Are you considering becoming a landlord? Whether you have a whole house or just a spare room, renting it out can be a terrific way to boost your income.
Perhaps you’re considering renting out your home to help pay off your mortgage. Perhaps you recently inherited your parents’ house, but you don’t intend to live there.
Whatever brought you here, we have the answers to your questions about how to rent a house.
How to Rent a House in 9 Steps
- Decide if It Makes Sense to Rent
- Set Your Budget
- Do Research on Rentals in Your Area
- Talk to Your Insurance Agent
- Make a Property Management Plan
- Write Up a Rental Lease
- Find and Screen Potential Tenants
- Choose a Tenant
- Document the Space Being Rented
1: Decide if It Makes Sense to Rent
Make sure the shoes will fit before attempting to assume the role of the landlord. That entails examining your circumstances closely and ensuring that this is the best course of action for you.
If you’re considering purchasing a rental property as an investment, you should make the payment in cash. Don’t buy the house if you can’t afford a 100% down payment.
It’s that easy. The rent from tenants or a roommate won’t be enough to pay the mortgage. Wait until you can afford the entire house on your own before making the purchase.
What do you do if you have already purchased too many homes and are unable to make your mortgage payment on your own?
Selling it
On the other hand, if you have a paid-for house, in-law apartment, or extra room, you can begin preparing for the best way to rent it out.
Let’s look a little closer at three common situations . . .
#1. Renting Out a Spare Room
Perhaps you’re considering looking for a roommate to split the cost of your rent or to contribute to an early mortgage payoff. Be honest with yourself about your tolerance for sharing a home and if the extra money will be worth the hassle before deciding to do so.
Pros:
- You’ll have more cash – Experian estimates that the average mortgage debt in the country is $208,185, an increase of almost 11% over the previous ten years.
The monthly loan payment for a homeowner with average mortgage debt would be about $1,465 if they put 20% down and have a 15-year fixed rate of 3.66%.
If both roommates chip in, the total can be reduced to roughly $732. How much money could you save by sharing a room? To find out, use our mortgage calculator.
- A roommate is great for splitting the bills – Having a roommate allows you to split more expenses evenly rather than having to pay everything up front, including utilities, internet, food, and household goods. You will therefore have more money as a result.
- A roommate could cure Friday night boredom – That’s not a financial win, but it’s definitely a score if you become friends.
Cons:
- Collecting rent could be difficult or awkward – You’ll need to set tight restrictions on how and when rent will be paid.
- There’s always the possibility of a bad roommate – Living with a person you don’t get along with would be miserable.
- Owning a home that someone else shares with you can be tough – You can grow resentful if your roommate doesn’t maintain your level of cleanliness.
You could wish to take into account creating a list of home responsibilities or adding cleanliness requirements to the lease.
#2. Renting a House That Won’t Sell
Perhaps you were forced to relocate due to a job, a family, or another unavoidable condition. You may be starting to question if renting out your home is preferable to selling it now that it has been on the market longer than you intended.
Pros:
- It can mean more money in the bank – Since the home is already paid for, collecting rent is a nice bonus.
- It can mean less stress – You don’t have to wait for the right offer or worry about settling for less.
- There’s potential for more equity – As property values increase, you’ll increase your equity if you can rent out your home for a while. Your profit when you decide to sell your property will depend on how much equity you have.
Cons:
- The minute you rent out your house, it becomes an investment property – The type of insurance you must have and the requirements for the lease agreements are governed by state-specific laws. Furthermore, you now have a large commitment as a landlord.
- You’ll run the risk of tenants trashing the place – Long-distance landlording has certain difficulties. Investing in a property manager to keep an eye on the house and make sure the rules are being followed is probably necessary.
- You’ll delay selling your house – If your intent is to sell, renting out your house will interfere with your goal.
#3. Renting an Inherited Home
It’s not easy to lose a parent. Making the incorrect choice regarding what to do with the house they left you is the last thing you want to do.
After all, homes are associated with feelings and memories. Renting out your parents’ home can be an alternative if the prospect of selling it makes you uncomfortable.
However, you must first be aware of the numerous tax consequences associated with inherited property, including estate taxes, inheritance taxes, capital gains taxes, and property taxes. Since every person’s circumstances are unique, it is advisable to consult a tax expert to determine your responsibility.
Pros:
- You can keep the house that reminds you of your parents – It’s a little easier to let other people live in your parents’ home if you’re still in charge of the place.
- The house could be extra income – An ongoing monthly rent check would be a great way to build savings, pay off debt, or invest for retirement.
- You get to dip your toe into real estate investing – You’ll get to experience what it’s like to be a landlord and see if it’s your cup of tea.
Cons:
- Deciding who will maintain the property can be difficult – Will you take care of the property yourself or employ a manager? You’ll need to decide on roles and responsibilities if your inheritance is shared with your siblings.
- There are taxes – Again, check with a tax pro to understand your tax obligation based on your specific situation.
- Ongoing upkeep and maintenance could be a chore – Being a landlord is a big commitment. If something in the house needs fixing, it’s your responsibility.
2. Set Your Budget
It’s time to create a financial strategy, or budget, if after weighing all the advantages and disadvantages, renting out your house seems to make the most sense.
You probably don’t want to rent out your house for pleasure. You want to be prosperous! But as we’ve mentioned, being a landlord is challenging, and you’ll need to budget for costs before you can make money.
- The mortgage – You must account for the monthly mortgage payment in your property budget even if you intend to have renters pay it with rent.
You may be responsible for the bill for several months in between tenants. Don’t forget to factor in interest as well!
- Property taxes – Some mortgage companies will include your property tax in the monthly payment, but that’s not always the case.
- Insurance – Homeowners insurance is a must, but your location will determine if you need other types, like flood or earthquake insurance.
- Repairs and maintenance – You’re living in a fantasy if you believe that your tenants will never ask you to fix something. For the times when the dishwasher fails or a water pipe bursts, set aside an emergency money.
- Upgrades and cleaning – This will be relevant, particularly between tenants. Set aside some cash for interior and exterior home renovations and deep cleaning.
You should budget for these expenses at least every few years.
- Desired rent – In an ideal scenario, the rent you charge will exceed all of your costs, allowing you to make a profit. However, since the world isn’t ideal, you can’t just choose a number and stick with it. To determine what’s reasonable, check out nearby listings for similar-sized homes or rooms to rent. In order to make your apartment more appealing to potential tenants, evaluate what facilities or “freebies” you may provide if you need to raise the rent.
3. Do Research on Rentals in Your Area
No matter if you’re collecting rent on a piece of property you own, whether it’s a spare room, a garage apartment, or a whole house, you’re a landlord.
And that job entails far more than just collecting the rent.
You should review landlord-tenant rules before you even consider offering your space online. Each state has distinct regulations about what information must be included in a listing, how to obtain a security deposit, what clauses must be included in the rental agreement, etc.
You must abide by federal rules for anti-discrimination and housing safety as well. Being ignorant of the law might result in legal action, so do your research before renting out your home.
4. Talk to Your Insurance Agent
Although it might seem obvious, let your insurance agent know about your rental intentions. You may need to increase your liability coverage or insist that your new roommate obtain rental insurance, even if you only intend to rent out a single room in your already insured home.
The process of successfully renting out your home will be much simpler if you have a dependable, independent insurance agency. Our Endorsed Local Providers (ELPs) are experts in the insurance industry and can assist you in obtaining the ideal level of protection at a competitive price.
5. Make a Property Management Plan
There is a pipe leak. At two in the morning, a tenant forgets their key and is locked out of the residence. A door has come loose from its hinges. The pantry is currently being terrorised by a mouse. When these things occur, who will the tenants call?
Perhaps you wish to make the initial call. However, if you’re overseeing a property from afar, you’ll probably want someone else to act as the first line of defence between your tenant and that troublesome mouse. If your location makes it difficult for you to visit the property, you might wish to hire a property manager to answer calls and visit your rental as necessary. However, bear in mind that employing a property manager might be expensive and reduce your earnings. Consider the advantages and decide if it’s appropriate for you.
6. Write Up a Rental Lease
You can get millions of free templates to use in the creation of an agreement online by performing a quick search for “rental lease.” Considering the instances will help you decide what you as a landlord will and won’t tolerate.
7. Find and Screen Potential Tenants
Once your lawyer gives the thumbs-up on your lease, all that’s left is to find someone to sign the dotted lines. Unfortunately, this can often be the hardest part.
Finding Tenants
You should have a property marketing plan, just as you should have a plan for managing your properties (see Step 5). No, this does not obligate you to work with a pricey real estate or advertising firm. However, you do need to create plans for how to advertise your house and how to make it appear inviting to potential tenants.
Are you going to post it on Craigslist or Zillow? Or are you planning to appoint a property management or real estate agency to recruit tenants on your behalf?
Keep in mind that you will need to budget for them because they won’t be working for nothing.
Screening Tenants
The application needs to have a permission form that gives you access to the applicant’s personal information, including:
- Name and date of birth for all tenants
- Social Security numbers for all adult tenants
- References
- Proof of income
- Emergency contact information
8. Choose a Tenant
It’s not as easy as choosing the friendly couple who brought you cookies during their visit to give you a tour of the facility. To comply with anti-discrimination regulations, you should handle applications in the order they are received. When making a decision, it’s a wise idea to consult your attorney or real estate agent if there are several competent candidates.
9. Document the Space Being Rented
Don’t skip out on Step 9—it’s very important. You must take pictures of the space in your property before any tenants occupy there. capture everything on camera.
Take note of any wall or wood scrapes or fissures. Do a walk-through with your tenant before they move in and ask them to take pictures of the space.
You and your partner must agree on the space’s existing condition and note any potential harm, no matter how slight.
TOP LINE
Renting out a house is not easy and requires a lot of thought. That’s why it’s smart to partner with a pro who can help you through the process.
