Many people are attracted to the idea of making money from real estate investing, but not many can afford to buy a rental property. What if we told you that you don’t need to buy an investment property to start a real estate investing career? You can become a real estate investor and start making money from real estate through renting out your own home! Many property investors are renting out their houses while they, in turn, rent a small apartment. Others are even renting out a room from their home as an Airbnb rental! However, just because this is done, it does not mean that just about anyone is capable of doing so. Therefore, here are 7 important things to know before renting out a house as an investment property and becoming a landlord.
Things to Know Before Renting Out a House: Demand for Rentals
The first and most important factor among the things to know before renting out a house is the demand for real estate investing in your location. This is crucial to know because as a real estate investor, your goal of renting out your investment property is to make money, and your main source of income would be the rent collected from tenants renting your income property. If demand is low for real estate investing in your location, then you’re going to have a hard time finding tenants for your income property in the first place. In addition, even if you do find a tenant, the rental income and the rate of return on investment in locations with low demand are not as high as property investors would want them to be.
Things to Know Before Renting Out a House: Is Your House Rentable?
Just because you decide to put your home on the real estate market as a rental property, it doesn’t mean that someone will rent it right away. Therefore, number two among the things to know before renting out a house and becoming a landlord is whether or not your home is actually rentable. This basically means whether your home is appealing as a rental property. To determine the answer, conduct a real estate market analysis to have a look at rental properties in your area and find out what features make an income property attractive and appealing to tenants. To succeed as a real estate investor, you’ll have to conduct a few repairs to your home in order for it to pass as a rental property which you can rent out and make money out of.
Related: How To Perform A Real Estate Market Analysis
Things to Know Before Renting Out a House: The Law
One of the most important things to know before renting out a house as an investment property is whether the law in your real estate market allows homeowners to rent out their homes. As a real estate investor, you want to ensure that you conduct your investment in a legal manner. Among the things to know before renting out a house in this regard are the tenancy agreement to inspections, rent collection, terminations, and a basic understanding of the Residential Tenancy Act. This will ensure property investors that they’re acting in a legally compliant manner.
Moreover, it’s smart to consult a certified public accountant and look up all the relevant tax codes related to real estate investment properties. Other things to know before renting out a house are federal, state, and local housing laws in your real estate market, and what your rights and obligations as a real estate investor are.
To learn more about all aspects of real estate investing, continue reading our blog.
Things to Know Before Renting Out a House: The Costs
Just because you’re renting out your home, don’t assume that you’ll be earning a whole lot of spare money to save. One of the things to know before renting out a house as an investment property is that turning a house into an income property comes with costs that you, as a real estate investor, have to keep in mind.
Property management, advertising, maintenance, capital gains tax, and insurance are among the things to know before renting out a house as an investment property and becoming a landlord. As mentioned before, conducting a real estate market analysis will help in this regard. This will allow property investors to estimate the costs of real estate investing in their local real estate market.
Related: 11 Costs First Time Property Investors Should Consider
Moreover, among the things to know before renting out a house is how much to charge for rent. Knowing the rental rate in your local real estate market will help you set your rent. Mashvisor’s rental property calculator will be of great help in this regard. Mashvisor provides real estate property investors with accurate data analysis of real estate investing costs in addition to the rental rates in any state, city, and neighborhood across the US real estate market!
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Try to calculate all associated costs and set your rent to determine how turning your home into a rental property will affect your budget and lifestyle and whether this move is worth the effort.
Things to Know Before Renting Out a House: Property Management
The next on the list of things to know before renting out a house as an investment property is that one key to a successful real estate investing career is property management. Managing a real estate investment property requires time, effort, organization, and attention to details. So, before turning your house into an income property and becoming a landlord, ask yourself this: Am I ready and capable of managing a rental property? While some property investors are tempted to manage their own investment properties, it’s best to hire a professional property management.
A professional property management company will take care of all aspects related to your rental property for a fee. Services provided by a professional property management company include finding a tenant, advertising the investment property, collecting monthly rent, handling repairs, and maintaining the income property, in addition to taking care of evictions. Not only that, but a good property management company will keep you updated regarding all the other previously mentioned things to know before renting out a house as an investment property such as the laws and costs of real estate investing.
Things to Know Before Renting Out a House: Finding Tenants
As mentioned, the main source of income when you turn your home into an investment property is the rental income collected from tenants. Thus, without tenants, property investors will lose their rental income. This is why one of the things to know before renting out a house as an income property is how are you going to find tenants. Generally, renting to family and friends is not advisable. Some of the best ways to advertise your income property include local newspapers and online websites like Facebook.
Other things to know before renting out a house is learning how to select a good tenant. Never rent out your home to just anyone who fills out an application form. As a real estate investor, you need to thoroughly review the application, do background checks (like credit reports and criminal history), and contact references (like employers and previous landlords). No real estate investor wants to end up with a tenant who causes damage to their income property and does not pay rent. The tenant screening process is among the most important things to know before renting out a house and becoming a landlord.
Related: Tenant Screening Process: Red Flags Landlords Should Not Ignore
Things to Know Before Renting Out a House: Writing a Lease
The last on the list of things to know before renting out a house as an investment property is knowing how to write a lease agreement. Always avoid handshake deals! A written lease will ensure that both you, as a landlord, and your tenant understand your rights and obligations.
A good lease complies with fair housing as well as rental, tenant, and insurance laws in your local real estate market. As these laws differ across the US, it’s best for you to work with a local real estate lawyer. Lease templates from the Internet may not comply with the laws of specific areas. In general, among the things to know before renting out a house in this regard is that a lease will typically include the following:
- Lease term (month-to-month lease or on annual lease)
- Security deposit
- Rental due date and late penalties
- Repairs and who’s responsible for what
- Maintenance responsibilities (like lawn care)
- Rules of behavior (including noise levels, neighborly conduct, and smoking)
- Pet policies
- Association rules which the tenant must follow
- Eviction terms (such as damaging the property or not paying the rent)
These are the most important things to know before renting out a house as an investment property and becoming a landlord. Make sure you take them seriously in order to successfully turn your home into a rental property and start making money from real estate investing!
To learn more about all aspects of real estate investing, continue reading our blog.