How To Rent Out Your House: Step-By-Step

Renting out a house involves more than owning a home or finding a tenant. Follow this guide to optimize the opportunity and mitigate problems.

1. Calculate The Cash Flow

First, it’s best to evaluate your financial situation to know what kind of house you can afford and the income you’ll need to make the effort worthwhile. Then, you can set your goal for cash flow from the rental property. Remember, calculating costs means including the mortgage, property taxes, maintenance, renovations, insurance and marketing fees. These items detract from the rental payments, decreasing profits.

In addition, because the ROI in real estate depends on the market, renting may not be the best option. It’s recommended to contemplate selling versus renting your house to see how to maximize your return. Renting provides a steady stream of income over time, while selling provides a lump sum payment. So, renting makes sense if you can develop a healthy cash flow.

For example, say you buy a house for $250,000 and repair it for $15,000. Now, its new sale price is $300,000. So, you could sell it and collect a $35,000 profit. However, after researching the market, you realize you could rent out the house for $2,000 per month. This price means you could surpass the profit of selling the home after 18 months of rental income. Therefore, renting is more profitable in this situation unless you’re desperate for cash for the next year and a half.

2. Learn The Laws

It is crucial for landlords to have a thorough understanding of federal, state and local landlord-tenant laws for several reasons:

• Compliance with the law: Landlord-tenant laws protect the rights of both parties and ensure a fair and equitable relationship. By knowing these laws, landlords can comply with legal requirements and avoid potential violations that could lead to legal consequences, fines, or even lawsuits.
• Tenant rights protection: In addition, understanding relevant laws, such as the Fair Housing Act, helps landlords to be aware of the rights and protections afforded to tenants. This knowledge enables landlords to treat tenants fairly, avoid discrimination, and provide adequate living conditions as the law requires. By respecting tenant rights, you can establish positive landlord-tenant relationships and maintain a good reputation.
• Effective lease agreements: Local laws often prescribe specific provisions or requirements for lease agreements. By being knowledgeable about these requirements, landlords can create legally sound and comprehensive lease agreements that protect their interests and clearly outline the rights and responsibilities of both parties. Doing so helps prevent misunderstandings, disputes, and potential legal issues.
• Handling disputes and conflicts: Disputes between landlords and tenants can arise during the tenancy. Knowing the applicable laws gives landlords the necessary information to address these disputes and find legal resolutions. This knowledge helps you navigate rent increases, security deposits, repairs, evictions, and lease terminations per the law.

3. Get Insurance

It’s vital to purchase landlord insurance, also called rental property insurance, to protect your investment. Like homeowners insurance, this coverage protects the rental property’s structure (the building, walls, roof, etc.) from perils such as fire, lightning, windstorms, hail, vandalism, or other specified events. It may also cover additional structures on the property, such as garages or sheds. Plus, your policy can include any personal property that maintains or services the property, such as appliances or tools.

Furthermore, suppose the rental property becomes uninhabitable due to a covered event (for example, fire or severe damage). In that case, rental property insurance can cover the loss of rental income during the repair or rebuilding period.

In addition, the policy helps if tenants, guests or other individuals suffer harm while on the rental property. It can assist with legal fees, medical expenses and potential settlements or judgments resulting from such liability claims.

Remember, rental property insurance may not cover specific situations, such as tenant negligence or intentional damage. Additionally, specific policy terms and coverage limits can vary, so reviewing your policy and understanding what is covered and excluded is essential.