Steps for turning your house into a rental property

Steps for turning your house into a rental property

There are many reasons for using your property as a rental. Maybe your home has been on the market for a long period, and you’ve determined that you can’t sell it at a value that allows you to break even. Maybe you inherited or were gifted a property that you don’t want to sell. Or you may be among the many property owners who want to supplement their income by becoming a landlord. Regardless of the reason, you’ll need to get your house in order first – both financially and physically. Keep reading to find out the steps for turning your house into a rental property before you start looking for tenants.

Steps for turning your house into a rental property

Make sure it’s allowed

Before you even begin to think about transitioning your home into a rental, you first need to check with two entities: Your mortgage lender and your homeowner’s association. Depending on what type of mortgage loan you have, you might need to live in the home for a certain amount of time before you can turn the property into a rental. Some loans won’t cover an investment property at all (only a primary residence). As such, double-check with your mortgage lender on what you’re legally allowed to do. In many cases, you might need to refinance your loan before you can start transitioning your property.

Switch your insurance policies

A homeowner’s insurance policy isn’t enough if your home serves as a rental property. For one, it won’t offer enough coverage. Your insurer may also have grounds to deny your claims entirely since you’re fraudulently representing yourself as the owner-occupant. To make sure you’re protected, you’ll need to find a new policy before putting the property up for lease. You’ll want not only comprehensive coverage that protects you from damage and loss on the property but also liability coverage should a renter get hurt on the property. Some rental property insurance policies can protect you even further, extending to attorney’s fees if you’re sued, property damage if the tenant is negligent, and more.

Get the required permits

Many municipalities require a permit for residential properties to operate as rentals. Permitting requirements tend to vary by municipality, so it’s a good idea to check with your local authority to see if you need them. The purpose of the permits is safety-oriented. Often, an inspector from the local government will inspect the house for various safety hazards including electrical, heating, adequate exits from the home, and other health and safety concerns. These permits aren’t expensive, but they are necessary to convert your home into a rental property.

Determine how you’ll manage the property

What’s the plan once you have a tenant or the property up for lease? Who will handle maintenance requests or cleanings between guests? How will collecting rent work? What role will you play in the property’s day-to-day operations? Sit down with your family and figure out how much time you can commit to managing the home. If you’re tight on time or won’t be near the property hiring a property manager or property management company might be your best option.

Repairs and upgrades

Take some time to study other rental properties in the area. What condition are they in? What amenities, appliances, and features do they offer? If you want to keep vacancies low and attract good tenants, you’ll need to fall in line with local trends. You should also bring in a home inspector to give the house a full once-over. If there are any defects or issues with the home’s systems, you’ll want to fix them before putting the property on the market.

Set your rent, and start marketing the property

Do the calculations, and figure out what rent you need to charge. For one, you want your rent to align with rents on other comparable properties in the area. More importantly, though, you need to be sure your rental income is enough to cover your mortgage payment and expenses, while still making some sort of a profit. Once you’ve determined the appropriate rent, write up your listing description, compile those photos, and start putting your property out there. You can also bring in a real estate agent for help here, though you’ll pay a commission to do it.

Find a tenant

Make sure you have a thorough tenant screening process. When considering a prospective tenant, always check with past landlords, run their credit, and double-check their employment, too. When you find the right renter, use that iron-clad lease you worked on with your attorney, and get them locked in. You should also ask for a security deposit, and be sure to conduct a property inspection before move-in. This will help you spot renter-caused damage later on.

The bottom line

A rental property can be a great way to make a living, especially if you already own a prime piece of real estate. If you’re thinking of turning your principal residence into a money-making rental, start planning well ahead of time, and make sure you bring in the right pros to help. An attorney, home inspector, and real estate agent can all help ensure you do it right.

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