A guide to becoming a landlord: Steps, laws and first-year costs

Q: Do I need an LLC to be a landlord?

No, and many small landlords start as sole proprietors with a strong landlord liability policy and an umbrella policy. An LLC can add liability separation and is common once you own multiple doors, but it introduces transfer, financing and tax complexity. Talk with an attorney and a CPA before moving a mortgaged property into an entity, since some loans contain due-on-sale clauses.

Q: What should I do if a tenant stops paying rent?

Follow your state's process exactly and document everything. That generally means a written notice to quit or pay within the statutory window, then filing in district court if the tenant does not cure. Never change locks, remove belongings or shut off utilities, which are illegal self-help evictions nearly everywhere and can expose you to damages far larger than the unpaid rent.

Written by Samantha SheltonNMLS 1647301Updated September 2026

New landlord handing keys to tenants at a duplex doorway, illustrating the steps to becoming a landlord

This article is general information, not legal, tax, or investment advice. Align Lending is a Michigan mortgage broker, not a law firm, a property manager, or a registered investment adviser. Confirm your plan with a Michigan attorney, a CPA, and a licensed insurance agent first.

Becoming a landlord starts with a rulebook, not a rent check. In Michigan a residential security deposit may not exceed 1.5 months’ rent, and a landlord who wants to keep any part of it has 30 days after the tenant moves out to mail an itemized list of damages with a check for the difference. Miss that deadline and state law treats it as your agreement that no damages are due.

That rule is a fair preview of the job: the first year is mostly compliance and cash reserves. Learn how to become a landlord step by step, what the legal setup requires, and what the first year costs, or start with our real estate investing guide.

Key takeaways:

Michigan caps the deposit and clocks the refund: A residential security deposit may not exceed 1.5 months’ rent, and a landlord claiming damages has 30 days after occupancy ends to mail an itemized list with a check for the balance.
Screening is a written-criteria exercise: The Fair Housing Act protects 7 bases and Michigan’s civil rights law reaches further, so the defense is identical credit, income and rental-history standards for every applicant.
Reserve roughly a quarter of the rent: Fannie Mae’s own rental-income math assumes 25% of gross rent is absorbed by vacancy and ongoing maintenance, a sober basis for a first-year budget.

How do you become a landlord, step by step?

There are 8 steps, and 5 of them finish before a tenant ever sees the property.

Confirm the property can legally be rented. Check zoning, deed restrictions, local rental registration, and whether your mortgage and insurance permit tenant occupancy, see buying a home as an investment property.
Price the unit from comparables. Pull 3 to 5 recently rented listings within about a mile matching your bedroom count, size and condition. See analyzing a property’s rental potential and rental market trends.
Finance it as a rental. Investment-property loans underwrite differently from a loan on the home you live in, and the qualifying math treats rent differently.
Buy landlord insurance, not a homeowners policy. A tenant-occupied property needs a dwelling or landlord policy covering structure, liability and lost rental income, usually with an umbrella policy on top.
Make the unit habitable and document its condition. Working heat, running water, sound locks and functioning smoke and carbon monoxide alarms are the floor. Photograph every room before move-in, see tips for decorating a rental home.
Write the screening criteria down before you advertise. Credit score, income multiple, rental history and co-signer policy, fixed in writing and applied identically.
Sign a compliant lease and deliver the disclosures. The lease must include what Michigan requires and exclude what it prohibits, and the federal lead disclosure must reach the tenant first.
Build the system on day one. A separate bank account, one rent-collection method, written maintenance requests and a file per tenant, our guide to becoming a real estate investor, applied to one door.

How do you finance a first rental property?

Most first rentals run on a conventional investor loan, and Fannie Mae allows a borrower up to 10 financed properties on a second-home or investment-property loan underwritten through its automated system. The surprise is reserves: on top of what the transaction requires, Fannie Mae adds reserves on the aggregate unpaid principal balance of your other financed properties, 2% with 1 to 4 financed properties, 4% with 5 to 6, and 6% with 7 to 10.

Rent helps you qualify, but not at face value. When a lender uses a current lease or the appraiser’s market-rent form, Fannie Mae’s rule is to multiply gross monthly rent by 75%; the other 25% is treated as absorbed by vacancy losses and ongoing maintenance. Once the property has appeared on a tax return, the lender averages Schedule E over 12 months instead. A unit renting for $1,400 a month contributes about $1,050 to the qualifying math.¹

Owner-occupied 2- to 4-unit financing: FHA and conventional owner-occupied programs require you to live in the property, so a duplex or fourplex qualifies only if one unit is your residence. The cheapest entry into landlording there is, and why investing in multi-family properties so often starts with a building the buyer moves into.²
DSCR and non-QM loans: These qualify the property rather than the person, measuring rent against debt service instead of personal income. They are not sold to Fannie Mae or Freddie Mac, so pricing, reserve and down-payment terms are set lender by lender.
Cash-out on a property you already own: Equity is a common down-payment source, see how to refinance an investment property.

Align Lending is a broker: we shop one scenario across competing wholesale lenders and show you what each does with your reserves and rental income. We do not manage rentals or advise on whether to buy.

What does the first year of being a landlord cost?

Plan on 15% to 25% of gross rent disappearing into reserves before the mortgage payment is made. Fannie Mae’s 25% haircut on lease-based rent is underwriting’s shorthand for what vacancy and upkeep really take.

First-year line item	Planning figure	What it covers
Vacancy reserve	5% – 10% of gross rent	Weeks between tenants, plus the re-leasing lag.
Repairs and maintenance	5% – 10% of gross rent	Faucets, appliances, snow and lawn, the 9 p.m. call.
Capital reserve	About 5% of gross rent	Roof, furnace, water heater.
Landlord insurance	A quoted annual premium	Structure, liability, lost rental income.
Turnover	Roughly 1 month’s rent per turn	Paint, cleaning, make-ready, advertising.
Professional management	A percentage of collected rent, plus a leasing fee	Optional. Get written quotes.
Registration and inspection	Set by your municipality	Registration and certificate of compliance.

A Waterford duplex renting for $1,400 a unit grosses $2,800 a month. A 25% reserve is $700 a month ($8,400 in year one) before principal, interest, taxes and insurance. If the deal only works when the reserve is zero, it does not work. Our guide to evaluating a property’s cash flow potential runs that arithmetic before you offer.³

Taxes cut both ways. The IRS treats residential rental property as depreciable over 27.5 years under the general depreciation system, and rental income and expenses are reported on Schedule E, see IRS Publication 527 on residential rental property. Depreciation, mortgage interest, property tax, insurance and repairs belong in the model, and so does recapture at sale.⁴

How do you screen tenants without breaking fair housing law?

By fixing the criteria before you meet anyone. The federal Fair Housing Act makes it unlawful to refuse to rent, to discriminate in the terms of a rental, or to represent that a unit is unavailable when it is not, because of race, color, religion, sex, familial status, national origin or disability, 7 protected bases, enforced by HUD’s Office of Fair Housing and Equal Opportunity.⁵

Michigan layers more on top. The Elliott-Larsen Civil Rights Act reaches religion, race, color, national origin, age, sex, sexual orientation, gender identity or expression, familial status and marital status in real estate transactions; sexual orientation and gender identity or expression were added to that list by 2023 PA 6, effective February 13, 2024. Disability is covered separately by the Persons with Disabilities Civil Rights Act. And since 2024 PA 180 took effect April 2, 2025, a Michigan landlord may not deny a tenancy or set different terms based on a tenant’s source of income, including a housing choice voucher. A provision that does not reach a landlord owning fewer than 5 rental units in the state.

Federal exemptions are narrow, a private owner of no more than three single-family houses renting without a broker, the advertising prohibition applies even then, and Michigan’s exemptions are narrower. Assume you are covered.

Write the criteria, publish them, and apply them in order received: Credit score, income multiple, rental history and co-signer policy, stated in the listing and applied first come, first served. Never decide on impression or “fit,” and never steer an applicant toward a different unit.
Send an adverse-action notice when a report drives the decision: Declining, raising a deposit or requiring a co-signer on the strength of a consumer report triggers Fair Credit Reporting Act notice duties.
Handle criminal-record questions carefully: A blanket ban is the practice most likely to draw a disparate-impact claim. Keep any record-based criteria narrow, written and individually applied, and have a lawyer review them.

The long version of this work. What the written criteria should contain, the exact contents of an adverse-action notice, how to choose when several applicants all qualify, and what to retain afterward. Is in dealing with multiple offers from tenants.

What has to be in the lease, and what must be delivered with it?

Michigan’s Truth in Renting Act voids a long list of lease terms outright. A rental agreement must state the name and address where notice goes to the landlord, and must carry, in a prominent place in at least 12-point type, a notice that Michigan law establishes rights and obligations for parties to rental agreements, that the agreement is required to comply with the Truth in Renting Act, and that the reader may want a lawyer’s help with any provision.

The prohibited list is what catches downloaded templates. A Michigan rental agreement may not waive or alter a remedy available when the premises are in a condition that violates the statutory covenants of fitness and habitability, waive any right under the security deposit act, discriminate in violation of the state civil rights acts, provide for a confession of judgment, exculpate the landlord from liability for failing to perform a legal duty, or waive the tenant’s rights in eviction proceedings, among others. That habitability covenant is written into every residential lease and may be modified only where the term is at least a year.

One federal disclosure travels with the lease almost everywhere. Housing built before 1978 is target housing under the federal lead rule, so before the tenant is obligated you must disclose known lead-based paint and hazards, hand over any records you hold, give the tenant the EPA’s “Protect Your Family From Lead in Your Home” pamphlet, and attach a lead warning statement to the lease. Keep the signed disclosure 3 years. The 10-day inspection opportunity applies to sales, not leases.

A lease also survives the sale of the building. A buyer takes the property subject to the existing tenancy, so selling is not a way to end a fixed-term lease, and Michigan keeps the seller liable for the security deposit until it is transferred to the successor and the tenant is notified in writing of the transfer and the new owner’s name and address. If a sale is on your horizon, read how to sell a home with tenants first. Have a Michigan attorney draft or review the lease.

What Michigan landlords should know

Michigan’s security deposit statute is a sequence of deadlines, and missing one is expensive.

1.5 months’ rent, and a 14-day notice: Within 14 days of the tenant taking possession you must give written notice of your name and address, the institution or surety holding the deposit, and the tenant’s duty to give you a forwarding address within 4 days of moving out, that last warning in 12-point boldface. The deposit sits in a regulated financial institution unless you post a bond.
Two blank checklists in, one back within 7 days: You give the tenant 2 blank copies of a commencement inventory checklist covering everything you own in the unit; the tenant returns one within 7 days, and you complete a matching checklist at move-out.
30 days out, 7 days back, 45 days to sue: Claim damages and you must mail an itemized list with the estimated cost of each item, plus a check for the balance, within 30 days after occupancy ends. Miss it and the law deems you to agree no damages are due. The tenant has 7 days to respond; you have 45 days to sue for what stays disputed. Failing to comply fully waives the damages and makes you liable for double the amount retained.
No self-help, ever: Nonpayment gets a written 7-day notice to quit, a month-to-month tenancy generally gets a month’s notice, then you file summary proceedings in district court. Changing locks, removing doors, taking belongings or shutting off heat, water or power is unlawful interference (actual damages or $200 per occurrence, whichever is greater) and forcible ejectment carries treble damages or $200.
Registration and inspection are local, on a state floor: The Housing Law of Michigan reaches cities, villages and townships of 10,000 or more. A multiple dwelling, 3 or more families, or rooming house may not be occupied without a certificate of compliance, issued within 15 days of written application, and while none is in effect rent goes into escrow.
Rent control is off the table: Michigan bars local governments from enforcing any ordinance controlling rent for private residential property, and its statutes set no general advance-notice period for entering an occupied unit, so entry and showing rights come from the lease.

Take eviction, lease drafting and any dispute to a Michigan attorney. When the second and third doors arrive, see tips for managing multiple rental properties.

How Align helps you grow a portfolio

When a rental has built equity, a cash-out refinance or a DSCR loan may turn it into the down payment on the next one. Samantha compares those across multiple wholesale lenders.

She starts with the math that only works when nothing goes wrong, and makes sure yours still works when something does.

Review an investment property DSCR loans in Michigan

FAQ: Becoming a landlord

Here are answers to common questions about becoming a landlord.

What is the first thing I should do before renting out a property?

Confirm the property is legally rentable and physically habitable. Check local zoning and rental registration, verify that your mortgage and insurance permit tenant occupancy, and finish the safety work, smoke and carbon monoxide alarms, secure locks, working heat. Skipping registration is one of the most expensive first-year mistakes. Our tips for new real estate investors cover the rest.

How much should I charge for rent?

Price from comparable units, not from your mortgage payment. Pull 3 to 5 active and recently rented listings within about a mile matching your bedroom count, square footage and condition, then adjust for parking, laundry and utilities. Sanity-check that the rent covers the mortgage, taxes, insurance and reserves. See our guide to cash flow in real estate.

Do I need an LLC to be a landlord?

No. Many small landlords start as sole proprietors with a landlord liability policy and an umbrella policy on top. An LLC adds liability separation and is common once you own several doors, but it brings transfer, financing and tax complexity, and many mortgages contain a due-on-sale clause a transfer can trip. Talk to an attorney and a CPA first, and read up on the real estate tax benefits for investors.

What should I do if a tenant stops paying rent?

Follow the statutory process exactly and document everything. In Michigan that means a written 7-day notice to quit for nonpayment, then summary proceedings in district court if the tenant does not pay or leave. Never change locks, remove belongings or shut off utilities, unlawful self-help evictions cost far more than the unpaid rent. Call a Michigan attorney early, and build the paper trail with our rental property management guide.

The bottom line on becoming a landlord

Becoming a landlord is a compliance job wrapped around a cash-flow job. Michigan caps the security deposit at 1.5 months’ rent and gives you 30 days after occupancy ends to mail an itemized list of damages with a check for the balance, miss it and the whole deposit goes back. Screen every applicant against the same written criteria: the Fair Housing Act protects 7 bases and Michigan’s civil rights laws reach further, including source of income for landlords with 5 or more units. Budget as though 25% of gross rent is spoken for.

If you’re ready to finance your first rental, talk to Align Lending. We’ll shop your scenario across our lender network and show you how conventional investor, DSCR and portfolio options price your reserves and rental income, side by side. Call 248-506-5727 or start online today. Take lease drafting and eviction to a Michigan attorney, and your tax plan to a CPA.

Footnotes:

1. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate, reserve requirement and terms will depend on your application, the property, the lender and market conditions. Agency guidelines change; the financed-property limit, reserve percentages and rental-income treatment described above reflect the Fannie Mae Selling Guide as of publication, apply to loans delivered to Fannie Mae, and do not describe non-agency, portfolio or DSCR programs, whose terms are set by each lender. Confirm current requirements with your loan officer. Return to text.

2. Align Lending is not acting on behalf of or at the direction of FHA or HUD, and is not endorsed or sponsored by any government agency. FHA and conventional owner-occupancy programs require that you occupy the property as your principal residence and carry their own eligibility, occupancy and property standards. Program terms are set by the agencies and by lenders in Align’s network, not by Align Lending. Return to text.

3. The reserve percentages, turnover figure and worked example above are illustrative planning conventions, not a projection, a guarantee, or investment advice, and they are not drawn from a published survey of Michigan operating costs. Actual vacancy, maintenance, capital, insurance and management costs vary widely by property, age, condition, location and year. Align Lending is a mortgage broker, not a property manager or a registered investment adviser, and does not advise on whether any property is a suitable investment. Build your own budget from actual quotes and, where returns matter to the decision, work with a licensed financial advisor. Return to text.

4. This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Depreciation, deductibility, passive-activity limits, recapture on sale and entity treatment depend on facts specific to you and change with federal and state law. Consult a qualified tax professional about your situation before relying on any tax treatment described here. Return to text.

5. This is general information, not legal advice, and Align Lending is a Michigan mortgage broker rather than a law firm, a property manager, or a fair housing consultant. Fair housing law, state civil rights law, screening practice, disclosure duties, registration requirements and eviction procedure change and are enforced by multiple agencies; local ordinances may add protected characteristics and obligations not described here. Confirm current federal requirements with HUD and the FTC, confirm Michigan requirements with the Michigan Department of Civil Rights, and have a Michigan attorney review your written screening criteria, your lease and any adverse-action process before you use them. Return to text.

Sources: Security deposit may not exceed 1 1/2 months’ rent, MCL 554.602; landlord’s written notice within 14 days of possession of the landlord’s name and address, the financial institution or surety, and the tenant’s duty to provide a forwarding address within 4 days after termination of occupancy, with the required 12-point boldface statement, MCL 554.603; deposit held in a regulated financial institution or secured by bond, MCL 554.604; permitted uses of a security deposit, MCL 554.607; 2 blank commencement inventory checklists, the tenant’s return of 1 copy within 7 days, and the termination checklist, MCL 554.608; itemized list of damages and check for the difference mailed within 30 days after termination of occupancy, with the 7-day tenant response warning, MCL 554.609; failure to give notice of damages within 30 days constitutes agreement that no damages are due and requires immediate return of the full deposit, MCL 554.610; tenant’s forwarding address within 4 days, MCL 554.611; tenant response within 7 days, MCL 554.612; action for damages within 45 days, and liability for double the amount of the security deposit retained on failure to comply, MCL 554.613; landlord’s continuing liability for the deposit on sale or other termination of interest until transfer to the successor and written notice to the tenant, MCL 554.614; non-waiver of the act, MCL 554.606; definitions including “source of income,” MCL 554.601. Statutory covenants of fitness and reasonable repair in every residential lease, and modification only where the term is at least 1 year, MCL 554.139. Truth in Renting Act, 1978 PA 454: prohibited lease provisions, MCL 554.633; required landlord notice address and the required 12-point notice regarding the Truth in Renting Act, MCL 554.634. Written 7-day notice to quit for nonpayment of rent and 1 month’s notice to terminate an estate at will, MCL 554.134; summary proceedings to recover possession, MCL 600.5714 and MCL 600.5701 to 600.5759. Treble damages or $200 for forcible ejectment and actual damages or $200 per occurrence for unlawful interference with a possessory interest, including changing locks, removing doors, and interrupting essential services, MCL 600.2918. Prohibition on local ordinances controlling rent for private residential property, MCL 123.411 (1988 PA 226, as amended by 2018 PA 585). Michigan civil rights protections in real estate transactions, including religion, race, color, national origin, age, sex, sexual orientation, gender identity or expression, familial status and marital status, the source-of-income provisions and the fewer-than-5-rental-units exception, MCL 37.2502 (1976 PA 453, as amended by 2023 PA 6, effective February 13, 2024, and 2024 PA 180, effective April 2, 2025); exemptions, MCL 37.2503; disability protections, MCL 37.1502 (Persons with Disabilities Civil Rights Act, 1976 PA 220). Housing Law of Michigan, 1917 PA 167: application to cities, villages and townships of 10,000 or more and the private and 2-family dwelling limitation below 100,000, MCL 125.401; classes of dwellings, MCL 125.402; inspection intervals of not more than 4 years, or 6 years where the last inspection found no violations and ownership has not changed, MCL 125.526; certificate of compliance required for occupancy of multiple dwellings and rooming houses and issuance within 15 days of written application, MCL 125.529; suspension of the duty to pay rent and payment into escrow while no certificate is in effect, MCL 125.530. Federal Fair Housing Act prohibitions on refusing to rent, discriminating in terms and conditions, advertising a preference, and representing a dwelling unavailable because of race, color, religion, sex, familial status, national origin or handicap, 42 U.S.C. 3604; exemptions for a private individual owner of not more than three single-family houses and for owner-occupied dwellings with living quarters for no more than four families, and the fact that the advertising prohibition in 3604(c) is not exempted, 42 U.S.C. 3603(b). Adverse-action duties of users of consumer reports, including identification of the consumer reporting agency, the statement that the agency did not make the decision, and notice of the right to a free report within 60 days and to dispute, 15 U.S.C. 1681m(a). Federal lead-based paint disclosure requirements for target housing built before 1978, including the EPA pamphlet “Protect Your Family From Lead in Your Home,” the lead warning statement, 3-year record retention, and the application of the 10-day inspection opportunity to sales rather than leases, U.S. Environmental Protection Agency, Real Estate Disclosure (Lead Disclosure Rule, 42 U.S.C. 4852d). Depreciation of residential rental property over 27.5 years under the general depreciation system and reporting of rental income and expenses on Schedule E (Form 1040), IRS Publication 527, Residential Rental Property. Maximum of 10 financed properties for second home and investment property transactions underwritten through Desktop Underwriter, and additional reserves of 2% of aggregate unpaid principal balance for 1–4 financed properties, 4% for 5–6, and 6% for 7–10, Fannie Mae Selling Guide B2-2-03 and B3-4.1-01. Calculation of rental income at 75% of gross monthly rent when a current lease or market rent from Form 1007 or Form 1025 is used, with the remaining 25% absorbed by vacancy losses and ongoing maintenance, and averaging of Schedule E income over 12 months, Fannie Mae Selling Guide B3-3.8-01, General Rental Income Information (relocated from B3-3.8-01), last updated October 8, 2025.

This article is for informational purposes only and is not intended to provide legal, financial, tax, or investment advice. Landlord-tenant law, fair housing enforcement, eviction procedure, security deposit rules, registration and inspection requirements, entity structure and tax treatment vary by state, by municipality and by situation, and they change. Confirm your plan with a licensed Michigan attorney, a CPA, a licensed insurance agent and a licensed financial advisor before renting a property. Align Lending is an independent Michigan mortgage broker, NMLS #2041154, and is not a law firm, a property management company, a real estate brokerage, or a registered investment adviser.