Many people mull over the idea of renting out their homes in a down market. They may want the benefit of extra income to save money or pay down bills, or they may choose this method as a way to wait things out until the economy improves. The motives are plentiful but it's possible for this plan to become more trouble than it's worth when appropriate considerations aren't made. Here are five steps that will get you going in the right direction. (Read Becoming A Landlord: More Trouble Than It's Worth for reasons why you may not want to rent.)
1. Understand The Responsibility Involved
First, you must determine whether being a landlord is an obligation you can even handle. The benefits of renting are numerous, such as the ability to deter the vandalism that often plagues an empty home, the ease of tax breaks and the ability to generate income that covers the bills and possibly even creates a profit.
However, being a landlord is also one more responsibility you'll need to fit into your life, and it's safe to assume that things will sometimes fail to run smoothly. You'll need to stay on top repairs and maintenance, collect rent, dole out more for your home insurance policy and try to avoid creating a less appealing home for potential buyers by keeping an eye on your tenant's housekeeping skills. (For another take on renting, check out The Hidden Costs Of Renting The Basement.)
2. Prepare Your Home
In a down market, you won't be able to get away with renting out the home as is. Tenants are more attentive and choosy in a down market because of the increased availability rental homes, and their expectations are much higher.
Prepare for the new tenant by thoroughly cleaning your home and making sure any appliances are working and are in good condition.
If you've decided that you are renting out a room or area within your house, make sure that you can secure that area from the rest of your home.
Once the house has been straightened out, develop a list describing what makes the house appealing. Take note of those commonly desirable features such as a washer and a dryer, air conditioning and garage. Use rental terms to help "sell" the property. According to RentalsOnline.com, words and adjectives that'll really help you get a renter include: "granite", "state-of-the-art", "stainless steel appliances", "vaulted ceilings", "maple", "gourmet", "corian" and "wood floors." Be sure to use any and all of the terms that apply to your home. (Learn more in, 11 Mistakes Inexperienced Landlords Make.)
Next, post the advertisement of the home on reputable websites and in local newspapers, as well as in places you commonly frequent, such as your local grocery store or your church.
Also, stay mindful of the time of year during which you plan to rent. Renters generally move in particular seasons; March, April, May, June, July and August are typically been the best times to locate a tenant, according to RentalsOnline. (For more, read 5 Things Every Real Estate Pro Knows.)
3. Hire Professionals
Renting out your home may seem like a simple task, but it's important to talk with attorneys and other professionals to make sure you are abiding by tax laws and local property rules as a result of the new status.
For instance, the IRS stipulates that all rental income must be reported on your tax return. Sure, you may qualify for tax deductions, but it's important to know which expenses are deductible. Plus, there are limits on how much you can deduct each year, and the amount you are able to deduct may differ with the rental activity reported on your tax return.
An attorney can also help you navigate the landlord-tenant laws, which vary from state-to-state, and help you understand your community's rules governing rental properties. You can also seek help drafting the lease, making sure that it follows local laws. Finally, talking with an attorney can help you determine suitable house rules and emergency contacts. (For more, see The Benefits Of Using A Real Estate Attorney.)
4. Set A Competitive Price
Set the cost of the rent by learning what other rental properties are going for in your neighborhood and community. Remember, potential tenants will be scouting around for deals, so set the rent at a competitive price and make sure you highlight all the most valuable aspects of your home.
5. Screen Tenants Carefully
Start looking for a tenant as soon as your property is ready to be shown. Then, choose your tenant very, very carefully. You need to be able to depend on this person not only to pay the rent on time, but also to keep your home in good condition. Also, if the person is someone you may be cohabitating with, learn their habits so you won't run into any nasty surprises. (Looking to rent? See, Take Advantage Of A Housing Crisis - Rent! to find out how.)
Don't forget to gather references for potential tenants and check their credit histories. You should also take safety precautions when screening a tenant - after all, this person is a stranger!
Once you've found the right tenant, ask for a reasonable security deposit and arrange an appropriate payment schedule.
Renting a home to a potential tenant during an economic slump is beneficial for both parties - but only if homeowners take the time to address and prevent the potential pitfalls of this option. After, all it's still your house! (To learn more, see Can't Sell Your Home? Rent It.)