Tips for Renting Your Home
There are a number of helpful tips to help when it comes to renting your home. Those that are best for you may depend upon the circumstances which allow you to do so.
It could be a home which you own but do not currently live in or have plans to do so. This could be due to inheritance, a move to another property, or upon acquisition specifically for this purpose. However, your reason(s) for renting your house can impact your decision process.
Reasons for renting a home range from growing a real estate portfolio to cash flow to producing a tax break. In some instances, an owner will offer a “rent to own” scenario as a way to eventually sell the property. Regardless of the circumstances, there is much more to being a landlord than collecting a monthly rent check. There should be a plan in place ahead of time.
Preparation is the first part of the process, and quite often the longest part. Your home should be in the best possible condition prior to the tenant moving in for a number of reasons. Being able to plan your expenses is much easier than dealing with sudden costs.
For example, being able to plan the purchase of a new furnace allows you to review estimates and warranties. You might be able to secure an additional discount by combining with purchasing an air conditioning system. However, if the furnace goes out on your tenant, you face an immediate higher cost.
Consequently, you should consider these possibilities, along with the status of the roof and gutters, ahead of time. For older homes, there may be additional functions such as plumbing and electrical wiring to review before offering a lease to a tenant.
If your home is older and/or has a high value, it might be worth spending $300 to $500 for a home inspection. Doing so either brings you peace of mind or could save you thousands of dollars in unplanned and emergency costs.
In the event you are faced with thousands of dollars of repair and/or replacement costs, it does not stop you from renting out your home. However, having your home in the best possible condition helps to attract and keep a quality tenant. If your tenant moves out and you are unable to find another tenant for months, you would still be responsible for all of the costs yourself.
DETERMINE YOUR MONTHLY COSTS
The status of your ownership of the property is also a factor in determining your operating budget. Knowing your monthly costs is necessary toward what you need for a successful rental. These costs may include:
- Home Equity Loan
- Property Tax
- Home Improvement (room addition, renovation, repairs)
- Utilities, Security
- Homeowners Association (HOA)
Knowing what these total monthly costs are (and will be over the next 12 months) is essential regardless of your goal. There could be additional monthly costs to factor in.
One example is your property management. Simply put, you can take on being a janitor on call 24/7, working with plumbers and other vendors. Or, you can hire a Property Management company to handle everything including screening applicants. There is no right or wrong approach, but the cost of property management becomes another monthly expense.
Finding the best Property Management Company for renting your home requires full concentration. Some firms manage outside vendors on your behalf while some have employees responsible for specific tasks. For example, they may have a person on their payroll specifically to mow the lawns for all of their clients. Or, they could hire an outside company to handle until or unless they receive complaints.
STARTING THE PROCESS OF RENTING YOUR HOME
There is also the cost of securing your tenant to consider, unless renting to a friend or family member. You have three choices:
- Real estate agent
- Property Management Company
Although not a rule, a real estate agent typically charges the first month’s rent as a commission. In return, the agent will advertise, screen potential tenants, and coordinate the arrangements.
A property manager (offering this service) typically handles marketing, screening, and approval. The cost may or may not be included as part of their ongoing roster of services.
DIY adds time and money to your rental process. Consider the need to advertise the rental, show the property, check references, and establish your rules and regulations without help. Keep in mind that many states have strict policies regarding evictions regardless of the degree of problems a tenant could cause.
The method of securing a tenant may or may not factor in to your “operation budget” for the coming year as you prepare to rent your home. Taking the aforementioned cost factors into account, you can now total these up. This amount is roughly what you would need to charge in rent in order to break even.
However, arriving at your ‘break even’ does not directly determine what you need to charge for monthly rent. Your next step is to determine the market value.
One way to do this is to go online as if you are looking to rent “your” property within the same community or zip code. Most rental sites (along with sites such as Realtor.com) enable you to search by location and amenities. For example, you can search for a 3 bedroom 2 bath house or condo with garage in zip code 99999.
Make notes of your findings, and compare them to your property. Square footage, appliances, parking, and condition of the property are important considerations.
Your findings will give you an idea of what you could expect in monthly rental. Every situation is different. You might own the property “free and clear” (no mortgage) and be looking for ongoing rental income. Or, you could be living elsewhere and want to pay off the remainder of your mortgage before selling.
In some cases, people look to rent out the remainder of a duplex they own. It could be “rent to own” as a method of selling to someone that cannot afford a down payment. Some landlords want to “show a loss” while renting their property for tax purposes.
Either way, knowing what you can expect to receive in rent vs. what your cost will be is crucial. You want to know you can achieve your financial goal before pursuing a tenant. It is also wise to check with your tax professional or attorney for specific financial advice.
These are the best tips for renting your home. With the right plan, you can accomplish short and long term financial goals.