When you move into a new home, you might think your only option is to sell your current house. If you put your house up for sale, you want to sell it at the highest value. If that's not feasible, you take the best offer that is given to you.
The good news is that you have another option aside from selling your home. You can turn your current home into a rental property.
Renting out your home is a great option you can explore. You may have tried listing your property but can't sell it at the price you want. Maybe you need to move out quickly and you don't want to fire sale your property.
There are several advantages to renting out your property:
- You can earn regular passive income. You can also use this to pay off your home's mortgage or renovate your home.
- You can hold on to your property while it increases in value. After a few years, you'll be able to sell your property at a higher price.
- You can have more tax deductions. When you rent out your property, you can deduct rental expenses, and this will lower your tax.
If you're interested in converting your current home into a rental property, you can follow these tips:
1. Decide If You Can Handle Being a Landlord
Being a landlord is hard work. You'll need to be always on call for your tenants, maintain your property and deal with all matters. You also need to be firm in enforcing the rules and collecting overdue rents.
If you think you're not able to handle all these, you can hire a property manager. It will cost you money to hire one, but you'll have more time to focus on other investments.
Renting out your property will give you additional income. It can also, however, increase your expenses. Be prepared to spend on regular maintenance, unexpected repairs and damages caused by tenants.
2. Find Out If You Can Get Another Mortgage
You'll need a new home if you decide to move out of your current home. Before you move out, find out if you're qualified to get another mortgage.
Your lender might take into account the income you'll get from renting out your property. Although, it's also possible that your lender will not consider it. Either way, talk with your lender to find out if you can get a second mortgage.
3. Change Your Insurance Policy
Your homeowner's insurance will no longer be enough to cover your rental property. You'll need a landlord's insurance to make sure your rental property is protected.
Rental properties are more prone to wear and tear. For this reason, a landlord's insurance is more expensive than a homeowner's insurance.
Landlord insurance usually covers the following:
- Structural damages to your property
- Maintenance equipment that you own
- Outdoor features, such as sheds and pools
- Minor accidents and injuries that occur on your property
- Legal fees when there are disputes
- Loss of rent, if damage to your property makes it unlivable
- Damage caused by hail, fire and lightning
4. Have Your Property Thoroughly Inspected
Have your property thoroughly inspected before you start renting it out. Hiring a home inspector will help you find issues that need to be fixed.
Problems related to plumbing, termites, flooring or structure of the house should be addressed quickly. Fixing these problems will cost you money upfront, but it will save you from costly repairs later on. Make it a priority to keep your property safe and habitable for your tenant.
5. Ready Your Property
After fixing issues in your property, you can make it more attractive by curbing its appeal. You can do this by repainting the walls or landscaping your outdoor garden. Additionally, you can spend to remodel and upgrade your kitchen and bathroom.
If your property is furnished, make sure the furniture is in good condition and all appliances are working. You can also consider having your property professionally cleaned.
6. Learn About Tax Changes
Keep in mind that your rental income is taxable, which will change your tax rate. The good news is that you can get tax deductions for rental property expenses.
Here are some examples of rental expenses:
- Expenses for utilities, if you shoulder it
- Fees of homeowner's association
- Landlord insurance fees
- Cost of repairs made to the house
- Payment for property taxes
- Payment of mortgage interest
It's best to consult with a tax professional to learn more about the tax for rental properties.
7. Set the Rental Rate
Now that you've done everything to ready your property, you can start setting your rental rate. This may not be easy for first-time landlords.
It's always best to consult your real estate agent. A good agent will help you compute the most reasonable rental rates for your property.
To determine the rate, you can do market research. Search online to know how much rent is for similar properties in your area. Consider expenses that will be deducted to your rental income, such as mortgage payments.
8. Set the Rules
If you plan to be a flexible landlord, you might have a hard time managing tenants. Some tenants might take advantage of not paying rent on time or doing major changes without your permission. This is why you must set the rules in the agreement lease before your tenant moves in.
Set a limit to how many people can occupy your home, and decide if you will allow pets. Be clear on who will shoulder the costs for yard maintenance, garbage collection and pest control.
In the lease agreement, make sure to note that your tenant should keep the property tidy. The important thing is to make sure the rules are all clear and reasonable.
Converting your home into a rental property is a good option if you don't want to sell your old home. It isn't easy to own and manage a rental property, but you'll increase your income by doing so. By following the tips in this article, the process of converting your home into a rental property will go much smoother.
Contact InterWest for all of your property management needs.