Individual investors own about 23 million units in 16 million properties across the country.
These investors are frequently referred to as “mom and pop” landlords, who are more likely to own duplexes or single-family homes.
Are you thinking about joining the ranks of these investors by renting out your home?
Let’s take a look at how to rent out your house in 12 steps.
1. Understand the Responsibility You’re Taking On
Being a landlord isn’t for everyone. There are tons of benefits of renting out your home, like generating income, getting tax breaks, and deterring vandalism if your home would otherwise be vacant. That being said, it also comes with its fair share of risks.
When you rent your home, you’re taking on another responsibility. It needs to be able to fit into your life. You’ll be responsible for taking care of maintenance and repairs, paying more for your homeowner’s policy, collecting rent, and keeping an eye on how your tenant is treating the property.
2. Make a Financial Plan
You’ll need to think long-term if your renting out your home for profit. Many small-time landlords expect only a few hundred dollars per month in profit. That means that you’ll want to decide whether or not it’s worth the time and effort.
When making a budget, there are a number of expenses you’ll need to include, such as:
- Mortgage payment
- Property taxes
- Repairs and upgrades
- Regular Maintenance
Remember, if you’re looking into how to rent out your home as a get-rich-quick scheme, you might want to reconsider. This is a long-game investment strategy, not something that will let you retire tomorrow.
3. Set Your Rate
How much you can charge for rent is a crucial part of your strategy. You, of course, want to be taking in more money per month than you’re shelling out for the property. How much you can charge has to do with the type of home, the location, and the local market.
Take a look at how much a home rental goes for in your area. Take tours of other properties and compare their quality and amenities to your own home.
You’ll also want to consider the demographics that your rental will likely attract. Do you live in a college town and your renters will most likely be students? Or is it a quiet neighborhood where your home will most likely be rented by a family?
Setting the rent for your home is a balancing act. Obviously, you want to charge as much as you can. At the same time, if you price too high for the market, you’ll have a hard time attracting tenants.
4. Consider Your Options for Property Management
When you’re a landlord, it’s not a nine to five commitment. A pipe can start leaking on a Sunday, in the middle of the night, or on Christmas morning. What’s your plan for dealing with these types of incidents?
Some landlords decide to manage their own properties to keep as much profit as possible. If you’re handy, this isn’t an unreasonable thing to do, but you should understand that it means that you’re on call all the time.
Other people opt to hire property management. You can either hire an individual or a company to deal with collecting rent, managing the property, checking on the property, and fielding maintenance calls.
The other thing you’ll want to think about is how far away you’ll be from the home. If you’re moving several hours away, you’ll likely want to hire out the job. If you live down the street, you might consider doing it yourself.
Property management will cost you a percentage of the rent each month and typically a fee for finding tenants.
There are a number of tools that can help you run your rental more smoothly. Check out Condo Control Central if you’re looking for an app that digitizes and streamlines your operations.
5. Learn About the Laws in Your Area
States can differ wildly in terms of their landlord-tenant laws. You’d be wise to read up as much as possible on the laws in your state. Some places tend to have laws that are much more favorable to the tenant, while others are more favorable to landlords.
These laws can deal with things like property access, security deposits, and lease terms. There are also sometimes city or county laws that might apply.
On top of local and state laws, there are federal laws that are relevant to being a landlord. These have to do with housing safety and protecting potential tenants from discrimination. If you don’t know the laws, you can find yourself in hot water and real financial trouble.
6. Write a Lease and Set Rental Policies
Now that you know you’re going forward with renting out your home, you’ll want to create a lease and determine your policies.
To make a lease, you can find a basic structure online. However, you’ll likely want to make changes. Do your research so that your contract is structured exactly as you want it to be.
It can be a good idea to consult with a lawyer to make sure your contract is fully legal and free of loopholes.
On top of the lease, you’ll have to decide on your policies. Things like who’s paying for lawn care and snow removal, whether utilities are included or not, or whether or not you allow pets are all important questions to ask.
7. Prepare Your Home For Renters
Before showing your house or having anyone move in, you’ll need to get the house ready. Clean your home thoroughly and make sure all of the appliances are in working order.
If you’re only renting out part of your home, you’ll want to be able to secure the rental area from the rest of your house.
8. Market Your House
In order to market your house effectively, you’ll want to make a list of its most desirable features. Be sure to mention things like whether it has air conditioning, a washer and dryer, a garage, and other amenities that tenants frequently want.
You also might want to hire a professional real estate photographer to take photos of the apartment. Having high-quality photos can inspire more people to visit your property to take a look.
There are a number of websites where you can list your rentals. Sometimes real estate agents will even help landlords find tenants, though they will charge a commission.
If you hire property management, you can also have them take care of marketing your house and finding a tenant.
9. Hire Pros to Navigate the Process
When you have a rental property, there are a surprisingly large number of moving parts. If you’re going to do it all on your own, you’ll need to become very familiar with zoning ordinances, tax laws, local property rules, and state and federal laws.
Hiring a real estate lawyer can help you navigate the process. They can also help you understand which tax deductions you qualify for.
10. Carefully Screen Your Tenants
Whether being a landlord goes smoothly or is a nightmare can be as simple as the difference between good and bad tenants. Choosing a tenant is not a decision to take lightly. You’ll want to choose them very carefully.
When you allow someone to rent out your home, you’re trusting them to do more than just pay rent on time. You’re also trusting that they’ll take care of your house in their day-to-day residence of it.
It’s always important to pick tenants wisely, but it’s particularly important if you’re going to be sharing the space. If you have a duplex and are renting out the other unit, realize that you might be sharing a porch or backyard with them. If you’re renting out a room in your home, it will be all the more important that you get along.
Have potential tenants fill out applications for the rental. Ask them for references, run a background check, and check their credit histories.
When you’ve found a fantastic tenant, you’ll arrange to have a lease signing and ask for the security deposit.
11. Store Their Security Deposit Safely
When you take a security deposit from a tenant, you are legally required to return it at the end of the lease. This means you should put it somewhere safe, such as a separate account. This is even required by law in some states.
12. Inspect the Property Before Move-In
Before your tenant moves in, document the space. Take photos to have a record of the condition of the home prior to their living there.
This will allow you to prove the tenant is responsible for any damage you find after they move out.
Does It Make Sense For You to Rent Out Your Home?
Being a landlord can be a good investment and create good cash flow. That being said, it’s a big responsibility and also means taking on some risk. Whether or not you decide to rent out your home, you’ll want to put a lot of thought into making the decision.
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