Whether you’re thinking short-term rentals or year-long leases, consider these tips for converting your home to a rental property to help you decide if becoming a landlord is really for you.
1. Ask Yourself: Are You Cut Out to Be a Landlord?
Are you willing to take on the responsibilities of being a landlord, like fielding calls late at night from tenants about clogged drains and overflowing toilets? Landlords must comply with federal, state, and local housing laws and must maintain meticulous records of how they screen tenants, handle security deposits, and enforce policies. Many new landlords make costly mistakes because they didn’t plan or research carefully enough before diving into the rental business.
2. Find Out if Your Mortgage Allows You to Rent Out Your Home
Many mortgages require that the home securing the loan be owner-occupied, at least for a specified amount of time, and loans for primary residences often have more favorable terms than loans for an investment property. You probably signed papers attesting that you intended to occupy the home as your primary residence. If you rent out your house without informing your lender about the change, you could face accusations of mortgage fraud.
3. Check Federal, State, and Local Laws.
Federal law prohibits discrimination in housing based on race, color, national origin, sex, religion, disability or family status (whether the family includes kids). Standardize your processes and treat all prospective renters the same.
Municipalities differ in their attitude toward rental homes, and some prohibit short term rentals altogether. You may have to get a permit. If a homeowner’s association governs what you may and may not do with your property, you’ll have to check with them, too, about whether you can rent it out.
4. Prepare a Lease
Work with your lawyer to prepare an appropriate lease agreement that complies with all applicable laws. The lease should cover landlord and tenant responsibilities, when and how to pay the rent and security deposit, prohibited uses (such as pets, smoking or operating an illegal business), and rules about communication (written notices about renewals or how a tenant should communicate complaints or requests for repair or maintenance.) Recognize that when you rent out your house, you are entering a legal agreement with a tenant, and getting the essential terms of the arrangement in writing is critical.
5. Figure Out if You Can Afford It
Can you afford to buy or rent another home while renting the old one?
Calculate your anticipated rental income against the expenses of maintaining the rental home, taxes, anticipated vacancy periods, and the cost of owning or renting another home while you generate income from the first.
6. Upgrade Your Insurance
Landlords need insurance to cover the property but also to cover potential liabilities, such as tenant lawsuits and accidents in the home. Investment property insurance may cover the building and personal liability, but it probably won’t cover personal property. Renter’s should provide their own insurance for that.
7. Clean Up and Get Ready
Prospective tenants want to see a clean, fresh home where everything works. Airbnb guests are leasing your place instead of a hotel, but they’ll still expect hotel-type amenities. You might have to:
- Paint walls
- Update appliances
- Repair or replace fixtures.
- Ensure the plumbing, HVAC, and electrical systems are up to code and checked out as safe
- Comply with safety regulations for exits, smoke and carbon monoxide detectors, and security.
Further, your personal treasures need to go with you, or you should put them in storage to keep them safe and to de-clutter the home you’re trying to rent out.
These are just a few tips for converting your home to a rental—they are not to act as legal or financial advice. Consult your lawyer and tax and financial advisors to be sure you’ve covered all the legal, financial, and regulatory issues you should address before welcoming your first tenants.