies of canceled checks from previous rents so you can see if they’ve paid on time. Ask for references from employers or other professional contacts.
With New York’s wealth of universities and a large international community, it’s possible your would-be renter might not meet traditional criteria for renting, no matter how credit-worthy or asset-rich they are. Such prospects include students, foreign residents, self-employed, retired or non-employed people with cash assets.
In that case (or if you simply want extra protection), consider asking for a guarantor. Professional landlords typically look for someone in the Tri-state area who can provide proof of income that is twice the income requirements for the prospective tenant, or an annual income of 70 to 80 times the monthly rent.
If your renters don't have a guarantor or you don't want to go through the expensive hassle of suing a guarantor if your renter defaults, consider requiring your renters to pay for an 'institutional guarantor' like Insurent (full disclosure, a BrickUnderground sponsor), which guarantees the leases at no cost to the landlord.
When you meet a prospective tenant for the first time, keep your antenna up for signs that this could be a match you'll regret. Red flags include an incomplete or disorganized application, a cavalier attitude toward a delinquent student loan, sloppy disheveled appearance, too few questions (and too many!), and unrealistic expectations about the apartment. "We've seen people with horrific credit who are great people and turn into great tenants, as well as people who have hidden problems but look great on paper," says Kidhardt. So trust your instincts carefully here.
Not a DIY kind of person? Consider enlisting a professional broker who can take over the marketing of your apartment and assist in screening tenants—at no cost to you, if the tenant pays the broker fee and credit check. (That's the standard arrangement, but agreeing to cover those fees yourself can be a big draw for potential renters.) They can also execute the terms of the lease in accordance with board approvals, supply the forms, and collect deposits.
“Agents deal with this all the time and we’re better at making sure you have a qualified tenant, and have at our disposal all the different kinds of leases and advice,” says Lockley. “If you need legal experience, it’s always best to go to an attorney but I think most people can use an experienced agent."
4. State your terms clearly
The devil's in the details here, and you'll need a lease that carefully lays out terms such as price, length of occupancy, type of occupancy (i.e. number of people), move in/move out dates, damages, deposits, the number and kind of pets allowed (if any) and extras such as responsibility for utilities.
Most problems can be avoided, says Golub, “by providing clarity on both sides, being open to negotiation and paying close attention to the amount of time the managing agent states they’ll need to provide approval.”
You’ll have to customize the rider outlining your specific conditions, which might include things such as early termination, policies about pets, smoking, subleasing, maintenance of premises. "One thing we've seen popping up recently is a sort of Airbnb rider," says Kidhardt, "Something stating outright that short-term sublets aren't allowed." Given how many New Yorkers skirt the already-in-place laws on this issue, a little extra protection on this front is never a bad idea.
For your lease and rider, real estate broker and our former Rent Coach columnist Mike Akerly advises retaining a real estate attorney to craft a rider that addresses statutes such as disclosures (e.g., lead paint, bed bugs) as well as the specifics of your building and your personal needs. This is one area where it's much better to spend a little extra money on a lawyer to make sure you've got everything covered.
5. Hold up your end of the deal
Have a clear understanding of the repairs for which you, as an owner, are responsible physically and financially. If something breaks as a matter of normal usage, you are responsible for replacement. If damage was caused by the tenant and not due to normal wear and tear, you may charge them for it. "The number one mistake new landlords make is failing to understand their full responsibilities," says Kidhardt's partner, broker George Blitz.
Additionally, if you are a co-op or condo owner, you are responsible for not only ensuring that all systems within the unit work (i.e. plumbing, appliances and heat), but you must ensure safety measures are in place such as smoke detectors, carbon monoxide alarms, chain-door guards and window guards. Your condo association or co-op board will perform the installation. You must also ensure the door and mailbox have working locks.
Legally, if you're moving out of your co-op or condo to sublet it, you're also required to provide the tenant with a single phone number they can call for repairs, questions, emergencies, etc., says Wagner. This can be a hired managing agent, or simply your own personal number. (Note: if you do take on a managing agent to deal with all these details on your behalf, expect to spend about five or six percent of the rent on their services, says Kidhardt.)
6. Make sure your insurance is up to date
If you don’t have it already, take out apartment insurance or consider asking your tenant to take out a renter’s insurance policy.
And be sure to notify your insurer that you're renting your place out.
“With most companies, you automatically have coverage for 30 to 90 days,” says Jeffrey Schneider president of Gotham Brokerage (full disclosure, a Brick sponsor). “In most insurance policies, the terms vary—they allow you to sublet a given amount of time each year, but if you go beyond that period, you void the terms of the policy."
"Your policy either has to be endorsed or rewritten to indicate that the home is rented out," Schneider explains, and will often cost up to 25 percent more than a standard policy. And while your enhanced homeowner’s insurance will cover contents, walls and fixtures, it does not cover theft or damage by your tenant. Schneider recommends providing for theft and damage in the contract or with an extra security deposit. It also does not cover your tenant’s loss of personal items due to disaster or theft.
7. Set up an easy rent-collection method
With new payment apps proliferating, it's getting easier by the day to collect rent and other payments via apps like SquareCash, Venmo, and PayPal. (Time has a good comparison here of the different options.) "It's also easy to set up something like Chase QuickPay, or some sort of bank transfer," says Kidhardt. "That's what I would recommend people do."
You can also use services such as Smartrentonline.com or Rentmonitor.com that facilitate rent payments online via ACH (automatic clearing house) or credit card processing. Akerly says these present conveniences and advantages: landlords can assess late or other fees. Cost starts at about $2 per tenant.
Or, if it's a multi-family and you plan to live on site, simply have your new tenant slip a check under your door or in your mailbox every month.