Do you see potential in that extra floor of your building? Perhaps you have a second home that sits empty for most of the year or maybe an investment property purchase is on your mind.
No matter your situation, that extra space can be a great way to secure some supplementary income and help give you some extra cushion for your financial needs. In addition, it can help diversify your investment portfolio and give you some potential tax breaks.
Before you set out to become a landlord, however, make sure to set yourself up for success and check out how you should prepare.
Understand Your Responsibilities
Managing property is a big endeavor. Assess your personal situation to ensure that you have the time and money to keep up with it. Take necessary tasks into consideration such as repairs, collecting rent, sorting out necessary evictions and ensuring your tenants can take care of the property on a daily basis. It truly is a full-time job.
If you find that you’re unable to do all of the above yourself, you may need to consider hiring a property manager even if it’s just part-time.
Know Your Local Laws
You’ll need to study up on your local, state and federal landlord-tenant laws to protect both yourself and your tenants. Ensure you’re complying with fair housing laws, including The Fair Housing Act of 1968, which is a federal protection that prevents landlords from discriminating against applicants based on their race, color, sex, religion, family status or disability.
Local regulations may promote additional protections beyond federal law. It’s important to understand and follow all applicable rules in your area to ensure your rental practices are compliant.
Prepare the Home
Unless you’re going to offer your space fully furnished, you’ll need to move out your things, clean and ensure all your home systems are working to the best of their abilities. This includes the HVAC, home security system, appliances and electrical. Additionally, you’ll need to check for any harmful substances such as mold.
Consult Financial Professionals
It’s important to have a full understanding of your rental property’s finances. This means speaking with real estate agents, financial advisors or tax advisors to ensure you’re abiding by all applicable rules.
These professionals can help you understand processes and laws including tax deductions, regulations and more. An attorney can also help you draft up a lease for your tenants and ensure that it follows your local laws.
Set a Competitive Rent Payment
Do some research on some rental properties in your area and determine your rent based on these prices. You may also want to consider when a lease would start and current economic conditions to stay in the current climate’s competition.
This process can be tricky, and you may want to consult a real estate agent about this. Your rent must be competitive enough to attract applicants and high enough so that you can at least cover the property’s expenses. However, your rent shouldn’t be so high that your property sits empty for an extended amount of time.
Create a Lease Agreement
Speak with an attorney to help you draft a lease agreement for your tenants. Ensure it addresses rules, disclosures, requirements and expectations for your tenants while also following local, state and federal rental laws.
You’ll also want to ensure that you have a plan if a tenant does not pay rent. This means following up, sending notices and, if all else fails, evicting them. Make sure this is all laid out in your lease agreement.
Market Your Home
While you’re getting your space ready for their future residents, take note of its specific features. Words like, granite countertops, sunroom or sunlight, in-unit washer dryer, stainless steel and hardwood floors are typically attractive to applicants.
Create a description of your property using these keywords, take some high-quality, clear pictures of each room and start posting them to different real estate marketplaces. It doesn’t hurt to create and post some yard signs as well.
Screen All Your Tenant Applicants
Thoroughly screen everyone that applies to ensure they can both take care of the property and pay rent in full and on time. This means looking at the fine details on their written applications, calling them to chat, meeting them in person and doing background checks. You’ll need to look at their credit, rental/housing history and criminal history. You may even need to reach out to references or past landlords to learn more about them.
Live Your Landlord Dreams
Renting out your property can be a smart financial move. The additional income can help in tremendous ways and having investment properties in your portfolio can help reduce risk. However, it’s important to do your research, take the time to prepare your home and speak with professionals who can help you make the most of your job as a landlord.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
