Preparing a Rental Property
Homeowners put their properties up for rent for a variety of reasons. The current market may make it unprofitable to sell, or less profitable to sell than to rent. The owner may want to have use of the house in the future. Whatever the reason for renting, to prepare a house for rent, you will have to inspect thoroughly, repair and clean it or hire contractors to perform these services for you.
Many people mull over the idea of renting out their homes. They may want the benefit of extra income to save money or pay down debt, or they may see it as an option to selling during a housing slump, a way to wait things out until the economy improves.
The motives are many, but it’s possible for this plan to become more trouble than it’s worth when appropriate considerations aren’t made. Here are five steps that will get you going in the right direction.
If you are lucky enough to live in a tourist-friendly area, like near the beach or a major city, renting out your home as a short-term or seasonal rental may be an option, too. Before you sign up with a short-term rental group, like Airbnb, find out the rules and regulations for these types of rentals in your town and city.
Before you post a ‘for rent’ sign and advertise that you plan to rent your house out, take time to prepare your place. These steps will help you prep your rental property and attract premium tenants.
If you’re wondering how to rent your house out, you’ve probably got dollar signs on the brain. Becoming a landlord by renting your home can be lucrative. But how do you prepare a home for rental?
How to rent your house out
Inspect your home
When your home is empty, thoroughly inspect it and repair major problems. Address potential problem areas including roof leaks, sagging or clogged gutters, driveway cracks, leaky taps or pipes, electrical outlets, and burnt-out light bulbs. Also, inspect your floors to make sure they are sound.
Tenants will feel more at ease if they have a safe place to live. Suppose you’re renting out a portion of your home, secure and separate the rental area from the rest of your home. Ensure smoke detectors are in good working condition. Equip the kitchen and each floor of the home with a fire extinguisher.
Nothing will turn off a potential renter more than a dirty place. Clean the floors, windows, and blinds. Shampoo the carpets to remove stains. Repaint walls with a neutral colour to make the rooms seem cleaner and brighter.
Evaluate your furnishings and appliances
Cleanliness applies to furnishings and appliances, too. If you have valuable furnishings or fixtures you don’t want to be stolen or damaged, remove them. If you are providing a furnished home, make sure everything you provide is in working order.
If you are providing appliances, ensure they’re clean inside and out. Keep in mind, renting a home with appliances may allow you to boost the rental price, but it can cost you if the appliances require frequent repairs or maintenance.
Determine how to manage to rent out your house
If you are planning to manage the rental yourself, then secure a legal lease document for you and your tenant to use. If you’re not going to manage the home yourself, give yourself time to find a reputable property management company.
Property management firms typically charge 4% to 12% of the monthly rent for their services. Still, they will screen potential tenants, manage repairs, collect rent, handle payments, and deal with evictions if needed.
Notify your mortgage and insurance companies
It’s important to contact your mortgage and insurance company to let them know you won’t be living in the home. Your mortgage company has certain rights to the home to protect its security interests. Once you’ve notified your mortgage holder of your intent to rent out your home, you may have to meet specific mortgage-as-landlord requirements.
You should switch your homeowner’s insurance policy to a landlord property insurance policy to cover any losses due to tenant’s negligence, natural disasters, fire or water damage.
Determine market value
Once your home is ready to rent, figure out your monthly costs and evaluate comparable rental properties in the area to determine your list price. When you post your ad for rent, you’ll want to highlight desirable features to help sell the property to prospective renters. Be mindful of times of year that are more attractive to renters.
Screen potential tenants
Once you identify a potential tenant to rent your house out to, ask them to fill out an application listing their name(s), employer, previous landlords and references. You’d also be wise to get a signed authorization to check their credit reports and criminal history. Be aware of landlord and tenant rights.
The Benefits of Investing in a Rental Property
Investing in a rental property is one of the smartest ways to generate stable, long-term income.
It also offers several other benefits, including:
It’s generally safe to say that the value of the real estate increases over time, meaning that it appreciates. When it comes time to sell, sellers pay taxes on the appreciation, also called capital gains. Although property value depends on supply and demand, real estate purchased in the right location can sell for a decent profit.
Renting a property provides regular cash flow for as long as there is a tenant paying rent. Each month you receive a rental payment, the money you make after paying your mortgage, utilities, and other bills are yours. The income you generate from a rental property is also more predictable than other investments, such as a traditional business, because a rental payment provides consistent cash flow that is higher than a typical dividend.
The Downsides of Owning an Investment Property
Nothing is without its downsides, and that goes for renting out a property as well. When you purchase an investment property, the initial cost of purchasing the property is high, even without any additional costs to fix up space for tenants. Because you may be paying a mortgage with rental income, unexpected changes, such as low rental demand or unreliable tenants, could affect your ability to make monthly mortgage payments.
Other potential downsides of investing in, and managing, rental property may be:
Depending on the market, your rental property can take a long time to sell.
Lack of diversity
As an investment, real estate is a concentrated asset, which means if something happens to it, your money is tied up in that one investment, as opposed to several small investments.
As mentioned above, if a tenant suddenly stops paying rent, damages the property, or moves out without notice, you may experience a temporary income loss.
Time and management: Managing tenants, learning landlord-tenant laws, communicating with contractors, handling maintenance—this all takes time and energy. While owning a rental property may be considered a passive investment, it’s a hands-on job for a landlord.
Owning property costs more than the purchase price. When you factor in property taxes, insurance, and other fees, such as a Strata / Owner’s Corporation fees or repair costs, your expenses can add up.
Owning an investment property is not much different than owning your own home. The main difference is that you are a landlord and managing tenants requires patience, time and attention, and legal knowledge on top of your usual homeowner responsibilities.
Understand Potential Red Flags
Accidents happen, and some people look great on paper but then are not so great in real life. When you rent out your home, you’re risking property damage.
You’re also still the homeowner and responsible for any maintenance. You can protect your property through your lease and insurance, but accepting that your home may not look like it does when you leave, it is a necessity.
Lastly, and by far the least exciting part about renting your home, is the big E-word, eviction. Every state has its own procedure for evicting tenants. Educate yourself on yours.
Have a Good Lease and Insurance
If you’re going against our advice in engaging a Property Manager and have opted to instead manage your own property, you’ll want to understand insurance and leases fully.
Insurance: Once you’re renting your home rather than occupying it, your homeowner’s insurance will turn into a renters’ policy. You may also want to consider requiring that your tenants have rental insurance.
Property lease: Your lease will save you if you get that less-than-ideal tenant who looked good on paper but then turns out damaging the property.
It’s important to consider what the tenant will have to pay for and maintain. We recommend including the following in your lease:
- Garden maintenance.
- A list of the utilities that the tenant is responsible for.
- More than one lease signer, in case the first person on the lease disappears.
When you work with a property management company, you don’t have to worry about any of this, they take care of it for you. Whichever route you take, you’ll want a lawyer to look over your lease.
Understand the Responsibility Involved
First, you must determine whether being a landlord is an obligation you can even handle. The benefits of renting are numerous, such as the ability to deter the vandalism that often plagues an empty home, the ease of tax breaks and the ability to generate income that covers the bills and possibly even creates a profit.
However, being a landlord is also one more responsibility you’ll need to fit into your life, and it’s safe to assume that things will sometimes fail to run smoothly. You’ll need to stay on top repairs and maintenance, collect rent, dole out more for your homeowner’s insurance policy, and try to avoid wear and tear on your property by keeping an eye on your tenant’s housekeeping skills.
Prepare Your Home for Renters
In a down market, you probably won’t be able to get away with renting out the home as-is. Tenants are more attentive and choosy at such times, because of the increased availability of rental homes, and their expectations are much higher.
Prepare for the new tenant by thoroughly cleaning your home and making sure appliances are working and are in good condition. If you’ve decided that you are renting out a room or area within your house, make sure that you can secure that area from the rest of your home.
Marketing Your Home
Once the house has been straightened out, develop a list describing what makes it appealing so you can put it on the market. Take note of those commonly desirable features such as integrated refrigerator, , air conditioning and garage or car spaces. Use rental terms to help “sell” the property.
Words and adjectives that’ll help you get a renter to include: “stone benchtops,” “state-of-the-art,” “stainless steel appliances,” “vaulted ceilings,” and “timber flooring” Be sure to use any and all of the terms that apply to your home.
Next, post an advertisement for the home on reputable websites and in the local newspapers. This can be done by a nominated real estate agent who will work with owners to help rent out your homes.
You can also hire a property management company to handle the legwork of renting out your house, but you will have to pay them. The cost varies by company.
Hire Professionals to Help You Navigate the Financials
Turning your home into a residential rental property may seem like a simple task, but it’s important to talk with real estate solicitors and accountants to make sure you are abiding by tax laws, zoning ordinances, and local property rules.
You may qualify for tax deductions, but it’s important to know which exact expenses are deductible. Plus, there are limits on how much you can deduct each year, and the amount you are able to deduct may differ with the rental activity reported on your tax return.
A solicitor can also help you navigate the landlord-tenant regulations, which vary from state to state and help you understand your community’s rules governing rental properties. You can also seek help drafting the lease, making sure that it follows local laws. Finally, talking with a solicitor can help you determine suitable house rules and emergency contacts.
Set the cost of the rent by learning what other rental properties are going for in your neighbourhood and community. Remember, potential tenants will be scouting around for deals, so set the rent at a competitive price and make sure you highlight all the most valuable aspects of your home.
Determining Your Rental Price
To set a rental price, you will need to figure out your monthly costs to run the rental property. Think about your mortgage payment plus any additional expenses you are covering. Once you have your monthly figure, look at nearby rentals of comparable value to set your price.
When you advertise your rental property, the price will be the main factor in drawing tenants and getting a leg up on your competition. If you wish, you can also leave room to negotiate your price.
Beyond rental price, ask yourself if you will be charging a fee for late rent payments.
Are You Ready to Be a Landlord?
Excelling, as a landlord doesn’t happen immediately. You might have to review your progress to make the job more efficient consistently.
Don’t let this deter you from going after your goal of owning an investment property. Anticipating the realities of being a landlord will better equip you for the job itself, and you will notice your confidence increase as you become more comfortable with your new position.
By choosing to learn more about renting, you’ve already taken a big step to educate yourself on the risks and rewards of property investment. Now it’s your turn to put the knowledge to use and start your own real estate investment journey.