Renting can be a great way to make money, but by picking the wrong tenants you run the risk of falling victim to missed payments and expensive additional costs. By educating yourself on how you can turn a long-term investment like your home into an asset that makes you cash, you might be able to set yourself up for success in the rental market.
Know How Much Renting Will Cost
While renting out your home might not cover your entire monthly mortgage, it’s a great way to cut down on the personal costs of owning a home. However, with renting comes plenty of other fees and costs like repairs and any regular maintenance that the property might need during this period.
Make sure you’ve got enough money set aside that you’ll be able to fix problems as they arise. Without planning ahead, you’ll run the risk of potentially spending beyond your budget, especially if a certain renter really messes things up. It’s also important to be aware of potential legal fees that may arise when you have to enforce a lease. That’s a worst case scenario, but it’s a possibility.
Hire A Great Property Manager
One way to help cut down your involvement and also decrease risk is to hire an experienced manager to keep watch over your property. Not only can they help you find the right tenants, they’ll also be able to carefully monitor what’s going on at your house, alerting you of warning signs and fixing certain types of problems before you have to personally get involved. Keep in mind that hiring a property manager can take a decent cut from your rent check, but it can be a great preventative step to protecting your investment.
Expect to pay a manager around 10% of the monthly rent, plus up to 50% of the first month as a sort of headhunter’s fee for finding new tenants. In return, expect a much more stress-free, hands off experience…something that’s typically well worth it.
Determine What You’re Charging
One way to determine how much rent to charge is by looking at what rent is like in the local market. On paper, your home might be worth a ton, but if the local renting market is cold, you’ll probably be accepting less than you want. Consider what amenities you’ll be providing to the tenant. Who will be paying for things like water and electric? Covering these can be a huge incentive to potential tenants, but can also put you in a more financially vulnerable situation.
You’ll also need to pick an amount for the security deposit. This needs to be enough to protect yourself but not enough to scare potential tenants off. Rules and restrictions on deposits vary by state and by market, meaning you’ll have to check local regulations in your specific area before setting a final number.
Properly Prepare For Legal Battles
Instead of just coming up with a makeshift leasing agreement or printing off the first one you can find online, tailor a rental agreement to your own specific needs. This is your first line of defense when it comes to preventing and preparing for potential problems in the future. Never simply shake on a deal and never add amendments to an agreement without getting them in writing and signed by all parties involved. Things that aren’t written down are nearly impossible to enforce.
While you’re drafting your lease agreement, make sure you include strict guidelines for things like who pays for certain types of repairs, what rules might pertain to the payment procedure, pet and behavior policies (like smoking), and landlord permissions (when you can visit). Consult local professionals in the legal, financial, and real estate fields to help you navigate this tricky legal scenario.
Insure, Insure, Insure
You can try super hard to pick the right tenant and you might even find the perfect person, but unfortunately accidents will always happen. By purchasing special rental property insurance, you can protect your home from additional scenarios that aren’t covered with standard homeowners insurance. For example, rental property insurance also includes protection against lost rent. Let’s say something happens that prevents you from renting for a period of time, be it natural or through human action. Rental property insurance will typically cover the cash you’ll be missing out on during this time.
Prepare Your Home For Rental
When people are looking to rent a home, they’ll want a home in good condition. This means that problems like leaky faucets, drafty windows, and chipped paint will definitely need to be fixed. Make sure that everything in the home is up to code to prevent potential lawsuits and lengthy repairs in the future. Unless you’re renting out a vacant space as a furnished apartment, you’ll also want to make sure it’s empty prior to listing it. This will make the moving process easier, give the home a cleaner look, and eliminate incentives for burglaries and other crimes.
Advertise Efficiently
When you’re in the rental market, you’ll want to do everything you can to keep overhead costs low, thus maximizing your return on investment…even when it comes to advertising. However, keep in mind that the more people you get through your house, the more likely you’ll be to find the right tenant. While running newspaper ads can be effective, you’ll need to utilize other strategies as well. Sites like Craigslist tend to attract a huge market of people looking to rent and they’re also often free. With sites like Craigslist, do not list the phone number or exact address, but rather wait until contacted via email.
Take The Time To Know Your Tenants
Considering that your home is a long term investment, you’ll need to find tenants that are interested in helping you achieve this goal by taking care of your property. Look for people that plan on being around for a long time, obviously with a predictable income and lifestyle, as these tenants tend to be the most reliable people to rent to.
The best way to learn a little about a potential tenant is through a pre-screening process. During this time, you’ll get information that helps you look into their monthly income (aim for at least 3x the monthly rent), their credit history, their job outlook, and their renting history. When it comes to tenants, it’s also important to note that many experts will advise you to avoid renting to friends and family. This makes it much harder to enforce terms of a lease when problems arise and may open you up to more potential risk.
