Many people mull over the idea of renting out their homes. They may want the benefit of extra income to save money or pay down debt, or they may see it as an option to selling during a housing slump, a way to wait things out until the economy improves.
The motives are many, 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.
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 homeowners insurance policy and try to avoid wear and tear on your property, by keeping an eye on your tenant's housekeeping skills.
Prepare Your Home
In a down market, you probably won't be able to get away with renting out the home as is. Tenants are more attentive and choosy at such times, because of the increased availability of rental homes, and their expectations are much higher.
Prepare for the new tenant by thoroughly cleaning your home and making sure 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 it 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 help you get a renter include: "granite," "state-of-the-art," "stainless steel appliances," "vaulted ceilings," "maple," "gourmet," and "hardwood floors." Be sure to use any and all of the terms that apply to your home.
Next, post an advertisement of the home on reputable websites. Posting in local newspapers is also an option. However, most people find listings online.
Also, stay mindful of the time of year during which you plan to rent. Renters generally move in particular seasons. According to a recent study by Renthop.com, during peak seasons you can rent your unit for even more. The summer months, in general (July-September) appear to be the best times to locate a tenant; however, this seasonality can vary from city to city.
Turning your home into residential rental property may seem like a simple task, but it's important to talk with real estate attorneys and accountants to make sure you are abiding by tax laws, zoning ordinances and local property rules.
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 exact 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 regulations, 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.
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.
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 co-habitating with, learn their habits so you won't run into any nasty surprises. (Read "Becoming a Landlord: More Trouble Than It's Worth" for reasons why you may not want to rent.)
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.
The Bottom Line
can be beneficial for both owners and tenants – but only if you take the time to address and prevent the potential pitfalls. After, all it's still your house.