There are many reasons to use your property as a rental. Maybe your home has been on the market for a long time and you've decided you can't sell it for a price that allows you to break even. Maybe you've inherited or been gifted a property that you don't want to sell. Or you may be among the many property owners who want to supplement their income by becoming a landlord.
Whatever the reason, you first need to put your home in order, both financially and physically. Keep reading to find out what steps you should take before you start looking for a tenant.
Take out a homeowners insurance policy to protect your property from damage and to protect you from liability.
In order for a residential property to function as a rental property, a permit is required for security purposes in some areas.
Make sure it's clean and freshly painted, and replace anything that looks seriously dated.
Understand fair housing laws before listing a property and run credit checks on potential tenants.
Consider hiring a property management company to work as a landlord for you.
Take the insurance.
A homeowners insurance policy is not enough if your home serves as a rental property. Whenever there are people on a property that you own, you take on some responsibility for protecting them. What happens if a tree falls on a house, injuring your tenants? What happens if there is a gas leak that causes an explosion? What happens if something relatively minor becomes a major legal headache?
Now imagine if you bought the property for the sole purpose of renting, and that tree caused so much damage that extensive repairs had to be made, making the house unsuitable for renting. If you didn't have insurance, you'd have to pay for out-of-pocket property repairs - something many people can't afford.
Home Ownership Landlord
The Top 6 Tips for Turning Your Home into a Rental Property
There are many reasons to use your property as a rental. Maybe your home has been on the market for a long time and you've decided you can't sell it for a price that allows you to break even. Maybe you've inherited or been gifted a property that you don't want to sell. Or you may be among the many property owners who want to supplement their income by becoming a landlord.
Whatever the reason, you first need to put your home in order, both financially and physically. Keep reading to find out what steps you should take before you start looking for a tenant.
What are the takeaways
Take out a homeowners insurance policy to protect your property from damage and to protect you from liability.
In order for a residential property to function as a rental property, a permit is required for security purposes in some areas.
Make sure it's clean and freshly painted, and replace anything that looks seriously dated.
Understand fair housing laws before listing a property and run credit checks on potential tenants.
Consider hiring a property management company to work as a landlord for you.
Take the insurance.
A homeowners insurance policy is not enough if your home serves as a rental property. Whenever there are people on a property that you own, you take on some responsibility for protecting them. What happens if a tree falls on a house, injuring your tenants? What happens if there is a gas leak that causes an explosion? What happens if something relatively minor becomes a major legal headache?
Now imagine if you bought the property for the sole purpose of renting, and that tree caused so much damage that extensive repairs had to be made, making the house unsuitable for renting. If you didn't have insurance, you'd have to pay for out-of-pocket property repairs - something many people can't afford.
This is why it is important to equip yourself with an insurance policy designed for landlords. Homeowners insurance is a combination of property and liability insurance. Property insurance covers against loss or damage to housing, other parts of the property, such as fences, and any personal property. The liability part protects you against damages caused by medical bills or legal expenses if you are responsible for injuries caused by other people on your property.
Get the necessary permissions.
Many municipalities require permits to operate residential properties as a rental. Approval requirements vary by municipality, so it's a good idea to check with city hall to see if you actually need it.
The purpose of the license is security-based. Often, a local government inspector will inspect the home for a variety of safety hazards, including electrical, heating, insufficient exit from the home, and other health and safety concerns. The inspector provides you with a report and informs you of any changes, alterations or repairs that are required to comply with the property. These permits are not expensive but are necessary to convert your home into a rental property.
Repair and Upgrade
You may need to repair and / or upgrade your property - the same way you would if you were selling it, making it more marketable and attractive to future tenants. The easiest and cheapest thing to do is to make sure it is clean and freshly painted. Anything that seems seriously dated should be replaced, provided that the price is not abnormal. For example, you can decide to renovate and change the handles of your kitchen cabinets or bathroom and kitchen faucets. Remember, you'll need to factor the cost of the upgrade into your rental rate, so don't overspend.
What are you going to charge?
Before listing your rent, it's a good idea to sit down and cut out some numbers. Make a list of all the expenses associated with the home - your mortgage payments (if you have one), property taxes, utilities, and any money you've spent on repairs. Don't forget to add your estimate for any maintenance, repairs, and other expenses you may have while you're a tenant. Then decide how much you want to see as a monthly profit. Once you've reached the rental price, check other rentals in the area for a house near your home. This gives you an idea of how competitive your rates will be with other landlords around you.
Know the law before you make a list.
Before looking for tenants, make sure you understand the fair housing laws. These laws came as a way to prohibit discrimination against tenants based on their gender and race. But they're not the same. In fact, they are constantly changing and becoming more complex. These laws tell you how you can advertise your property and guide you through your responsibilities as a landlord.
But what about the form. You can download the necessary documents online, including the application form, consent form, and lease agreement. If you plan to create your own paperwork package, you may need to seek the help of an experienced attorney.
The Property Management Group
If your rental property is far from where you live, or if you don't want the headaches that come with the day-to-day work of being a landlord, consider hiring a property management company to help you. A property manager handles all paperwork, takes care of repairs, collects rent, and communicates with tenants. Companies often charge an average of 10% of your rent for this service.
Property management agencies assist you with any legal process associated with the eviction process. Evicting a tenant is a legal process that takes a lot of time and resources to complete. Although landlords can't control their tenants' behavior, it's always a good idea to avoid evictions due to time and cost, not to mention the potential for property damage from disgruntled tenants.
How do I check the tenants?
How you test tenants is largely up to you. Most landlords require a credit score above a certain threshold, a clean background check, at least one reference from a former landlord, and a certain amount of income over rent - usually two to three times the monthly rent. Whatever your screening process, make sure you apply it equally to all tenants to avoid inadvertent or intentional discrimination.
Can I ban pets from my rental?
This may depend on your local laws and how they are enforced. You can't ban care animals, and in many municipalities, you can't ban emotional animals or even certain species of dogs.
Do I have to remodel my home?
It depends on the current condition of your home and the amount you want to rent. Rent is often divided into Class A, B, C, and D properties. Class A properties have the newest finishes and the most beautiful amenities, and are rented for the most money. If you want to increase your rental value, renovations to upgrade your property to Class A may allow you to do so.
Do I have to do Section 8?
Depending on your municipality, you can't legally refuse to receive housing vouchers. Section 8 tenant leases can help families experiencing poverty achieve stable housing and help you rent your property faster by providing reliable monthly payments. Section 8 can have its downsides, including strict property standards and the difficulty of evicting for lease violations, so be sure to do your research before making a decision.
the bottom line
It's not hard to find horror stories of landlords suffering more headaches than profits. Before you decide that renting your home is the best solution, take enough time to talk to other landlords and do a detailed analysis of the costs involved. You may find that selling your home can be a better use of your time and ultimately save you money. But if you want to become a landlord and rent your property, be sure to follow the tips above.
