There are many reasons for using your property as a rental. Maybe your home has been on the market for a long period, and you've determined that you can't sell it at a value that allows you to break even. Maybe you inherited or were gifted a property that you don't want to sell. Or you may be among the many property owners who want to supplement their income by becoming a landlord. Regardless of the reason, you'll need to get your house in order first—both financially and physically. Keep reading to find out what steps you should take before start looking for tenants.
- Take out a landlord insurance policy to protect your property against damage and you against liability.
- For a residential property to serve as a rental property, a permit is required for safety purposes.
- Make sure it is clean, freshly painted, and replace anything that looks severely dated.
- Understand Fair Housing laws before you list the property and run a credit check on prospective renters.
- Consider hiring a property management company to serve as the landlord for you.
Take Out Insurance
A homeowner's insurance policy isn't enough if your home serves as a rental property. Anytime you have people on a property that you own, you take on some degree of responsibility for their safety. What if a tree falls on the home injuring your tenants? What if there is a gas leak that causes an explosion? What if something relatively minor turns into a major legal headache?
Now imagine if you purchased the property for the sole purpose of renting it out and that tree caused so much damage that extensive repairs have to be made making the house unsuitable for renting. If you didn't have insurance, you'd have to pay for repairs to the property out of pocket—something not a lot of people may be able to afford.
This is why it's important to arm yourself with an insurance policy that's designed for landlords. Landlord insurance combines property and liability insurance together. With property insurance, the dwelling, other parts of the property such as a fence, as well as any personal property is covered against loss or damage. The liability portion protects you against losses incurred because of medical bills or legal costs if you're found liable for injuries sustained by other people on your property.
Get the Required Permits
Many municipalities require a permit for residential properties to operate as rentals. Permitting requirements tend to vary by municipality, so it's a good idea to check in with city hall to see if you actually need one.
The purpose of the permit is safety-oriented. Often, an inspector from the local government will inspect the house for various safety hazards including electrical, heating, adequate exits from the home, and other health and safety concerns. The inspector provides you with a report and informs you of any changes, modifications, or repairs required so the property is compliant. These permits aren't expensive, but they are necessary to convert your home into a rental property.
Repairs and Upgrades
You may need to make repairs and/or upgrades to your property—the same way you would if you were selling it to make it more marketable and appealing to future renters. The easiest and cheapest thing to do is to make sure it's clean and freshly painted. Anything that looks severely dated should be replaced, providing the cost isn't outlandish. For instance, you may decide to change the knobs and handles on your kitchen cabinets or the faucets in the bathrooms and kitchen. Remember, you have to build the costs of the upgrades into your rental rates, so don't go overboard.
Top 10 Features Of A Profitable Rental Property
What Will You Charge?
Before you list your rental, it's a good idea to sit down and crunch some numbers. Make a list of all the costs associated with the home—your mortgage payment (if you have one), property taxes, utilities, and any money you've spent on repairs. Don't forget to add in your estimates for any maintenance, repairs, and other expenses you'll need to make while you have a tenant. Then figure out how much you'd like to see as a monthly profit. Once you arrive at a rental rate, check other rentals in the area for a house as close to the same as yours. This gives you an idea of how competitive your rate will be compared to other landlords around you.
Know the Law Before You List
Before you look for tenants, make sure you understand Fair Housing laws. These laws came about as a way to prohibit discrimination against tenants based on their gender and race. But they aren't the same as they once were. In fact, they change constantly and are even more complicated. These laws tell you how you can advertise your property and can guide you through your responsibilities as a landlord.
But what about forms? You may be able to download the paperwork you'll need online including applications, consent forms, and lease agreements. You may need to enlist the help of an experienced attorney if you plan to draw up your own package of paperwork.
Determining a good prospective tenant can be challenging. Even if you were legally allowed to judge them based on your intuition, experienced landlords will tell you that there is never a perfect renter and gut feelings are often wrong. But be sure to ask for references—and contact them—and get a credit check on any applicants.
Treat your rental property the same way you would a regular business—follow the law, keep all your records, prevent problems before they happen, and protect yourself from liability.
Property Management Group
If your rental property is far from where you live or you don't want the headaches that come with the day-to-day tasks of being a landlord, consider hiring a property management company to step in to help you. A property manager handles all the paperwork, takes care of the repairs, collects the rent, and communicates with the tenants. Companies often charge an average of 10% of your rent for this service.
Property management companies also assist you with any legal procedures associated with the eviction process. Evicting a tenant is a legal process that takes a lot of time and resources to complete. Although landlords can't control their tenants' behavior, it's always a good idea to avoid eviction because of the time and cost involved, not to mention the potential for damage to the property from disgruntled tenants.
The Bottom Line
It isn't difficult to find horror stories of landlords troubled with more headaches than profits. Before you decide that renting your home is the best solution, take an adequate amount of time to talk to other landlords and do a detailed analysis of the costs involved. You may find that selling your home is a better use of your time, and could ultimately save you money. But if you're set on becoming a landlord and renting out your property, be sure to follow these tips.