If you’re moving to a new home or purchasing a second home, you might feel like the only realistic option for your current home is to put it on the market. This leads to it potentially staying on the market for a prolonged period of time, fighting for the highest value for the home, and eventually taking the best option that the market will give you. But what if you decide you want to wait until the market is better, or use your home as a way of income? Well, you can turn your home into a rental property!
Is it Right for You?
Renting out your home might sound like the perfect option, but before you take the leap, figure out if being a landlord is something actually the right thing for you. Being a landlord takes up a significant amount of time, energy, and money. It’s a huge undertaking to go it alone, and it can be costly to hire a property management company to take care of a majority of the responsibilities. Is it a realistic path for your life currently?
Rental income is a fantastic way to earn a secondary income, but remember to think about the potential return on your investments. There may be months where you don’t have a renter and of course, no rental income. Your time is your money as well. If your property requires a level of upkeep that you can’t handle on your own, and you can’t afford to hire a property manager, it may not be the right choice for you. Often times, that doesn’t mean renting out a property isn’t in the cards for you, but that the current property you own may not be the best option. If you, however, find that becoming a landlord is a viable option for you and your home, here are a few things to keep in mind.
Important Things to Remember
Do you need to refinance your current mortgage? Primary residences usually mean lower interest rates. Essentially, deciding to live in the property before you actually rent it out shows your bank that you’re a lower risk. If you intend to rent out a second property and are seeking those lower rates, you may need to live in the residence for several years. It’s not a requirement, but it is something that you should keep in mind.
Think about insurance. Landlord’s insurance is highly important, so do your homework! Shop around for insurance that will cover structural damage, any property maintenance equipment, protection for structures on the property, and coverage for rental damage. Get quotes, make a list of questions you want to act about policies, deductibles, and claims.
Get familiar with the short term and long term lease policies in your county. Whether you intend to rent your property out as a short term vacation space, or as a long-term lease, become familiar with the rental requirements in your city and county.
How much do you plan to charge? After you’ve learned about how to keep your home and yourself protected, it’s time to think about how much you’ll want to charge a renter. Determining rental income takes a bit of research, so sit back and start searching the internet.
What will it cost you?Of course, as with any business venture, you want to make more per month than you’re spending. This can be particularly tricky if you’re still paying off a mortgage, however, it’s not impossible. Remember that you’re continuing to build equity on your home as you paying off your mortgage. Eventually, your profit margin will widen.
Do market research.Check out a few rental sites to look at rates. Make sure to check out every home available for rent in your area. What are their sizes, locations, and amenities? How does your home compare to those and does your home have any desirable amenities that might make a renter take a closer look? Find ways to reach above and beyond the current market. It’ll give you the advantage if you choose to compete closely with other homes in your general vicinity.
Think about what you’re providing.Once you’ve done a bit of market research, it’s best to go ahead and think further about what your rental space will provide. Things like:
- Occupancy.What is your planned limit of people allowed to occupy the space?
- Pet policies. If you’re allowing pets on the premises, will you have breed or species restrictions? Will you require a monthly pet deposit?
- Maintenance.You may decide to place certain rules about the care of the interior of your home directly in your lease, but it’s important to set straightforward restrictions or expectations for outdoor maintenance of your home. Be sure to discuss with any future tenants about landscaping maintenance. Will they be responsible for lawn upkeep, or will you?
- Right of entry.Make sure you comply with your state’s rules on when you’re allowed to enter an occupied home. Most states require you to give a 24-hour notice to the tenant before you plan to enter.
Don’t be afraid to seek additional help.You can’t know what you haven’t learned, and there’s a lot to learn when becoming a landlord. Reach out to real estate agents and other landlords to seek some much-needed advice.