Becoming a landlord isn't as easy as handing over the key to your house and collecting rent. Here are 7 steps to help you turn your home or investment property into a rental property.
1.Start updating. You want your house to be somewhere tenants will love to live. Make sure everything is up to date and that you can compete with other similar rentals on the market. Update plumbing and electrical work, and fix leaks and toilet problems. You might want to consider updating or upgrading some features as well. Even if the property is in great shape, you'll probably need to do a few minor things here and there. Give the house a deep cleaning, steam or replace carpeting, and give the walls a fresh coat of neutral paint.
2. Change status. Depending on where you live and your mortgage, you might need to let your mortgage company know that your home is now considered an investment property.
3. Change insurance. You won't need homeowners insurance anymore, but you WILL need insurance specifically for rental properties in order to cover yourself and your property.
4. Decide who will manage the property. You might save money by doing it yourself, but the potential stress gained and time spent on managing your rental might not make those cash savings worth it. Property management companies usually charge around 10% of the month's rent, but they will handle everything for you, from collecting rent to supervising maintenance to evicting tenants.
5. Determine what you will charge. If you hire a property manager, he or she will know just how to price your home. If you're managing it yourself, search for comparable rentals in the area to find a jumping-off point for determining your rental rate.
6. Screen applicants. All applicants should be employed, have good references from previous landlords, and should make around three times more than the monthly rent. Their background checks should be free of felonies, recent evictions, judgments, criminal activity, or bad finances. Property management companies will take care of all of this for you. You should also know that landlords, no matter if you own one single family home or an entire apartment complex, are bound by the Federal Fair Housing Act, which prohibits discrimination based on race, color, national origin, religion, sex, familial status, or handicap.
7. Sign a lease. Even if you decide to rent to a friend or family memeber, NEVER assume that an oral contract will be sufficient. Draft a lease that spells out all the details. This will protect both you and your tenant and is legally enforceable.
Do you own a rental property? What have your experiences been in the world of tenants and landlords?