Learning how to rent out a house often involves researching the market to define your price, familiarizing yourself with landlord-tenant law, preparing a lease agreement, and listing the house.
These steps can help you use a house you own to earn some extra income. However, keep in mind that becoming a landlord may come with its own set of challenges, such as dealing with tenants or doing home maintenance.
Let’s explore how to rent out a house, and you can decide whether it’s the right use for your property.
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Renting out your house: Is it worth it?
How to rent out your house
You may be planning to rent your own house or learn how to invest in real estate through rental properties. The first step, in either case, is to decide what type of rental you’re going to offer. From there, you can set your price, learn applicable laws, prepare your lease, and list your property.
1. Decide your rental type
What kind of rental will you offer? The two primary choices are short-term rentals and long-term rentals.
A short-term rental is a property that may be a vacation rental in some cases. You may list this property on platforms such as Airbnb and VRBO to rent for short periods. People may stay in your rental while on vacation or on a business trip. Some of these stays can last for months at a time, but it’s more common for guests to stay a week or less.
Possible callout box: A short-term rental can make sense of whether you’re renting out a single room, a few rooms, or an entire home. But be aware that you may have to get permits or licenses to run an STR where you live. STRs can also come with plenty of maintenance requirements and attention for guests.
A long-term rental is a property you rent out for periods stretching from one month up to 12 months at a time. People rent long-term rentals to live there rather than vacation. A wide variety of people use long-term rentals, including students, married couples, working professionals, families, and more.
Possible callout box: A long-term rental can be a single room or an entire home, but remember that you may need permits or licenses to run a rental property. You also need to take care of tenants and perform regular maintenance.
Consider the type of tenants you want and the rental type you’re comfortable with. For example, it’s important to carefully choose your housemates when you plan to continue living in your home while renting out rooms.
2. Define your rental price
The amount of money you should charge for renting your house depends on several factors, including:
The house size and location
The value of the house
Average local rent in your area
The profit you want to make
There’s a common guideline that says you should charge a monthly rate that’s around 1% to 2% of a home’s value. So if a home is worth $300,000, you may charge 1% of that, which is $3,000 per month.
However, this guideline is far from being definitive. Rental market fluctuations and other factors can affect actual rent prices. Such guidelines can simply give you a general ballpark of what you might charge.
Make sure that the rent price you choose is higher than your everyday home costs. For example, you can make sure that the rent covers utilities and HOA fees and still gives you some profit when you rent an entire house.
Decide which costs you will cover, add them together, include them at the rent price, and then add a bit more for your profit. Compare the total value to the local rent prices to see whether your proposed rate lines up with the market.
You can also look at rental properties on the following platforms to get an idea of the market, whether you’re renting short-term or long-term:
You can also check local rental rates using the following websites and resources:
Zillow Rental Manager
Redfin Rental Estimates
3. Familiarize yourself with local landlord-tenant laws
Both landlords and tenants have responsibilities and obligations that define how their relationships work. Each state has laws that outline this relationship. For example, landlords are generally required to provide safe housing, while tenants often pay for any damages they cause.
These laws and guidelines vary depending on where you live, so reviewing your local landlord-tenant laws before renting out your home makes sense. This will also help you prepare a comprehensive lease or rental agreement.
4. Prepare a lawyer-approved lease agreement
A lease agreement is a contract between a landlord and a tenant. It states how much rent a tenant agrees to pay and for how long. The tenant gets to live in a house for a specified amount of time in exchange for this rent.
As a landlord, you want to use a lawyer-approved lease agreement created to cover all your bases. You may trust that everything will be fine with prospective tenants, but it’s good to have a clear and well-worded contract that can protect everyone involved.
Here are some details you should typically include in your lease agreement:
5. List your rental properties
At this point, it’s time to find potential tenants for your rental property. The easiest way to show your home to the world is through the internet.
For short-term rentals, sites such as Airbnb and VRBO make it easy to get started. You’ll need to create an online account and go through their separate listing processes. Keep in mind that you can list your property on multiple websites to increase its visibility.
For long-term rentals, sites such as Apartments.com and Rentler make more sense. These websites aim to connect landlords and potential renters. You can also use a platform such as Facebook Marketplace or Craigslist to advertise your rental property.
Keep in mind
Many rental platforms have fees in place so they can make money. Keep this in mind when determining your total rental costs.
6. Screen applicants
The last step to successfully rent your house is to screen applicants to improve your chances of having responsible tenants. You can screen people yourself, but it might be easier to use existing tools and resources.
For example, Apartments.com offers a personalized tenant screening process you can use to help inform your decisions on choosing renters. Potential tenants fill out a rental application and go through a background check.
The tool enables you to view their employment status, income-to-rent ratio, rental history, and more. You can also get a detailed credit report with a credit score, a criminal report, and an crime report.
This information, along with your personal experience talking with the tenant, can help you determine whether a tenant is a good fit.
5 essential tips to keep in mind when renting out a house
Consider these additional recommendations before you rent out your home:
Think about insurance. Even though a tenant may have renters insurance, a landlord insurance policy can help protect you financially from damages or injuries related to your rental property.
Consider taxes. You have to pay taxes on rental income, but you may be able to deduct certain expenses, such as interest on mortgage payments, property taxes, and maintenance costs.
Treat it like a business. Whether you personally know your tenants or not, running a rental property makes you a business owner. That means you need to cover all your bases with a proper lease agreement, regular inspections and maintenance, and clear policies in place for matters such as late rent and eviction.
Make it appeal. Your property needs to be safe, but it should also be appealing to live in. Sprucing up the place and making necessary repairs and adjustments will likely attract more tenants or guests.
Review property management options. Using a property manager or property management company can help relieve some of the stress of being a landlord. But you have to pay for it, usually around 8% to 12% of the monthly rent. Consider how this cost may affect your total profit, especially if you’re looking to put money into more investment properties using the BRRRR method.
FAQs about renting out a house
Do I need a license to rent out my house?
You may need a license to rent out your house, depending on where you live. The laws vary by municipality, so it’s best to check with your local government to see whether you need a license or permit to own, operate, or maintain a rental unit. You can find information about state and local laws by contacting your city or town hall or checking their website.
Can I rent out my primary residence?
Yes, you can typically rent out your primary residence, but you should be aware of any lender rules that may apply if you have a mortgage on the home. In some cases, you may be required to live in a house for a certain period after buying it as a primary residence. Veterans Affairs and Federal Housing Administration loans often require you to live in a home for a year.
Do I need to change my mortgage if I rent my house?
Whether you need to change your mortgage for renting out your house depends on your lender and mortgage contract. Check your contract to see whether there are any terms about renting out your house. If there are, contact your lender to get a clear idea about whether they will allow you to rent out the home or modify the contract.
Learning how to rent out a house and become a landlord can be a profitable venture, but it also comes with a certain level of risk and responsibility. There’s more that goes into it than putting up a room or home for rent and collecting a paycheck each month.
As a landlord, you will be responsible for maintaining the property, finding and screening tenants, collecting rents, and dealing with any issues that may arise. But if you protect yourself with a lease agreement and find the right tenants, being a landlord can be a rewarding experience.
There are also plenty of other money moves available if getting into the landlord business doesn’t sound like the right fit for you. For more ideas, check out our guide on how to invest money.
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This article How to Rent Out a House (and Maximize Your Income) originally appeared on FinanceBuzz.