You’ve probably heard horror stories about expensive evictions, ruined rents, and “tenants from hell” from unwitting landlords. You may be aware of several reasons why you should not rent out your home. Plus, you might not even know how to rent your home. However, you may only need to convert your home into a rental property.
I tried to sell, but the market for investment properties is sluggish.
For job reasons, I’ve been temporarily transferred out of the area.
You owe more on your house than it is worth, but you can pay it off with rental revenue.
Realized the tremendous wealth-building potential of a rental property for your financial future.
Yes, the terrible news gets the most coverage and attention. However, here are the facts: Millions of landlords rent out their properties to good renters every day. You can reduce the headaches and turn your home into a profitable venture with appropriate planning and preparation.
Is it a good idea to rent out your home?
The first item to consider is whether you should rent or sell your home. I want to present some arguments about why you should rent your home. This is why.
While your primary residence is a need in life, it is rarely an asset or investment. Make money when you have an asset. You lose money when you have a liability. You can turn a weakness into an asset by renting out your home.
One can keep your home while the rental revenue pays down your debt. Rental property values will (ideally) rise over time, increasing your wealth. Then it will have more monthly cash flow if you can rent out your residence for more than your monthly expenses. That’s what all potential landlords want to achieve, and it’s something we at Bigger Pockets wish to assist you with.
Begin your investment career with no out-of-pocket expenses. Renting your home could be the first step in a tried-and-true wealth-building strategy. Many real estate investors begin by renting out their properties while upgrading to more extensive or better dwellings. You may wind up owning many properties “free and clear” by the time you are ready to retire, earning monthly rental income or a lump payment if you sell.
Keep the potential of returning to that location in mind. This is especially useful if you’ve had to relocate swiftly due to a temporary work transfer.
Finding renters for a rental property
Marketing is crucial when it comes to attracting renters to rent your home. You’ll want to reach out to as many potential tenants as possible so you can choose from a larger pool. Three simple methods for selling a property are as follows:
Signs in the yard: A simple “For Rent” sign is one of the oldest but most effective ways to sell your property. The major disadvantage of a character is that it alerts everyone driving by to a vacant house.
Renters are pre-screened before they are accepted.
Always pre-screen a potential rental tenant before meeting in person if you receive a call or message from them. Setting rental requirements and discussing those criteria over the phone is the simplest method to achieve this. Before a usual rental application process, I have the following criteria:
- The gross monthly income must be at least three times the monthly rent.
- The favorable credit score
- Employment—with sufficient documentation of the required monthly income (pay stubs)
- All prior landlords have provided excellent recommendations.
- Agree on the maximum number of occupants that can be accommodated (e.g., two per bedroom per state law).
You can read this list to a potential rental tenant over the phone and ask if they match these requirements. If they don’t, don’t rent the house to them, don’t waste your time screening them further, and don’t even schedule a showing with them.
Is it necessary to hire a property manager?
Should you take care of the property yourself or employ a property manager? When a new tenant moves in, a property manager typically charges 10% of the monthly rent plus 50% of the first month’s rent.
In exchange for this payment, a property manager will usually do the following:
- Post a notice looking for new tenants.
- Take care of rental applications
- Sign the rental agreement.
- Collect the rent every month.
- Keep tabs on your finances.
- Repairs should be scheduled in advance.
- Send out legal notices
- Enforce rental agreements.
- Understand and navigate the laws governing landlord-tenant relationships.
- Eviction notices should be filed.
When it comes to renting, how much should you charge?
You can’t choose what rent you wish to charge at will; the market makes that decision. Your task is to research to calculate the fair market rent for your home. In general, other rental properties in a similar location, size, and condition will rent for around the same amount as your home.
Consider the following:
- Looking for “For Rent” signs while driving about
- contacting property management firms
- Inquiring with other local landlords
- Taking a look at the local publications
Is there a security deposit?
A security deposit is a money paid by a renter to ensure that the terms of their lease are followed. But keep in mind that this is a deposit, not a cost. This money should be kept separate from the rental tenant’s funds and refunded to them when they move out, less any damages that need to be rectified.
Many states limit the amount you can charge, so check to see if there are any restrictions in your area. I usually ask for a security deposit equal to the monthly rent, though I may charge more if the rental tenant has something in their background that concerns me (more on this in a while).
Procedure for submitting a rental application
Even if you are not interested, always give an application to each prospective tenant who is interested in your rental home. After all, you don’t want to be perceived as discriminatory. The fundamental rental application should include a range of details, including at the very least:
- All potential renters’ names
- Year of birth
- A number assigned by the Social Security Administration
- Number to call
- a different phone number
- Previous mailing addresses (last five years)
- employer at the moment (name, hire date, income, contact info)
- previous employers (name, hire date, payment, contact info)
- Contact details in case of an emergency
- Statement of information release
- For all rental renters, a signature is required.
This should cover the background check. However, before spending money on the screening components, read the rental application to ensure candidates fulfill your basic requirements.
Checking credit history and verifying income
A “release of information” signature on your rental application will allow you to check up on their claims. Let’s start with their occupation. The name and phone number of their present employer should be included on the rental application, so contact and chat with the manager, owner, or human resources manager. (In many cases, the release-of-information signature will be required to be faxed.)
Then there are the crucial questions to consider:
What are the current earnings of renters?
- How long have the tenants been employed there?
- Is this a temporary position?
Then, phone their former landlords for at least the prior five years. Check the tenants’ pre-screening (i.e., background and credit checks) to see if any other addresses emerge, which could suggest they “forgot” to include a landlord they rented from.
Consider the following questions while speaking with past landlords:
- How long has the rental tenant been a customer of yours?
- How much did their rent cost per month?
- Did the vacating rental renter provide adequate notice?
- Was the security deposit refunded to the rental tenant?
- Would you rent to this particular tenant in the future?
- Accepting or rejecting an application for a rental unit
- Always process rental applications on a first-come, first-served basis to avoid discrimination allegations. Process each rental application until you find out whether or not the applicant qualifies.
To avoid discrimination charges, properly documenting your reasons for dismissing a rental applicant is critical. Always provide written notice to the rental renter.
When you identify a rental candidate matching your criteria, you can tell them they’ve been accepted verbally.
If you need additional information, you might contact solicitors in London W2 if you are looking for a rental property in the city.