A growing trend, especially for aging Baby Boomers, is to rent your home. Maybe the time has come to find a new home. Maybe you’ve outgrown your current place or it’s time to downsize now that the kids are all off on their own. If you don’t need to sell your home to buy another, what do you do with the house you own?
Renting your home can be a lucrative investment, but it takes careful consideration and effort to make it happen. Decision points range from financial aspects to required upgrades to lease terms. You have the option of managing it all yourself or using professionals. No matter what you decide, talking to professionals in all aspects of this project can make it easier.
Deciding to Rent your Home
While the extra income is appealing, the first step is making sure you’re ready to be a landlord. When you rent your home, you’re going to get some extra cash, but there are other considerations. For example, ask yourself if it’s an investment you can make at the present time. Make sure that financially and legally, you’re in a position to rent your home.
If you haven’t already, decide whether you’ll be personally funding your rental business, using investors, or getting a mortgage. Funding it yourself may earn you the most reward, but there’s also greater risk involved. Ask yourself whether your home is going to be appealing to renters in terms of location, price and features. Make sure you can afford to make the necessary upgrades. Deciding to rent your home but not getting any tenants doesn’t help you.
When you’ve done all your research, decide how much you’re going to do yourself. If you’re managing it yourself, make sure to talk to rental pros unless you’ve done it before. If you’re outsourcing, budget time and finances to find experts to make it worthwhile.
Brass Tacks
So, you’ve thought about all the advantages, disadvantages, costs, risks and especially the rewards of renting your home. Now you have to think about your house and how to make it a rental property. This part of the process can cost you as much time and out-of-pocket money as buying a new house. Again, you can do the work yourself or hire contractors to do it for you.
Choose what to do based on what you need to do to rent your home. Don’t buy all new appliances, change the carpet or repaint unless it’s necessary. You may be surprised what a detail cleaning can do to a home. At this point, you should have already decided what appliances you’re leaving behind so you know what you need to replace.
Give the house a good cleaning; get into the nooks and crannies, especially in the kitchen and bathrooms. Those are high traffic areas and the rooms that people want to see clean, not just tidy. Some other places to clean well include:
- Inside the refrigerator
- Shower walls
- Behind the toilet
- Under any cabinets that have a sink
- Every window
Update the Outdated
Before you rent your home, take care of certain upgrades that make sense based on the age of your home. If it’s modern, then making sure everything works is probably all you have to worry about. If it’s a classic, definitely make sure everything works, but also do these low-cost, high-impact upgrades that give your home an updated look without using up your entire budget. Replace your:
- Kitchen faucet
- Shower heads
- Window coverings
- Cabinet handles
- Toilet paper holders
- Toilet seats
- Light fixtures
- Thermostat
- Pull out shelves
- Outlets
- Light switches
Keep in mind that when you rent your home, landlords are generally supposed to take care of any repairs and maintenance issues, so if you are a do-it-yourselfer, be thorough at this stage. It’s definitely better to put in the effort now than some night at three in the morning after the damage has been done. When you rent your home, you’re responsible.
Terms of Enjoyment
This is a good time to talk about lease terms. As a landlord who is renting personal property, you get to determine the terms, as long as they’re within the legal limits. Detail what you want your terms to be. Be specific. Protect yourself, your investment, and the tenant. Some things to decide include:
- Rent. Make sure it’s appropriate for the area and your house.
- Utilities. Are utilities or other fees included in the rent or are they up to the tenant?
- Pets. If you allow pets, will you charge an extra fee? Consider how to handle pet damage.
- Modifications. If tenants are allowed to make alterations, decide how extensively you’ll let them change your home.
- Sublets. Are your tenants allowed to lease out rooms? If so, decide the terms and conditions.
- Rental insurance. Decide if you’ll require it or not for your tenants.
- Deposit terms. It’s common to ask for first and last month’s rent, plus a security deposit. Decide how much to ask for. Also, consider what conditions will forfeit the security deposit at the end of the lease.
Other Considerations
Remember to figure out what to do about your move and how you’ll interact with your tenants after you rent your home. If you’re staying in the same area, you may be the only person your tenants have contact with. If you’re moving away, you can still be the main contact and have a functional team or property manager deal with problems, such as maintenance issues or accidents. You should research and learn the laws for becoming a landlord in your area. You can find some useful information for North Carolina here, and for California here.
If you delegate, make sure you know and trust the property manager. Use people you’ve worked with before or get a knowledgeable referral. If they’re well regarded, ask them everything you can think of, such as:
- What are their rate? Is it a flat fee or a percentage of the rent?
- How do they deal with emergencies? What exactly do they cover?
- Do they contact you before making any repairs or only before major work?
Finally, when you rent your home, be sure to consider not just your investment, but the tenants, as well. Provide a safe space for them to live. Minimize inconveniences if it’s in your control. To attract long-term tenants, let them know that you’re a considerate landlord, and they’ll help keep your property in good shape for you. For more information on this subject see our blog post on Investment Property, or contact Zack.
