There are many different reasons people consider putting up their primary residence as a rental property. Maybe you bought a new house and can’t get a fair price for this old one. Maybe you just want to add an extra source of income and try your hand at real estate. Whatever the reason, it can be hard to know where to start and what’s all involved in this change. Here are 10 steps that can help you get started.
1. Check Your Current Mortgage
If you have a mortgage on your home, you usually have to have lived there for at least 12 months before converting it into a rental. This is because there are perks involved when your mortgage loan is for your primary home versus for a vacation or investment property such as a lower interest rate or a smaller down payment. So if you say you’re going to be living in a home and then list it as a rental property, you’re committing mortgage fraud which could result in foreclosure. To prevent this, simply look at your load paperwork or call your lender to find out the waiting rules involved in making this switch.
2. Try to Get Another Mortgage
When making your primary home a rental property, you probably want to buy a different home to live in. If so, you should find out if you qualify for another mortgage before you continue your plans.
3. Touch Base With Your Homeowners Association
If your home is in an area governed by an HOA, you need to find out if they have regulations against renting out your home. Some have no restrictions, others only allow a certain number of rentals in one neighborhood, and some don’t allow it at all. Whatever the case, it’s important to check in and see what their limitations are.
4. Change Your Insurance Policy
Insurance policies for primary homes differ from that of rental properties. Rental properties tend to see more wear and tear, and you want to be covered in case there’s an accident on the property and your tenant tries to hold you responsible.
5. Look Into Tax Changes
If you’re making money from your new rental property, it’s taxable income. However, there are deductions you can make that could save you money. For example, if you pay utilities, homeowners association fees, landlord insurance policies, repairs to the house, property taxes, or mortgage interest, these can all be considered deductibles from your taxes. It’s best to consult with a tax advisor on these things and see if there are other steps necessary to convert your home into a rental property.
6. Ready Your Property
Look at the competition and see what kind of appliances and amenities are provided. If these are more updated than what you already have, it might be a good idea to get something new. A new coat of paint can also make a huge difference in making a property look brand new instead of lived in. Curb appeal can also make or break a property, so investing in landscaping is a good idea as well.
7. Determine How Much to Charge
The first step of determining what your rental fee should be is checking in on the local market. Websites such as Zillow or Rent.com are great assets in finding properties similar to yours and determining what their fees are. You should also give yourself some profit compared above the costs of keeping and maintaining the property, so be sure to factor in how much the mortgage is as well as what repairs could come up in your costs. If you’re still feeling unsure, consider consulting with a real estate agent as they’ll be able to give you an informed estimate.
8. Set the Rules
If you’re going to try to be the flexible, laid back landlord you always wished you had, be ready to get taken advantage of. It’s important to set rules and stick to them, no matter the circumstances. It’s important to consider things like occupancy, pet policy, who will be in charge of yard maintenance and trash removal, and limits on your own right of entry.
9. Create an Application Form
When you begin looking for tenants, it’s important to already have an application form ready for them to fill out. This should include things such as their full name, social security number, current address, phone number, information of employment, and references you can contact. You’ll also want to ask for an application fee to cover the cost of background and credit checks. Make sure the application covers any other information you’d be interested in such as number of people or pets, but be careful not to ask anything that could lead to discrimination such as race or religion.
10. Find a Tenant
Once you’ve done everything on this list, you are ready to start your marketing for a tenant! List your property on sites such as Zillow and Craigslist and get ready to start going through applications. Look for automatic disqualifiers such as not having a gross monthly income at least three times the amount of rent or not having a steady job for at least a year. Also, no matter how nice people may seem at first glance, always do a professional background and credit check. Be patient, as taking the time to find a good tenant will save you money and hassle later on.
Still overwhelmed by the process? Contact Keyrenter St. Charles for some one on one help!