Compliance involves adhering to a set of rules and regulations established by various agencies and authorities. It is more than just a legal requirement—it is essential for successful property management and investment, ensuring that properties meet all necessary legal, safety, and quality standards to protect both the investor and tenants. But what exactly is compliance, and why is it so crucial for real estate investors?
Compliance Requirements and Processes
Compliance standards cover everything from building codes and safety standards to environmental regulations and tenant rights. For real estate investors, maintaining compliance is essential not only to avoid legal troubles but also to ensure the longevity and profitability of their investments.
Landlords and investors looking to rent out their properties must obtain a rental license in certain areas. In Baltimore, all residential rental units are required to be inspected and licensed to meet basic safety requirements. Those investors or landlords working with housing vouchers must undergo a more rigorous process in compliance with the Department of Housing and Urban Development (HUD). Even though certain HUD procedures are required only for those using housing vouchers, their processes should be learned from. These requirements not only protect the tenants, but they protect the properties from decay- which can be costly for investors.
HUD’s Procedures
Properties involved in subsidized housing programs must comply with Housing Quality Standards (HQS) set by the HUD. One important aspect of this compliance is conducting regular inspections. These inspections help ensure that properties meet required standards and remain in good condition. Inspections allow you to catch issues before they become bigger and cause extensive damage to the property. Inspectors will look at a home’s kitchen appliances, attic insulation, HVAC and related systems, etc. Properties must undergo initial inspections from the Public Housing Authorities (PHA) in regulation with the HUD before they are rented out, with bi-annual inspections thereafter to verify ongoing compliance with standards.
According to HUD, HQS consists of 13 performance requirements, such as interior air quality, lead-based paint, water supply, smoke detectors, etc. Regular inspections ensure that properties continue to meet these standards over time.
Beyond federal regulations, local governments have their own set of rules for subsidized housing. In cities and counties, there may be additional requirements such as specific building codes, zoning laws, and maintenance standards. Compliance with these localized regulations is crucial for avoiding fines and ensuring smooth property management. To find your region’s regulations either check your local government’s website, the municipal code for your area, or browse the National Center for Healthy Housing (NCHH).
Navigating Regulations and Change
The Housing Quality Standards (HQS) have been a long standing requirement, but changes are on the horizon with the introduction of the NSPIRE (National Standards for the Physical Inspection of Real Estate). The switch aims to improve the quality and consistency of housing inspections. NSPIRE was originally set to replace HQS in full effect October 2024 but was extended to October 2025. NSPIRE will bring new guidelines, such as updated requirements for smoke detectors, as well as a focus on the overall condition of the home (for example: mold, moisture control) rather than only basic health and safety concerns. There will also be a focus on data collection so that housing conditions can be tracked consistently to help identify trends. Staying ahead of these changes is essential for maintaining compliance.
Regulations and standards are not static – they evolve over time. Investors must continuously update themselves on new rules and changes to existing regulations. This involves monitoring updates from relevant agencies such as the HUD, and adapting compliance practices accordingly.
The Impact of Compliance on Real Estate Investment
Compliance in real estate isn’t just about ticking boxes—it’s a crucial element that shapes the success and stability of your investments. By adhering to regulations, you contribute significantly to your property’s reputation within the community. Properties that consistently meet or exceed required standards are often viewed more favorably by tenants and neighbors, fostering trust and enhancing your standing as a responsible investor. A study on tenant turnover found that 31% of tenants said they left the property due to maintenance issues. When a property does not meet compliance and maintenance standards, tenant turnover is imminent.
Moreover, strong compliance practices play a crucial role in mitigating financial risk. By staying compliant, you reduce the likelihood of incurring financial penalties and minimize the chances of facing costly legal disputes. This proactive approach not only protects your financial interests but also safeguards against legal issues related to tenant safety and building code violations.
In addition to protecting your assets, maintaining compliance can lead to substantial cost savings. Properties that are well-maintained and in adherence to standards are less prone to major issues and expensive repairs. This not only helps in avoiding fines and penalties but also preserves the value of your investments over time. Essentially, effective compliance is a strategic investment in the longevity and profitability of your real estate portfolio.
Compliance Best Practices
Effective compliance starts with preparation. Educate yourself and your team about relevant regulations and standards. Regular training for employees ensures that everyone involved in property management understands their role in maintaining compliance. Additionally, each city or county has specific regulations. Familiarize yourself with these local guidelines to ensure that your properties meet all necessary requirements.
Regularly schedule and conduct required inspections. Ensure that all necessary certificates, such as lead certificates and rental licenses, are up-to-date and renewed as required.
Compliance is a vital component of successful real estate investing. By staying informed, adhering to standards, and implementing best practices, investors can protect their assets, enhance their community reputation, and reduce financial and legal risks.
The above article was based on an interview with Craig Cuocci, Inspections and Compliance Manager for Dominion Management. Dominion Management is a property management company in the greater Baltimore area owning and managing over 800 renovated rental properties, many of which are voucher program eligible.
