How To Rent Your House Out
Doing it yourself vs. hiring a property manager
This guide is a great starting point to learn how or if you should rent out your property. However, we encourage you to research further and to contact your local government to learn what they require of you. You will read about the pros and cons of getting a property manager vs listing your home for rent by owner. If you are looking to rent your home as a vacation property then you need to make sure your home is zoned for that purpose. Some governments and bylaws don't allow short term rentals.
Hire a property manager or do it yourself: You will spend more money by letting a property manager take care of finding a tenant, managing all aspects of administration and legal concerns. Or you can save money, try your hand at finding a good tenant, understand the legalities and maintain the property all on your own. Whether you are able to be a landlord depends on the age of your home, the quality of your appliances, the personality of the tenant and your availability.
Legal Concerns: The fair treatment of protected classes governed by the Fair Housing Act is the big concern regardless of who manages your property. If you are considering being a landlord you should review the fair housing laws closely.
Should You Rent Your House Out?
If your tenant doesn't pay rent on time or misses payments, you must ask yourself if you can afford to bear the burden of your mortgage until they do or until you find another renter. It could be months before you find a renter. Also, there are plenty of costs you may not have considered yet. Let's make sure you won't put yourself in a bind. The costs of keeping your home may be higher than the money you will get from a tenant. This will help you with an estimate though a property manager can give you a more accurate estimate. Take a minute to grab your mortgage statement and consider all the things you pay for which may need to stay your responsibility. You may consider having the yard maintained to be certain you comply with your home owners association.
- Calculate your total monthly cost:
* Mortgage* Taxes* Estimate Future RepairsProfessional servicesOther CostsUtilitiesYard MaintenanceProperty ManagementTotal Monthly Cost$0
Estimate Your Rental Price: Consider what you want to include. A furnished home is worth more per month than an empty home however you may find it harder to rent out as a long term rental. Vacation rentals, of course will have the utilities included, need to be furnished and hopefully have Internet connectivity. You'll want to search other rental sites to find comparable nearby rentals. The closer to your home the better. You may use our advanced search to start your search. Zillow.com and Trulia.com may help as well.
You will likely be losing a little money in order to keep your house but as long as the loss isn't strapping you for cash during that time it might be worth it. Maybe it's a home you will eventually move back into or you will sell and make a profit when the market is higher. Consider capital gains tax if you think you will sell and you will make a profit of over $250k. There's a rule that you need to have lived in the home a combined amount of 2 years out of the previous 5 years from when you sell. You'll want to talk to your accountant to better understand the rules.
Getting A Property Manager
You will most likely pay a manager two big amounts. You'll pay to secure the tenant and you'll pay again to have them manage the property. Both amounts are typically between 6 to 10 percent of the total amount the tenant agrees to pay for the term. Let's say your house can be rented for $2000 per month and your tenant agrees to stay there for one year. You'd receive $24,000 from that tenant assuming they actually stay the entire term.
The property manager will use the $24,000 as their base to figure out what they are owed. They will charge on average $1,440 (6%) to procure the tenant then $1,920 (8%) spread out monthly until the term ends ($160 a month). You may find yourself paying a higher percentage because your house is cheaper and a lower percentage if you have an expensive home. Newer homes are typically less troublesome and you may also consider allowing direct deposit instead of having the property manager deal with mailed checks - You may get a price break.
Interview Property Managers: Ask property managers a few questions before you let them take control of your rental. Some may do more than others. Ask for...
- A breakdown of services.
- Their references.
- Proof of being bonded and insured.
- Their hours for handling maintenance.
- How they handle tenant funds / deposits.
Find A Property Manager Now
For Rent By Owner
We don't want to talk you out of being a landlord but we do want to play devils advocate to help prepare you for the worst and hope for the best. You'll likely be somewhere in the "Not so bad" range. So you've obtained an estimate of your costs and the rent income you'll receive and feel pretty comfortable that you'll make it through this financially? Good. Now you need to learn the do's and don'ts of being a landlord. You may consider talking with an attorney to best understand your risks and obligations. This guide will only get you started.
- Consider buying a book on being a landlord
- Obtain legal documents
- Learn about Fair Housing Obligations
- Find a handyman
- Find a plumber
- Find a landscape maintenance crew
- Find a cleaning crew
Screening Applicants: When screening applicants, be impartial and consistent - the law requires it. Understand that you may not discriminate in any way with regard to protected classes and your advertisements need to carefully crafted so there is no implied discrimination. Terms like "Walk-in closet" and "within walking distance" should never be used. For your private use write down your policies, what the deal breakers for a prospective tenant are and make sure to strictly enforce those policies equally. Credit checks are a useful tool but be sure to disclose that on the application which should also serve as a release agreeing that you can perform a credit check. Your rental application should elicit the applicant's full identity, credit information, and rental history.
There are online services - like Tenant Alert - for screening that can help you through the process. Ask for prior landlord references and check 2 or more back if possible. Do your best to verify that these references are real landlords and not just friends posing. Check your assessor's site to confirm the name of the landlord matches the address if possible. When rejecting applicants make sure to be clear, open and honest. Transparency is the only way to go. Make sure they understand the problems that caused the rejection. Keep these applications and all related documentation for a few years so that you can show that you adhered to your policies strictly and fairly. These applications will have sensitive data on them so put them in a secure place. When it's time to throw the old ones out, shred them.
Evictions: If you must evict, consider getting an attorney to help you. There are attorneys that specialize in this area and it can get tricky. Not all states have the same laws. The eviction notice itself my suffice or you may need to take the tenant to court. Even after the court decides in your favor you may need the help of law enforcement to remove the tenant. In all situations the first place to start is to have a legitimate reason for eviction relating to the tenant's non-payment, violation the lease agreement, damage to the property or illegal activity on the property. The next step is to draft the eviction notice and have a courier service hand deliver the notice with a signature of receipt. Here is a list of common notices you may need:
Repairs and Maintenance
The cost of repairs are always paid for by the homeowner though the property manager usually has a list of inexpensive repairmen. You'll want to make sure you set aside money for those miscellaneous repairs for the tenant. The cost of repairing a microwave may set you back a lot more than you think and air conditioning units will definitely be an expensive repair. When searching for repairmen, try to think of all the possible problems that may occur and if they may be needed late night for emergency calls. You may need a plumber or air conditioning repairman to fix problem at odd hours. You may also find it best to hire your own landscaper to maintain the front and back yard. It's not necessarily required but if you have an HOA, you'll be the one in trouble if the tenant doesn't keep the place up to code.
Whether you obtain a property manager or you do it yourself you will need to keep your rental income and costs separate from your personal finances. First off, Never mix rental income with your personal funds - period. Your state may require that you pay interest on renter's security deposits and/or maintain a special escrow account so you'll definitely want to contact your state to learn your obligations. Your accountant will tell you best what you can deduct. You mortgage interest, property taxes and expenses related to the management of your unit can be deducted. The cost of professional services such as cleaning, painting, accounting, property management and yard care are considered an expense and can be deducted. Certain supplies such as paint, equipment, lumber and appliances may also be deductible. Any travel to and from your property related to maintenance is also deductible but make sure you keep track of the dates, time, mileage and the reason you went to your property. Ask your accountant for the specifics. Online bookkeeping services will help you manage your finances. Try Outright Online.
Before Your Tenant Moves In
Take many pictures of the property with the date if possible. You want to make sure you have proof if there's damage caused by the tenant. Have the tenant run through a check list of the house detailing out problem areas that they either are okay with or want fixed before they move in. For example, they must review the floors, walls, windows, doors, sinks, air conditioning and heating, water heater, the condition of the appliances, and specifics about the outside and yards. You'll want them to sign off on their inspection that day. Be sure to fix all the agreed upon items in a timely manor. Make sure this list is extensive and they check off everything.