You own a home and are considering renting it out. Perhaps it’s not your primary residence and you want to offset or cover the mortgage. Maybe you want it to appreciate a bit more and sell in the future when you’ll get a better price. Whatever the reason, you’re seriously considering renting it and that brings into question just how to go about it.
A good place to start is to research other homes similar to your own that are and/or have been rented in the same location. That starts with a little internet snooping, and you can also get in contact with a local real estate professional to set the monthly rent at an attractive, fair price.
Taking an Honest Assessment of Your Situation
Where you really need to begin is with yourself. It’s your set of circumstances and why you are considering renting. If it’s because you want to generate a passive income, then look into the tax liabilities and advantages. Should you want to rent it seasonally to tourists visiting the are, there might not be any tax liabilities but you’ll have to get it ready for the next guests.
“It doesn’t take much to turn an ordinary homeowner into a landlord. Maybe you have to move but want to keep your home and rent it out. Or you have a change of fortune — you get married, receive an inheritance or buy a new house before you unload the old one. While many people would love to have an extra house to worry about, owning even one rental property can be a headache.” —MSN Real Estate
Where your primary residence is or will be is yet another consideration. Distance will have a huge impact on your life and that’s quite important to think about. Also, you might want to consider if you’re going to be staying at the home part-time or at certain times during the year. Be upfront and honest about your situation because that’s key to making a smooth transition. Renting a home entails a lot more than just advertising and maintenance, it’s a significant commitment and will have a real impact on your life.
What to Know about Renting Out a Home
Once you’ve committed yourself to renting out your home, go into the process with your eyes fully open. Here are some things you need to address before you stake a For Rent sign in your front yard:
- Determine your renting price. Don’t make the mistake of setting a rent price based solely on your monthly mortgage. It has to be competitive and realistic. So, check local ads and do some internet research to get the right price so it doesn’t sit empty unnecessarily.
- Decide to go the DIY route or hire a professional service. If you’re not close enough by the home to deal with issues, this is a no-brainer. However, if you are, it’s still wise to think long and hard about hiring a property management service. You’ll typically pay ten percent but that could well be worth the cost to save time and effort.
- Do the math. Make sure you can afford it before you buy or rent another home of your own. If you already own another property, don’t just set an arbitrary price because that’s a recipe for trouble you just don’t need to visit on yourself.
- Don’t leave your screening process to a simple template. If you decide to hire a property management service, this will be taken care of for you. However, if you manage it yourself, make sure you have a sound screening process. Should it be a situation in which you’re going to rent it as a vacation property, get a deposit before your guests arrive.
- Understand the law. You don’t want to unwittingly find yourself being handed a lawsuit by a process server because of doing or not doing something that’s not legal. Learn the local landlord-tenant law and avoid being put into a costly legal battle.
- Get the right insurance. You’ll need protection and the right insurance. Speak with an agent to learn which products you need to protect your property and investment. This will be a lifesaver if the need ever arises.
- Be prepared to keep rental income separate. Don’t make the mistake of co-mingling your rental income, especially if you rent for more than a couple of weeks a year. Keep your personal finances separate to make it easier on you come tax season.