There are a number of reasons you may be considering renting out your home. Maybe you’re looking at your home as an investment property. Perhaps you need to move and can’t find a buyer.
The first thing you need to consider is that renting a home is like running a business. You need to treat it like a business. If you’re not prepared to do that, consider selling your home instead.
The ideal property to rent should be in good repair, in a safe location with little crime, and have a cheap or paid off mortgage. If your home doesn’t fit this ideal, it may be worth selling rather than renting.
Consider the following before you decide whether or not you’ll rent your home.
- Know what it takes to be a landlord. Do you have the time and temperament to fulfill a landlord’s responsibilities? Landlord responsibilities may include: maintaining the home, making sure plumbing, wiring and appliances function properly, promptly responding to tenants’ needs, advertising the rental, selecting tenants, and evicting them if necessary. Of course, you can always hire a professional property management company. If you’re not going to be close to the site to actually manage the rental, a property management company may be the best option.
- Do the math. Calculate the total cost of renting. Include the mortgage payments, utilities, any HOA fees, indoor and outdoor maintenance, taxes, legal assistance you may need, and an additional mortgage or rent payment for the house you’ll be moving into. Make sure you can afford it.
- Determine your rent price. Your rent needs to be competitive. You can’t base your rent solely on what your monthly mortgage payment is. Check local ads, Craigslist.org, Move.com, call property management agencies, and determine the range for similar properties in your area.
- Put careful thought and time into your screening process. Don’t rely on your good judgment of character. Screening your tenants is your most important task as a landlord. Have an attorney help you draft up the application. Always do a credit check and carefully check references. You may not find the “perfect” tenant, but gathering as much information as possible will give you an idea of the type of tenant you will have.
- Know the law. Each state has different landlord-tenant laws. Know your tenants’ rights as well as your own. Be prepared to hire an attorney to ensure you’re complying with the law. Some municipalities have requirements as well, and federal law governs things like fair treatment for tenants and Americans with Disabilities Act requirements. Make sure you treat all tenants equally and set your criteria for accepting or rejecting applicants and apply them consistently. Write down your policy and stick to your rules to protect yourself. If you happen to reject an applicant, disclose exactly what the problem was and how you became aware of it. Keep all your applications for several years. When you do discard old applications, shred them, as most will have social security numbers and other personal information. Some states may require you to pay interest on renters’ security deposits. Once you’ve approved an application and have chosen your tenant(s), make sure you draft a lease. Don’t use blank leases from the Internet. Use an attorney to assist you with your lease.
- Have the appropriate insurance. Insurance for a rental is different from insurance on a primary residence. As a landlord, you’ll need rental property insurance. You are not responsible for the tenants belongings, so encourage them to get renters insurance.
- Keep rental finances separate from personal finances. Consider using financial software to track your rental income. Keep these records separate from your personal accounts. You need to keep track of any tax deductions relating to your rental. Create a separate savings account as well. You’ll want to put a set monthly amount into this account to cover any repairs, appliances, maintenance, and taxes.
- Be prepared to evict a tenant and/or have an empty rental property. Sometimes things can go wrong even with seemingly great tenants. Don’t evict them yourself. Use an attorney. Once the tenant is just one month late, consult your attorney and follow the guidance you’re given. Laws are specific about this process and professionalism must be maintained. Have a process in place, and treat the eviction as part of a business transaction, not a personal matter. There will be expenses associated with this process that could equal an entire month’s rent. If you can’t seem to rent out your property, selling may be the best option for you. However, be prepared to have an empty property at some point and pay the mortgage payment while you try and find renters.